Herman Cain’s Hidden Nine with Peter Schiff

[youtube=http://www.youtube.com/watch?v=ecACtAxVaac]Herman Cain’s Hidden Nine with Peter Schiff 1/2

Uploaded by on Oct 22, 2011

Alex speaks with Peter Schiff, investor, economic advisor and former candidate, on his partial support for Herman Cain’s 9-9-9 tax plan. Schiff will explain his point of view on how to fix the economy and reduce the oppressive tax burden on American businesses.
http://schiffradio.com/

Peter Schiff
Tuesday, October 18, 2011
Herman Cain has been gaining much traction with his 9-9-9 Plan, a bold proposal to replace our dysfunctional tax code with what could be a simpler, less invasive, and more economically stimulative alternative. While I don’t agree with the full spectrum of Mr. Cain’s policy choices, I applaud his courage on the tax front. Judging by his rising poll numbers, this appreciation is widely shared. However, the plan has deep flaws, the most glaring of which is its creation of a hidden payroll tax which represents a fourth “nine.” This serious pitfall has been unmentioned by Mr. Cain and overlooked by those who have analyzed his plan.

Cain would replace the current system of income and payroll taxes with a 9% flat-rate personal income tax, a 9% corporate tax, and a 9% national sales tax. Great idea. Such a system would unburden businesses, provide a tax cut for most Americans, and shift taxation to consumption and away from income generation. This is exactly what our economy needs. But unlike our current corporate tax system, the plan eliminates the deductibility of wages and salaries from corporate income. The net effect is the creation of a brand new 9% tax on wages. When this fourth 9 falls from Cain’s sleeve, many of his opponents will likely accuse him of cheating.

Much of the plan’s virtue lies in its elimination of Social Security and Medicare taxes (payroll taxes) that fall heaviest on lower income workers. This includes the 6.2% Social Security tax and the 1.5% Medicare tax paid directly by the worker. But it also includes the 6.2% and 1.5% portions paid indirectly by workers through their employers. Payroll taxes are, in reality, a cost of employment. From the employer’s perspective these costs are part of the wage package. Absent these taxes, employers could raise wages by an equivalent amount without raising labor costs. Inclusive of this portion, payroll taxes currently cost workers 15.4% of their wages.

The Cain plan scraps this tax. But the elimination of wage deductibility from corporate taxes replaces it with a 9% payroll tax. Therefore a more accurate name for Cain’s proposal could be the 9-9-9-9 plan. The forth nine changes everything.

Cain admits that the 9% sales tax would fall heaviest on the poor, but he claims that the elimination of the payroll tax would more than compensate. But when the hidden 9% payroll tax is factored in, more than 50% of workers who currently pay an average income tax rate of just 3% would see a sizable tax hike, from 18.4% (former payroll tax plus income tax) to 27%: 9% payroll tax, 9% income tax and 9% consumption tax (poorer workers generally spend all income).

[youtube=http://www.youtube.com/watch?v=clWIh-d5Pkw]

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