Herman Cain and his Nein-Nein-Nein Plan

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Up until this point, the Republican primaries have been a sideshow. It’s almost certain that Mitt Romney will take the nomination, but that doesn’t mean the establishment, or more so the media, has not had a field day spewing out the misinformation and stupidity from the other 7 other candidates.

What kinds of things could people expect if any of these other candidates takes office? Well, you can expect Rick Perry to threaten political opponents with bodily harm, or Michelle Bachmann to make outrageous claims like hpv vaccines give children mental retardation. Of course you could always elect Herman Cain, who though he has absolutely no political experience, should have no trouble jumping in to the highest office in the free world – I mean hey, didn’t he run a successful pizza business?

I’d like to focus on Herman Cain for a minute, since he does seem to be the media darling of the primaries at the moment. Besides the fact that he is shown to be leading in a number of useless polls, his 9-9-9 plan is really gaining momentum. It seems like a fairly simple plan, and based on Cain’t description on his webpage, which runs only 451 words, it must certainly be.

The plan’s catchy name sums it up well – Cain is proposing

  • 9% Business Flat Tax
  • 9% Individual Flat Tax
  • 9% National Sales Tax

The plan plays well to Americans, who have long loved the idea of a flatter, fairer and more competitive tax system, though sometimes they love it more in theory than in practice. We all especially love the idea of 1.) a simple tax return and 2.) everyone paying the same percentage of our income, since that is inevitably the only way for everyone to pay their fair share.

But now that many top tax wonks around the country are actually analyzing the plan (what candidate could ever have imagined someone would test their ideas?!) they are finding the plan amounts to one large tax break for the wealthy, and a much heavier tax burden for the rest of us.

Here are some of the larger problems with 9-9-9

The Working Class Gets Screwed, Again
The biggest problem with the plan is that yet again, the working classes (which I define here as people who derive the majority of their income from wages) will see their tax bill go up.

First, if you are poor enough, you most likely don’t pay any federal income or payroll taxes at all. So right away, your federal tax bill increases a whopping 18% (9% on your income, 9% national sales tax on all items). And while in theory it would be nice if everyone paid their fair share, keep in mind that if you are barely scraping by now, adding 18% to your current expenditures can quickly drive you into debt/homelessness/crime.

Second, Cain only makes passing mention of this on his website, but the plan eliminates the capital gains tax and the double taxation of dividends. Since many of the super-wealthy derive the majority of their income from these sources, and not labor, they will see their tax bills decrease substantially. Take for example Steve Jobs, who was worth billions, but paid himself a “salary” of $1. He wouldn’t pay any taxes on his 1.84 billion dollar fortune, but at least the government would see $0.09 in income taxes every year he hits the efile button on his cellphone. That’s an extreme example, but the basic idea is very real.

Thanks Dad!
Another proponent of Cain’s plan is an elimination of the death tax. The tax currently stands at 35% of estate assets over $5 million, thanks to great-friend-to-the-rich George Bush, which gradually phased out the plan during his presidency (as of 2002, the tax was 50% of assets over $1 million).

The arguments against the tax are the regular super-rich propaganda. Socialism, removing the incentive to work hard, etc…But the tax is necessary, because it prevents the pooling of wealth into the hands of a few. It’s not socialism, it’s necessary to keep the US from turning into a world of unimaginable inequality, where the top few families hold the majority of the wealth.

How Much is the Used One?
The last major gripe I’ll focus on is the national sales tax, which Cain claims will exclude used goods, and therefore will help those of us with lower incomes…WHAT?!?!

This may hold true for a small subset of items, such as cars and homes (though I can only imagine used items will go up in price, as buyers flock to them to avoid the 9% sales tax), but what about food? Poor or not, I don’t know many people who buy used food. And medicine? I would hate to buy used medicine. And clothes? Yes, you can buy used clothes if you don’t mind wearing someone’s old breast cancer walk t-shirt, but if you have a job that requires you to look professional, good luck at The Salvation Army.

There’s More to It
This is by no means a full review of Cain’s plan. That can be found here, among other places. But I think it hits on a few key points, and should open up anyone’s eyes to the fact that taxes are complicated and messy. Be wary of anyone who claims they can create a simple, fair tax plan to solve all our problems.

I'm a dividend growth investor who is aiming to retire early in 5 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!


  1. Doug,

    Though it breaks my heart you are removing me from your unnamed and un-linked to blog, at least I can sleep well tonight knowing you have shown nothing to me that disputes my article.

    This is just a short blurb I wrote dispelling some myths and promoting some facts that were determined through analysis by people who spend their lives studying taxes. I would hardly call this a complete “analysis” as you did, but I did link to a full analysis if you would like to check the facts yourself, which it seems you do not.

    Also, you mention my stock analysis as well, claiming they must also be this bad. Well, again, I ask you to submit some proof the my numbers or analysis are incorrect. If you just “assume” they are incorrect because of an article you do not agree with, well then I feel sorry for your portfolio.

    But thanks for the feedback – it was super constructive!

    UPDATE – here’s another article (and another) by people much smarter than I backing up my article that Herman Cain’s plan would impose a heavier tax burden on middle and lower classes while giving the upper percentiles a tax break.

  2. Seriously! Between existing state sales tax, and then nine more percent for the federal sales tax there, I’d have to pay roughly 17 percent on groceries and new clothes! That’s on par with the British VAT, and we don’t even have a national service to produce Doctor Who for television here in the states!