As a small business owner, I just need to take a moment to talk about how horrible Herman Cain's "999" tax plan is.
"999" is catchy phrase that sounds simple. And since my business spends about $45,000 each year just complying with tax law (in order to literally stay out of jail), "simple" would be an improvement.
The problem is, "999" doesn't make my taxes simpler. It actually will cost me a lot more to calculate my taxes, appease the I.R.S., and stay out of jail. The third "9" in "999" is an entirely new national sales tax. Herman Cain wants 9% on top of everything I sell. And it's not a value-added tax, it's a straight sales tax. So, if I buy computer parts for $900 and then sell them computer for $1000, I owe the Cain Administration $90. That's 90% of my margin, before I even pay for other taxes or expenses.
The Christian Science Monitor reports that Cain's plan eliminates the ability to treat labor as a business expense. So let's imagine that my small company earns $500,000 making software, and spends $50,000 on capital (like computers) and $400,000 paying five employees. Under "999", I pay an all-new 9% sales tax on my $500,000 of sales. Then, because I can't deduct the $400,000 of labor cost, I pay a 9% corporate tax on that. As a small business owner, I have to declare corporate "profits" as personal income, so I pay another 9% on the $450,000 that I didn't spend on capital equipment. Finally, my employees have to pay a 9% income tax on the $400,000 that I pay them. And when they spend that $400,000, they pay another 9% for the new national sales tax. So, Cain's "999" plan has added $189,000 in brand new taxes for a company that only sells $500,000 worth of stuff. And all those taxes are in addition to all my other taxes like property taxes, local business taxes, excise taxes and state sales taxes. Herman Cain has single-handedly turned a profitable small business with five employees into a money-losing business; one that will shut its doors and fire everyone within the first year of his presidency.
"999" is a great plan if you want to shut down every small business and force those employees to go work for large corporations or the government. It's the end of small business, and the end of innovation. It's the fastest way I can think of to turn American into a Third World Nation.
Furthermore, "999" is a lie. Rich Lowrie, Cain's Senior Economic Advisor, says that the "this is an attempt to shift the tax burden away from production and towards consumption, to balance the load. This taxes everything once but nothing twice.” As you can see above, if I earn $1,000 in revenue by selling a computer, that $1,000 is taxed multiple times before it ends up in the hands of my employees. And thanks to an all-new national sales tax, that money is taxed again when they spend it.
And the idea that this shifts taxes "away from production and towards consumption" is bullshit. Labor (paying someone to "produce" something) is now taxed three times. But buying capital equipment (consumption) is only taxed once.
As for the national sales tax, once you add another tax, it never goes away. The average American currently loses 44% of their paycheck to taxes. Just using back of the envelope math, it would appear that Mr. Cain's '999' plan would reduce this tax burden to about 27% (9% + 9% + 9%). But he isn't actually reducing taxes. That 44% figure includes property taxes, state income taxes, gasoline taxes, excise taxes, state sales taxes, etc. When all is said and done, it's likely that an average American, earning about $40K per year, will end up losing more than 50% of that to taxes under Cain's plan.
So, he wants to increase taxes on the middle class, and further decrease taxes on the wealthy. In other words, he wants to continue down the path we've been following for the last 30 years of taxing the middle class and transferring it to the top 1%. And in the process, it doesn't simplify the system. In fact, for small business owners like myself, he makes it significantly more complicated, and more costly, to comply with -- something that will undoubtedly lead to more layoffs and more unemployment.
