Tags: Cain | Economic | Plan | Potential

Cain’s Economic Plan Has Great Potential

By    |   Friday, 21 October 2011 08:04 AM

Herman Cain has been an extremely effective business leader for more than four decades.

During this time, he has mastered the technique of problem solving. This aptitude is a function of many well-honed skills developed over a very long period of time.

The angular attribute driving his business prowess: social and emotional intelligence.

These traits permit him to keenly identify underlying issues and develop insightful solutions that serve the greater good. Moreover, he has demonstrated a propensity toward trustworthy, credible behavior steeped in fairness and sensitive compassion for others.

His 9-9-9 economic plan is another manifestation of the principles he has repeatedly espoused.

From a business perspective, his plan incorporates a transparent, diversified hedge to collect federal government tax revenues. In doing so, he has proposed generating funds from three parallel tax bases: individual income, business net profits (net of dividends), and individual consumption: 9% from each.

Inclusive in these taxes are those for Social Security and Medicare. In addition, the tax rate on capital gains and estate inheritances are zero, and business entities can deduct shareholder dividends from taxable profits.

His proposal is revenue neutral. That is, the revenues it would generate are equal to the current level.

The notion of revenue neutrality is static: it assumes no future behavioral changes.

The key driving elements in Herman Cain’s proposal are the behavioral changes that will manifest in response to the plan’s incentives.

His plan promotes productive, entrepreneurial economic activity by lowering the cost of capital and labor. It achieves this by reducing the tax rate on employment, profits, savings, and investment.

Refer to the graphic below for detail describing the tax rate reductions for business entities under Cain’s 9-9-9 plan:

Item Current Cain 9-9-9 Reduction Percent Reduction
Social Security (FICA)  4.20%  0.00%  4.20%  100.00%
Medicare  1.45%  0.00%  1.45%  100.00%
Business Profits  35.00%  9.00%  26.00%  74.00%
Dividends  35.00%  0.00%  35.00%  100.00%
Net Capital Gains  15.00%   0.00%  15.00%  100.00%

These conditions permit a lower cost to employment, thereby creating more favorable hiring conditions. It also enables more capital to be saved and ultimately invested in productive entrepreneurial activities.

Greater levels of employment and capital will increase the aggregate supply of goods and services at competitive market values.

Aggregate demand for these items will increase as well due to an increase in the real disposable purchasing power.

Real disposable purchasing power increases, because the lower tax rate on personal income (9% instead of 15.65% to 35%, which includes payroll taxes) more than offsets the 9% tax on the consumption expenditure. In addition, families with income below the federal poverty line would receive an income deduction equal to the federal level of poverty. This would further increase disposable income. This exemption will enable essential purchases, such as food, housing, and medicine.

As such, the same quantity of money permit more transactions over a given period of time (increased monetary velocity), thereby generating more income and federal tax revenue. Moreover, a consistent money supply affords a more stable inflationary environment. When the money supply is increased without an increase in the quantity of goods and services, the additional funds stimulate greater demand for these items, thereby increasing the price level (i.e., an inflationary environment).

The consumption expenditure tax promotes prudent value based purchase decision in lieu of less productive income shielding events.

Moreover, this form of taxation expands the tax base to include unreported and underreported income by citizens and illegal aliens.

Given this structure, income tax filing will be simplified significantly. Annual compliance with the tax code is $430 billion according to The Laffer Center (the Internal Revenue Service recently acknowledged that this figure probably exceeds $300 billion). The simplicity increases transparency and compliance. The reduced compliance expenditures will enable these funds to be expended more productively. (Note: Accountants have transferrable skills that can be utilized in more creative, productive, and entrepreneurial venues.)

The tax structure proposed by Herman Cain has a great deal of positive potential. He seems well equipped to articulate his vision and the added benefits for our country.

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Herman Cain has been an extremely effective business leader for more than four decades. During this time, he has mastered the technique of problem solving.This aptitude is a function of many well-honed skills developed over a very long period of time. The angular...
Friday, 21 October 2011 08:04 AM
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