The biggest problem I have with the 999 plan is that capital gains are completely exempt. I understand the merits of encouraging investment by not taxing the profits, but one also must consider that labor is being taxed in its place. A tax on income amounts to a tax on trade, as one does not ‘profit’ by selling their time, they merely exchange their time for revenue. I think we too often fail to recognize this. Capital gains on the other hand are regarded as passive income. In an ideal world neither would be taxed, but I have read no compelling argument as to why labor should be discouraged through taxes while capital gains are exempt. I would rather see capital gains also taxed at a flat rate, thus reducing 999 possibly to 888 or some lesser number for all. The capital gains exemption does strike me as being a tax cut for the wealthy at the expense of the rest, as those are the ones getting the biggest benefit. In my book, income is income and it should all be subjected to that same flat tax, regardless of source.
Another concern lies in the treatment of Roth IRA’s. Many have contributed to Roth IRA’s since they were offered with the intentions of getting a tax break later on in retirement. By not taxing any capital gains anyways, a Roth IRA is redundant and those that have them will never see a comparative benefit. In other words, if Cain’s plan is enacted and you have a Roth, you paid taxes on that income for naught. Taxing capital gains as income would resolve this issue.
I would like to see more information on what Cain considers a new good or service. Is mortgage interest a new good or service? What about rent? Property Insurance? I would not consider any of them to be, except perhaps maybe a small part of an insurance premium, as part of the premium is for paying for the service, but none of the others. Some have claimed that literally everything new will be subject to the tax. I highly doubt this as I take it to literally mean strictly new goods and services, but Cain has not yet made a definitive statement on this. Other expenses that I wonder about are utilities (is electricity or natural gas new?).
There are other things that I am bothered about that have nothing to do about the plan itself, but about reception to the plan. Take the sales tax for instance which has already been commented about. The other candidates have been hammering him about this and I’m not sure which ones are actually this stupid and which ones are playing ignorant to turn voter’s against Cain. The fact that the sales tax is in addition to state and local taxes is completely irrelevant. The national sales tax is replacing part of your income tax and part of your payroll tax and should not even be compared against current local sales tax rates. To make a comparison of the 999 plan to the current plan you only need to figure how much national sales tax you will pay, add 9% income tax, and see how it compares to the income taxes you were paying. If you have a problem when state and local income taxes (I do! It’s over 10% in a few parts of Kansas now, around 9% most everywhere), then you need to take this up with local representatives, as it has nothing to do with the national government.
To answer Sloth’s question (which I think he already knows) this is the exact reason why he does not mention the fair tax more. Too much of the electorate can not get passed the fact that they will pay more in taxes at the cash register, even though their net taxes over the course of the year are likely to be less.
The second thing is the complaint about adding another source of revenue for the government, and chastising Cain for it. Adding a revenue stream is not an issue at all so long as it is revenue neutral. It will simply require strict legislature that does not make it easy to raise any of the rates. This argument is misdirected at Cain. It is a very general argument against all of those that can’t manage to balance a budget.
I also don’t like how his corporate tax is being compared to a Value Added Tax or an additional payroll tax. The corporate tax is very simple: Gross income less all purchases from other U.S. located
businesses, all capital investment, and net exports. http://www.hermancain.com/docs/999-for-web-10-12.pdf
I’m not a fan of the empowerment zones. If certain areas need a tax break to improve, that is a state issue. It’s not the federal governments responsibility to give certain locales benefits because they cannot keep up with the rest of the country.
That’s all I’ve got for now, hopefully this doesn’t come out to long. I generally like the plan, but I would like to see capital gains included before I really support it.