Friday, September 23, 2011

Herman Cain's "999 Plan": Worse Than Godfather's Pizza

Some weeks ago, Presidential hopeful (and former Godfathers' Pizza CEO) Herman Cain announced his "9-9-9 Plan" (PDF). No, it isn't a pizza special. It's a 9% flat personal income tax, a 9% flat corporate income tax, and a 9% national sales tax ("FairTax"), replacing the current federal tax system. Cain has been touting this plan at each Presidential debate since the announcement, and it has found some support among tax reformers.

I believe Cain's "999 Plan" is nothing less than an attempt to achieve an aspect of FairTax I have been warning about: Authorizing the federal government to tax both incomes and sales.

Let's understand something first: Herman Cain is an ardent FairTax advocate. He has said, on many occasions, that he favors implementing the full FairTax act. He has argued passionately in favor of FairTax.

However, in his 999 brief (PDF above), he also states he is in favor of a 25% income tax and the elimination of capital gains tax. Quote:
• As I have outlined, the following represent the minimum for feeding the economic engine and are the "low hanging fruit" offering the most "bang for the buck"
• Reduce individual and business income taxes to a maximum 25%
• Eliminate taxes on repatriated foreign profits and capital gains
• The capital gains tax is a wall separating those with ideas from those with money
So far, his committment to both an income tax and a sales tax could be debated. Until you add this:
• Current circumstances call for bolder action
• The Phase 1 Enhanced Plan incorporates the features of Phase One and gets us a step closer to Phase two
• I call on the Super Committee to pass the Phase 1 Enhanced Plan along with their spending cut package
• The Phase 1 Enhanced Plan unites Flat Tax supporters with Fair tax supporters

• Achieves the broadest possible tax base along with the lowest possible rate of 9%
• It ends the Payroll Tax completely – a permanent holiday!
• Ends the Death Tax
• Business Flat Tax – 9%
• Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders
• Empowerment Zones will offer additional deductions for payroll employed in the zone
• Individual Flat Tax – 9%
• Gross income less charitable deductions
• Empowerment Zones will offer additional deductions for those living and/or working in the zone
• National Sales Tax – 9%
• This gets the Fair Tax off the sidelines and into the game.
FairTax has been recieving sharp criticism from many Flat Income Tax advocates (I personally am but one voice in a choir). Herman Cain is betting- and may be correct- that much of the opposition to FairTax is the notion of a sales tax rate of 30% (pardon, 23% "inclusive"), rather than opposition to the many conceptual problems (some of which I have covered here and here). So, Cain has decided to resort to the sort of trickery used to pass the income tax amendment a century ago- promising an inoffensively low rate as part of a familiar "hybrid" system ("familiar", since most US states already have both a state income tax and a state sales tax), using the flat income tax portion of his plan to bring his sharpest critics- flat tax advocates- into his camp.

Stated differently, Cain is proposing to implement FairTax at a "teaser rate"- without repealing the 16th amendment- and acclimating the American public to paying both forms of federal tax. As happened with the federal income tax, the rate will climb: A century ago, the federal government claimed income tax would never exceed 7%.

Adding to this dubiousness is Cain's own explanation of how he arrived at his 9% formula:

By his own words, "all the revenue coming into the federal government" can be replicated with a 9% personal income tax, a 9% corporate income tax, and a 9% national sales tax, and elimination of payroll taxes (like FICA).

For clarity, here is the pie chart of federal revenues for fiscal year 2010, from Wikipedia:

You should notice right away, 40% of the federal government's total revenues come from the 15.3% payroll tax (the green wedge), which Cain proposes to eliminate (and replace with a 9% sales tax). You should also notice that individual income taxes are the largest wedge- which Cain believes can be replicated with a 9% flat tax. Though I'm a firm believer in the Laffer curve principle, I have no doubt that Cain's 999 Plan can't possibly replicate these revenues.

I do agree with Cain on one important point: Notice the red wedge. This is corporate income tax. Our corporate rate is the second-highest in the world (35%), yet it only accounts for 9% of total federal revenues. This tax cripples our economy- and this chart should remove all doubt that drastically cutting (or eliminating) it would be an absolutely positive step (again, the Laffer curve at work).

So, to review: Cain is proposing to institute a FairTax "teaser"- to introduce federal sales tax along with income tax. He must know that his "teaser" rate cannot possibly sustain current revenues, and will have to be raised. We know from American history that an introductory tax rate will be raised. And Cain has just shown us that he is willing to decieve his audience with impossible math.

And this plan, if instituted, sets the stage for Americans to eventually pay both massive income taxes (as we do already), and a massive federal sales tax.

Does this sound "Fair" to you?

Wednesday, September 21, 2011

Guess This Constitution

Below is the Bill of Rights from another nation's constitution. I am omitting the "spoilers", the parts which would identify the country in question. Can you name the country in question? No skipping ahead, please!

Chapter V. Basic Rights and Responsibilities of Citizens

Article 62. The requirements for becoming a citizen of [this country] shall be prescribed by law pertaining to nationality. Citizens shall be under the protection of [this country], regardless of their place of residence.

Article 64. The state shall substantially guarantee all citizens genuine democratic rights and freedom, and happy material and cultural lives. In [this country], the rights and freedom of citizens shall be further expanded with the consolidation and development [this country's] governmental system.

Article 65. Citizens shall have equal rights in all spheres of government and social life.

Article 66. All citizens who have reached the age of 17 shall have the right to vote and the right to be elected, irrespective of sex, race, occupation, length of residence, property and intellectual level, party affiliation, political view, or religious belief. Citizens serving in the armed forces shall also have the right to vote and the right to be elected. Persons who have been disenfranchised by a court decision and persons who are insane shall not have the right to vote or the right to be elected.

Article 67. Citizens shall have freedom of speech, press, assembly, demonstration, and association. The state shall guarantee conditions for the free activities of democratic political parties and social organizations.

Article 68. Citizens shall have freedom of religion. This right shall be guaranteed by permitting the construction of religious buildings and the holding of religious ceremonies. Religion shall not be used in bringing in outside forces or in harming the state and social order.

Article 69. Citizens may make appeals and file petitions. The state shall fairly deliberate and deal with appeals and petitions as prescribed by law.

Article 70. Citizens shall have the right to labor. All citizens who are able to work shall choose occupations according to their wishes and talents, and shall be guaranteed secure jobs and working conditions. Citizens shall work according to their abilities and shall be paid in accordance with the quantity and quality of their work.

Article 71. Citizens shall have the right to rest. This right shall be guaranteed by the establishment of working hours, legal holidays, paid leave, rest and recuperation at state expense, and by a variety of continuously increasing cultural facilities.

Article 72. Citizens shall have the right to receive free medical care, and persons who are no longer able to work due to old age, illness, or physical disability, and the old and children who do not have caretakers, shall have the right to receive material assistance. This right shall be guaranteed by free medical care, continuously expanding medical facilities that include hospitals and sanitariums, and the state social insurance and the social security system.

Article 73. Citizens shall have the right to receive education. This right shall be guaranteed by an advanced educational system and the state's people-oriented educational measures.

Article 74. Citizens shall have freedom to engage in scientific, literary, and artistic activities. The state shall grant benefits to inventors and creators. Copyrights, patents to inventions, and other patent rights shall be protected by law.

Article 75. Citizens shall have freedom of residence and travel.

Article 76. (Servicepersons), and families of servicepersons of [this country]'s Army, and disabled soldiers shall receive special protection from the state and society.

Article 77. Women shall be entitled to the same social status and rights as men. The state shall provide special protection to mothers and children by guaranteeing maternity leave before and after childbirth, reducing working hours for mothers with many children, and expanding the network of maternity hospitals, nurseries, and kindergartens, and by implementing other measures. The state shall provide every possible condition for women to participate in society.

Article 78. Marriage and family shall be protected by the state. The state shall take deep interest in consolidating the family, the basic unit of social life.

Article 79. Citizens shall be guaranteed inviolability of the person and the home and privacy of correspondence. Citizens cannot be detained or arrested and their homes cannot be searched without legal grounds.

Article 80. [This country] shall protect people of other countries who defected while struggling for peace and democracy, for national independence, and for freedom of scientific and cultural activities.

Article 81. Citizens shall firmly safeguard the unity and cohesion of the people. Citizens shall value their organization and collective and highly demonstrate the trait of dedicating themselves to work for the society and the people.

Article 82. Citizens shall abide by the laws of the state and the socialist standards of life and defend their honor and dignity as citizens of [this country].

Article 83. Labor is a sacred duty and honor of citizens. Citizens shall voluntarily and sincerely participate in labor and strictly observe labor discipline and working hours.

Article 84. Citizens shall value and love the property of the state and social cooperative organizations, struggle against all forms of misappropriation and waste, and assiduously manage the country's economy in a manner befitting a master. The property of the state and social cooperative organizations shall be inviolable.

Article 85. Citizens shall always [dedicate] themselves to the security of the state.

Article 86. Defending [this country] is the supreme duty and honor of citizens. Citizens shall defend [this country] and serve in the armed forces as prescribed by law.

Soooo... which country produced this constitution?

Here's the "big reveal": It's the Constitution of North Korea.

What do we see in this "bill of rights"?

We see standard items- the "right to vote", the "right to privacy" (in correspondence), freedom from search and seizure in some form, and so on. Naturally, none of them are obeyed. Contrast the "freedom of religion" with North Korea's record of persecuting Christians.

Obviously, there is no "right to keep and bear arms"- a vital component of American freedom.

More insidious, though, and a point I make frequently: Every "right" listed is positively-defined, i.e. "the people shall have a right to (X)". Our Constitution negatively defines rights- "Congress shall make no law", "... shall not be infringed...", etc. Negatively-defined rights are limits on the power of government to interfere with the natural, God-given rights of the people. Positively-defined "rights" are not rights at all; they are merely privileges, granted by government to the people (and, as painfully demonstrated in North Korea, privileges which can be revoked by the government on a whim).

The really terrifying thing, though, is how eerily similar some of these provisions are, to provisions in US Constitutions. Notice the "right to education". You may be surprised to know this, but many US states have a similar provision in their state Constitutions (New York and North Carolina, for instance). Again, a government "grant" to the people, enshrined as a "right".

Notice the frequency of "collective" rights. Although the term "the people" is used in our Constitution, it is used to indicate "all persons", individually. Many of North Korea's "rights" are collective in nature- applying to "the people" as a group. Rights must be individual in nature- because they belong to each of us, individually, as unique beings. Contrast this with one of the "spoilers" I omitted:
Article 63. In the DPRK, the rights and responsibilities of citizens are based on the collectivist principle of "One for all, all for one."

Notice also, the great number of "rights" conferred- including some absurd provisions, such as a "right to rest". Minor, trivial "rights" which are constitutionally enshrined, serve only to dilute the value of essential liberties. Consider New York's "Bottle and Can Return Bill of Rights" (PDF).

Finally, notice the "responsibilities" of the people which are listed. In a free country, a Constitution is not a "contract" between the government and the people; it is a list of orders from the masters of government (the people), to be obeyed by the servant (the government).

Liberty must be jealously preserved, and Constitutional principles strenuously guarded. As we have seen here, rights not exercised are rights lost.