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This is the most thorough piece I’ve seen so far on Herman Cain’s 999 plan

AXEL D WHITEMAN: Former Pizza CEO, Ex Radio Host, Tea Party favorite; that’s the introduction one usually hears for current GOP Presidential front runner; Herman Cain. The palpable lack of respect Mr. Cain receives is a constant source of irritation for his supporters, but it is also likely to be the undoing of his detractors.

Not even George Bush was this “Mis-Underestimated.”

Herman Cain’s signature tax reform plan 999 has likewise been called; a pizza price, a catchy phrase, and an inversion of the sign of the beast. And that’s all in one debate. We’ve searched the internet for a serious objective analysis of 999; and quite frankly found none. Several publications have written faux analysis pieces which do NO real critical analysis, but quote from other misinformed sources and draw pre-ordained conclusions.

We make no pretense that we’ve supported Mr. Cain’s Presidency, and have done so since our February analysis of a potential field of 25 GOP hopefuls. We decided on our support for Cain based on our objective review of the strengths and weaknesses of the field, and we link to Cain’s web site as a kind of full disclosure. We do however strive to be objective in analysis, and believe that our “objectivity” is infinitely more sincere than the plethora of supposeedly objective news sources that have written brazenly idiotic analysis of 999 – before proclaiming their prejudicial conclusion that; it’s regressive, it kills service business, it can’t pass, or it’s not revenue nuetral.

In our original 999 analysis; we were skeptical of the claim of revenue nuetrality. When we ran some basic “acid test” calculations, we discovered that it was much closer to “revenue nuetral” than we expected. In our original analysis, we applied the 999 plan as follows:

In that piece we were using mostly 2008 data, and hypothesized that one would have to assume a significant rate of growth to reach revenue neutrality. In general however, we were surprised that these rather low rates could get within 400B of revenue neutrality.

To our surprise, we were contacted by the Cain economic staff, who pointed out that we’d made some critical errors in our assumptions and suggested that we “re-run” our acid test calcs changing our assumptions to more closely match the plan’s intent. The logic of the plan’s authors was to define the base in terms of known % of GDP. We found this to be a valid method, rathor than our method of accumulating reported earning and consumption data. The fundamental difference in our differing results were not however, due to the differing means of calculation, but mostly to the different definition of the “Corporate Tax Base.” More on that later, but bringing our assumptions in line we would see the comparative tax yield as follows:

The Personal Income Tax basis changes largely due to reducing the definition to “payroll wages” rather than the more broad “total personal income.” The Gross Consumer Purchases vary largely because it includes business purchases done at a retail level. For example, an accounting firm buys a computer and printer – rather than just personal consumer spending.

By far, the largest conflicting assumption is in the definition of the “Corporate Tax Base.” There has been significant speculation about how this value is defined, and we will admit that we’ve gone through the available literature, and statements from the campaign, and come to different conclusions at different times. However, with a bit of guidance from the Cain camp, I think we’re on the right track. So lets take a look at the “Business Tax.”

The Corporate Tax Base, is defined as a production tax. Corporations will pay taxes on their gross receipts, less the cost of purchases required to produce the good, or perfrom the service. It would NOT exempt the cost of labor. Many have sited this as a fatal flaw which unduly burdens service entities. That seems to be a legitimate issue, so lets compare some examples. Again using “acid test” numbers:

Example 1. The Manufacturing / Construction Company Model

Let’s assume a manufacturer or contractor wins a contract to build or produce a specific amount product for $100,000.00. The Comparitive Tax impact of the current versus the 999 plan is as follows:

The above analysis indicates that the tax burden in a manufacturing or construction firm would be significantly less than the current system. At least on a product by product basis. The current system would allow further deductions for Depreciation expense, but that would largely be offset by the fact that 999 allows capital purchases to be treated as first year expenses. The current system would also allow for general overhead deductions which would bring the two figures closer. It is however, a positive feature of the 999 plan, that it rewards efficiency by disallowing deduction for bloated overhead costs. (We do understand that if one’s salary comes out of “overhead” one wouldn’t use the term bloated!) All in all though, we would have to conclude that the encouragement for efficiency is a positive.

Example 2. The Service / Janitorial Company Model

Let’s now assume that a company is in a primarily service based industry, in which its primary cost of revenue earned is labor. Many have theorized that 999 is devestating to such firms. Let’s look:

Indeed, it would seem that the tax burden on service industries will go up. Not nearly as much as some have predicted, but we can’t see how this wouldn’t create a slight marginal tax increase for service industries.

So manufacturers get a windfall, and service industries get screwed?

No, not really….

At this point it is necessarry to discuss this tax system in terms of “Impact and Incidence.” That’s the term we used down at the School of Economics when I received my degreee in Economics. It defines the difference of where a tax is levied, and where, or who, is actually paying the tax. One must remember that the price of a good or service in a competitive environment is set by the market. In recognizing this, a manufacturing firm that suddenly found itself with a larger than expected marginal revenue on sales; would tend to lower its price to achieve greater market share and maximize total profit. Competitors would respond in kind, and the eventual cost of the manufactured good would decrease.

Similarly, in the service sector, where contracts for service are largely awarded on a competitive basis, competing service industries would recapture as much of the marginal tax cost as possible and the cost of the service would tend to increase proportionately.

Bottom line, net income to businesses that are currently competing in a fair market scenario, will largely remain unchanged in the long term.

However, those businesses that are tailored around current favorable tax policies by manufacturing Government subsidized products such as wind mills, solar panels, electric cars, and ethanol, would see their taxes rather dramatically increased in the short term. For example, GE would pay around $2 Billion in taxes, rather than $0.00 as it does under our current “progressive” tax system. Perhaps more importantly, GE would be forced to re-channel its investment into productive endeavors that are market supported. These are the endeavors that drive productivity, create wealth, and increase employment – even if they don’t lower the seas or plug the ozone hole.

In conclusion, while much additional detail and accounting practices will have to be hashed out to finalize this “Corporate Tax” we can’t see any significant downside to competitve businesses, and a large potential upside to re-focusing the productive sector of our economy.

Lastly, many have objected to the “Sales Tax” provision; stating that the additional 9% on top of existing sales tax would become a drag on consumption, and would be regressive. To address those particular points, the cost of manufactured goods would tend to decrease, making the “final cost” to consumers less than a pure additive 9%.; and the elimination of the current payroll tax of over 15% combined with the exemption of “used goods” from the 9% tax would seem to more than compensate for the additional sales tax.

More importantly, it seems that the goal of 999 is to define the broadest equitable tax base, and apply the lowest possible rate to fund the Government. This is ultimately what the goal of Public Finance should be. Some have argued that the introduction of a Sales Tax without the elimination of Income Tax just opens the door for greater Government expansion. One must remember though, that part of the goal of the Sales Tax is to capture revene from those who currently survive via the “underground” economy. Without the retail sales tax, there doesn’t seem to be a way of doing that.

To eliminate the income tax entirely, and fund everything with a retail sales tax (Fair Tax) would create a much higher retail sales tax rate, and therefore make the incentive to evade that single point of taxation quite high. That would be the creation of black markets, and yet another underground economy.

Much of the goal of Public Finance, is to create a system that is broad, fair, and predicatble; with rates low enough to make voluntary compliance preferable to evasion. To that extent, it seems 999 represents the LOWEST, and BROADEST, plan of Public Finance yet proposed. It also is illustrative that Government spending is simply too high. Even with this vast and broad tax base, and rates that are in most cases effectively similar to current tax rates (although far more predictable and evenly distributed) there would remain a budget deficit well over $1 Trillion annually.

999 is clearly no “Magic Bullet.” It is would represent a dramatic improvement over current Tax Policy, but at best is “Half a Solution,” as it doesn’t address spending. Undoubtedly, if the plan gains serious consideration, it will be pulled in several directions, and my end up something like 9, 12, 5. Even then, passage will be a steep climb. If nothing else, Mr. Cain has succeeded in refocusing the debate about how we fund Government, and hopefully it will lead to an improvement to the atrocious system under which we now labor.

See more of what Axel has to say here >>>

See also . . .

Reaganomics Architect Art Laffer Calls Herman Cain’s 999 Plan Wonderful >>>

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Beck says movement is Marxist in nature and is designed to collapse the system, create anarchy. Says this is similar to the riots in London and Greece. George Soros is also backing this.

How do Romney and Perry compete with this?

And wouldn’t it be great to have a President who can sing Gospel?

More evidence that Herman Cain has the GOP nomination wrapped up. He’s authentic. He’s the real deal. The more the voters see Herman Cain, the better they like him.

The Details of Cain’s Impressive Career are Well Worth Knowing

DAN HENNINGER-WALL STREET JOURNAL: You hear the same thing said about Herman Cain all the time: Herman Cain has some really interesting ideas, but . . .

I love Herman Cain, but . . .

But what?

But he can’t win.

Why not?

At best, the answer has to do with that cloudy word “electability.” Or that Mr. Cain has never held elected political office.

In 2004, Mr. Cain ran for the GOP’s U.S. Senate nomination in Georgia. He lost to Johnny Isakson. Last weekend, Mr. Cain ran away with the Florida straw poll vote, winning with 37%. He torched both the “Southern” candidate, Rick Perry of Texas, who worked hard to win the vote, and Mitt Romney, who in 2008 campaigned everywhere in Florida.

The time is overdue to plumb the mystery of Herman Cain’s “interesting, but” candidacy. Let’s start at the top—in the top-tier candidacy of Mitt Romney.

Though he’s got the governorship credential, Mr. Romney’s emphasis in this campaign is on his private-sector experience. It’s good, despite the knock on Bain Capital’s business model. But measured by résumés, Herman Cain’s looks deeper in terms of working on the private sector’s front lines.

The details of his career path are worth knowing.

Read more here >>>

Watch Herman Cain at CPAC

POLITICO: The Democratic firm Public Policy Polling delivers a new set of national numbers that show Michele Bachmann is not just an early-state phenomenon, and she hasn’t yet hit her ceiling:

Bachmann’s momentum continues to build and she’s taken first place by the smallest of margins on PPP’s newest national Presidential poll. 21% of Republican primary voters say she’s their top choice to 20% for Mitt Romney, 12% for Rick Perry, 11% for Herman Cain, 9% for Ron Paul, 7% for Newt Gingrich, 5% for Tim Pawlenty, and 3% for Jon Huntsman.

Bachmann’s rise has been fueled by her appeal to voters on the far right- and their skepticism about Romney. Romney has the lead with centrist Republicans (23-17) and with those defining themselves as only somewhat right of center (24-17). But among ‘very conservative’ voters only 48% have a positive opinion of Romney to 34% who view him negatively, weak numbers, and Bachmann’s capitalizing on that with a 26-15 lead over Romney, who’s in third place with that group of voters.

Consider this, too: Between the Bachmann, Perry, Cain and Gingrich voters, that’s a 51 percent majority of Republican primary voters who appear to want a candidate to the right of Mitt Romney. Whether or not Bachmann can hold onto her share of that group, her performance is one more data point to suggest there’s room for a serious challenge to the former Massachusetts governor.

Read more here >>>

TPM: Rep. Michele Bachmann (R-MN) the strong frontrunner in the first contest of the Republican 2012 presidential nomination race? Believe it, baby.

A new poll of likely caucus goers in Iowa by the Republican-leaning Magellan Strategies shows Bachmann with 29% of the vote. Next place finisher Mitt Romney has 16%. The Magellan field did not include Jon Huntsman, who is skipping Iowa, or the (so far) non-running Sarah Palin, Rudy Giuliani or Rick Perry.

Other polling has shown the race closer, too. The Des Moines Register poll showed Bachmann running an extremely close second to Romney last month. A recent American Research Group poll that showed Bachmann with only a slight lead over Romney in a field that did include those other names.

Read more here >>>

Bachmann says Obama has failed black Americans

WND: An attorney for the British government has reaffirmed the United Kingdom’s decision to ban leading talk-radio host Michael Savage from entry.

WND reported last July the new Conservative-Party-led government of Prime Minister David Cameron informed the popular nationally syndicated host it would continue the ban initiated by the previous administration unless he repudiated statements made on his broadcasts that were deemed a threat to public security. The U.K., however, has never specified which statements it thought were so dangerous.

As WND reported in May 2009, then–British Home Secretary Jacqui Smith announced that Savage was on a list of 16 people banned from entry because the government believed their views might provoke violence. Smith said it was “important that people understand the sorts of values and sorts of standards that we have here, the fact that it’s a privilege to come and the sort of things that mean you won’t be welcome in this country.”

Read more here >>>