October 15, 2011

• 999….add or multiply?

  Herman Cain is running for President of the United States.  Good for him.  He’s a businessman who has come from hard places to make his own place in the business world and has developed a creed of hard work and common sense.

  Mr. Cain has put forth what he calls the 9-9-9 plan.  This plan would place flat taxes of 9% on sales, 9% on income and 9% on corporations.  Taxes on corporations, a national sales tax and what seems to be a fair, income tax.

  At first glance this sounds doable.  Everyone paying the same income tax would lesson the need for such an intrusive IRS. A common sales tax would stop all of this confusion about which states do and which do not have to pay taxes on internet sales.  And in this time of great grumbling and protesting about corporate greed, most people would agree that 9% on corporations is a good idea.

  Well, maybe.  Let’s do the math, shall we?

  Income:  The 9% plan calls for the elimination of deductions and such, meaning that the 9% is a straight 9%.  So, the families at the lower end of the pay scale, say a family of four with a total family of earnings of $25,000  year would be paying $2250.00 a year in taxes which is a lot more than they would have paid before, since the deductions, etc would have put them in a much lower tax bracket. So now that family has approximately $1896.00 per month to live on.  Let’s say rent/mortgage (if they could get one) is around $350.00 per month.  That leaves $1546.00 per month.  Subtract a car payment (used, of course) of $200.00 per month and you have $1346.00.  Gas, electricity, water, trash take another $350 per month.  This leaves $996.00 per month.  Gas for the car takes another $200.00 per month.  Now you are down to $796.00 per month. If you figure a very conservative $100 per week for food, that leaves you $396.00 for the month for medicines, school fees, church, clothing, etc.  And don’t forget, two kids means clothes wear out rapidly, vehicles need inspection, oil, tires, etc.  Household items often run $50-60 per month.  Basic cable is another $40 per month (since TV practically doesn’t exist without it) and this may be your form of entertainment.  That allows about $200 per month for living expenses-car expenses-any entertainment you might try to have-and emergencies. Savings probably aren’t going to happen, just prayers that they don’t have a big expense coming up.  Keep in mind that I lowballed the expenses and food money.

  Now let’s look at that same family of four on a yearly salary of $60,000 per year.  They will pay $5400 a year in income taxes.  They have $4550 per month to work with.  Their mortgage will be higher, probably $600 per month.  Their car payment might be $450 per month for the presentable middle management car.  Their utilities may run as much as $500 per month and they can spend $200 per week on groceries. That still leaves $2800 a month for all the other living expenses-around 33% more to work with than the lower income family has to START with.

  Somehow, that 9% is beginning to not look quite as fair.  In fact, it seems to multiply the misery for the lower end of workers.

  Now, some will argue that the 60 grand family was better educated, worked harder, etc.  Maybe.

  In today’s wonderful economy, there are a lot of college educated individuals who are working in fast food, retail, and what non-union factory jobs that are left and trying to make ends meet on that 25 grand.  Some are making do with even less.

  Well, some will say, those folks just need to work harder.  This country rewards hard work.

  That must have been why Wall Street almost drowned in their own greed.  And you can bet that they will be the loudest to howl if they had to pay 9% in corporate taxes.

  To this I say, it used to reward hard work.  Now it seems to reward the high end of manipulation of resources.  Can you say Wall Street?  What a great deal they pulled!  If we fail, the country fails.  So we bail them out and they take the bonuses and run, laughing all the way to their protected accounts.  And then they wonder why the rest of us are so upset with them.

  My point here is that simple answers often sound so grand, but when they are analyzed, the reality behind them falls far short.

  Mr. Cain is a man of numbers.  But his numbers, while sounding so logical and simple, simply don’t add up in this instance.

  Mr. Cain may be on the right track.  But it’s a little more complicated than he presents.

   

  • 9:04 am
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