The Crushing Burden Of Tax Relief

Occasionally, when she observes me yelling in rage and frustration at a video game, my wife will ask the rational questions; “Why are you so angry with an inanimate object, and why do you play it if it causes you such grief?” Friends, I have always been honest with you, this rationality deal is purely aspirational. And so it is that I continue to struggle with my addiction to politics, a field where very little seems to make any sense these days. All of which brings me to Herman Cain.

I really do feel for my conservative friends (yes, I do have quite a fair few of them). Herman Cain is an intelligent guy, an able fundraiser, and a competent top manager. He is also distinguished by the fact that he seems to have a plan of his own not wholly reliant on taking everything the President does or says and turning it into a glennbeckian Marxist fantasy. His plan of course, 9-9-9 (named, I am sure, for the British version of our 9-1-1 emergency call line), is the current incarnation of my frustrating video games. Herman Cain’s plan will raise taxes on the majority of Americans; not working Americans, unemployed Americans; not the 99% or the 53%; the whole bunch of us. Herman Cain is a Republican…and his plan is to raise taxes…and he is still in contention. I feel like I just drank a 32 oz. Slurpeeā„¢ in less than a minute.

You might think this is blogger’s hyperbole. Nope, sorry. Multiple estimates have come to the same conclusions, and conservative economists are in general agreement. Only Art Laffer (he of Laffer Curve fame) seems to think it is a good idea. Families at the median level (around $50,000 per year) will see their federal tax burdens go from $8,300 annually to $13,500.

Hello, my name is Herman Cain, and I am running for President. If you are an average American household, with two incomes, two kids, two dogs in the yard, and two cars in the garage, I will raise your taxes by 63%. I would really appreciate your vote next November. I am Herman Cain and I approved this message.

Folks, the more money you make, the lower your percentage of income goes towards sales-taxable purchases. Ernst Engel, a German statistician, found that as incomes rise, the share of expenditures for food and other products declines. Called Engel’s Law, this bit of 19th Century science has been repeatedly confirmed in the decades since. Friends, this is the reason why any so-called fair tax is emphatically not what it is cracked up to be. Any reform based on sales tax will, in operation, be a regressive tax affecting working families far more than those folks who earn more money. This isn’t an ideological point, it is a reality confirmed repeatedly through econometric modelling and household survey.

It also points towards why so much of the conservative plan has gone awry. Think about it for a moment; our nation has been on a thirty year orgy of federal tax reductions on business and individuals; have you felt the benefit in your pocket? For most, the answer is no, and the reason is that as we have moved away from progressive federal income taxation, upward pressure has been placed on local taxes that are typically flat or regressive. Whether it is reduced federal education funding, or the enormous pressures place on state governments by splitting Medicaid burdens with Washington, local revenue solutions have been confined largely to increases in sales and property taxes, fee increases and, occasionally, new flat income taxes.

Now, under the guise of “spurring business”, we have spent three years slashing municipal, state, and federal jobs. Those government workers filled many roles in their communities that the marketplace has no profit incentive to do on its own. Those folks also spent the checks they received in their communities, funds that supported local business. And the tax relief these burdens are supposed to have supported? It has done precious little to put folks back to work. The simple fact is, since the last of the stimulus money was spent, job growth has slowed to a crawl, and no amount of tax-cutting will convince any sane or intelligent managers to hire more workers.

For Herman Cain, the idea that cutting taxes for businesses and the very wealthy is a crusade for job-creation (if I give him the benefit of the doubt). But what he doesn’t admit (because he really does know the truth), is that tax-cutting doesn’t spur development because businesses pay taxes far differently than individuals. For most of the wealthy class, their income is expressed exclusively as capitol gains, meaning their tax burden is the same as a single person earning $34,500 per year. Cutting their income taxes doesn’t raise a ripple. For the broad majority of Americans, we pay our taxes first, then our bills. Our bills include taxes, property tax being the most common source of tax angst in our nation. Then, we get to buy things, much of which is subject to local sales tax. Businesses collect their revenue, pay all of their bills, pay all of their employees, invest in capitol projects, then pay taxes.

If business in the United States had to pay taxes like individuals, a tax cut would probably spur job creation. But hiring employees lowers the income tax liability of a business , and most American corporations have felt no compunction about laying folks off and incurring the higher tax liability as a result. Does this sound like the type of behavior that cries out for tax relief. All of this tax relief translates into debt and reduced services, but not jobs. President Bush slashed tax rates in 2001 and 2003, and relaxed rules governing the off-shoring of profits for major business, and his administration is in the books for the worst job creation numbers by a president since Hoover. You know, The Great Depression Hoover.

People call it a liberal idea, and the Tea Party spent 2009 marching against it, but “You have to spend money to make it.” is a pro-business sentiment if ever there was one. The notion is the same for our democracy. Government spending, on projects that the marketplace has no profit incentive to create, drives job-creation. The pizza magnate has a different idea. Herman Cain’s plan is built on the idea that if we could make it just a little easier for the richest Americans, we would have a better country. Take a moment to dwell on that concept and get back to me once you have finished yelling at the video game.

The Rational Middle is listening…

4 thoughts on “The Crushing Burden Of Tax Relief

  1. A more detailed look at the 9-9-9 plan, for those who wish to review some of the specific economic modeling of the plan.

    This site is one of many competent entities who have modeled the plan, the results of said modelling are universal in the conclusion that the 9-9-9 plan raises taxes on most Americans…working or otherwise. 85% of households earning between $30,000 and $100,000 would see hikes.

  2. Thanks Robert. This wasn’t an article on Herman Cain’s campaign in general, so who his backers are is not relevant. It would seem that Mr. Cain’s primary political lever is in fact his 9-9-9 plan, and I believe it needs to be challenged on purely economic terms.

  3. What gets me is that the Republican party seemingly has an infinite capacity for cognitive disconnect. They already gave the rich tax cuts and loop holes as much as they liked. The resulting disintegration of society only inspires them to say that it’s not their policies, it’s that it’s not enough of their policies.

    In the mean time the bottom 50% of society gets punished precisely because they _are_ the bottom 50%. They deserve to suffer because if they had worked hard enough they wouldn’t be where they are now. They are not counted towards the ‘Greatest country in the world’ because they insult the rich with their incessant poverty.

    I don’t rage, I just have a hard time liking humans these days. Or, I’m getting old. It could be that too.

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