The danger of Herman Cain’s 9-9-9 plan

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    …is the economic illiteracy of most Americans.  This became clear when we discussed the Republican debate in my classes, especially with my Advanced Placement students, after the Republican debate on Wednesday.   A number of students thought Cain was persuasive, and thought his plan made sense.  Some of their parents also seemed to like the idea.

    Why?  Because when the parents do their taxes they are often middle class people whose incremental tax rate is either 15% or 25% or 28%  (I have only a few students from families whose incremental rate would be 33% and none that I know of in the top bracket of 35%).  Thus a 9% personal income tax rate seems appealing.

    What too many fail to realize is that it would be achieved by eliminating most deductions, thus raising the effective tax rate they would pay.  We are in the 28% bracket, but the effective income tax rate on our adjusted gross income was only 17% this past year because of the deductions we are allowed.

    And that says NOTHING about the impact of a national sales tax of 9%, which would clobber lower and middle class families, while largely exempting the upper classes.  Hell, 9% is even lower than the current 15% Capital Gains rate that enables many wealthy to pay lower effective tax rates than their employees, eg:  Warren Buffett paying at a lower rate on his income than his secretary –  who also has to pay payroll taxes on most of her income.

    A few more thoughts:

    as it happens, Thursday in class I had mentioned that Warren Buffett often talked about the difference in tax rates between him and his secretary, as well as quoting his remarks that there is a class war going on  and his class is winning.  Thus my students perked up when the President mentioned Obama.  Several remarked in class on Friday that they told their parents I had discussed it in class.  Don’t know if that will be a positive in the eyes of some of my more conservative parents.

    I try to teach my students some things about economics, because one cannot realistically understand government without some knowledge of economics, and of course the politics of those seeking office and control of the government is often driven by economic ideology.

    I want my students to understand the difference between progressive and regressive taxation.

    I want them to understand that Social Security is currently fully funded through 2035 except for the Disability Insurance fund.  We have greatly increased both the rate and the ceiling for FICA deductions since I first began working part time as a teenager in 1963  when it was 3.625% iof the first $5400 of wages  (you can see the historic rates here.  Born in 1946, I am the lead edge of the Baby Boomer generation whose bulge in the population pyramid is one reason why we increased both rates and ceilings  (keeping up with inflation is of course another).   All shortfalls currently projected could easily be addressed without raising the rate by raising the ceiling – or eliminating it completely on wages.

    I take the time to walk my students through why Social Security is currently a regressive tax –  on this Barry Goldwater was right.  The ceiling on earnings taxed is what makes it regressive.  Yet we have conservatives and some wealthy willing to argue for a flat tax for income but not willing to apply the same reasoning to FICA.

    I have my students learn about opportunity costs, the multiplier effect, and more.

    I explain why raising age for Social Security and Medicare ignores the fact that different occupations have very different patterns for longevity –  I could well teach until I am 70.  I cannot imagine being a coal miner or a construction worker even at my current age of 65.  

    Raising ages means some people will work longers (often at higher pay rates than newer workers) thereby not freeing up employment opportunities for those coming behind them.  One can argue that therefore it would make more sense economically to LOWER the ages rather than raise the ages for both Social Security and Medicare.

    I often wonder how many of those in elective office or writing about government and politics really themselves understand economics.

    I do not fault my students for being attracted by Herman Cain’s presentation, and the seeming simplicity of his plan.  Then for some of the more religious among the students, the line about if 10% is good enough for God then 9% should be good enough for the government is going to appeal to those who make a major financial commitment to their churches.

    IF we allow the ALEC / US Chamber of Commerce approach of a mandatory course in the free enterprise system as a condition for graduation, we will be brainwashing people against their own best interest.  If either of those bodies is drafting the curriculum, we will learn

    —  why the minimum wage costs jobs

    —  why government regulation costs jobs

    —  why unions make things more expensive to buy

    without telling you that without a minimum wage corporations will be able to exert downward pressure on wages, especially in a time of high unemployment; that without regulation you will have even more environmental disasters, more people sickened by bad processed food; that without unions even non-union workers will find their wages depressed, their benefits disappearing, the safety of their workplace diminishing.

    Our students need to learn about economics.  That learning should also include union history.  The instruction should be honest, not brainwashing on behalf of the powerful and the wealthy.

    Cain’s 9-9-9 plan is appealing in its apparent simplicity.  But in fact it is simplistic in a fashion that hides how it further shifts the burdens of government upon those at the lower end of the economic ladder while it simultaneously shifts even more wealth to those already at the upper end.  Were it implement it would be a greater shift to the wealthy than we saw as a result of either the Reagan tax cuts or the 8 years of the Bush 43 administration.

    This is a bit of a rant.  I acknowledge that.

    I want to empower my students.   I do not want them brainwashed.

    • glennbear

      It is encouraging to hear of an educator doing the right thing. What I find scary is the large number of children “home schooled” by conservative parents so that their young minds are not “corrupted” by the liberal public school system with all the non ideological pesky facts.