I have seen several headlines in the recent past that Herman Cain’s economic knowledge is just what we need to get our economy running again; the “Cain-train” as some call it. Serving as ex-Federal Reserve chairman of the Kansas City branch from 1992 until 1996, why wouldn’t American’s trust his economic prowess? To be honest, until I scrutinized his 9-9-9 plan and read into his economic history, I bought into the “honest businessman” image. I encourage readers to drop all superficialities and examine each candidate’s economic histories as America cannot afford any more mistakes.
I have already gone over Herman Cain’s faulty 9-9-9 plan in depth
in a previous article, so I urge readers wanting to know more, to go read it.
That said, I will address the comments that Cain has made in this video.
"the sales tax in the state of Florida or any other
state - I'm that’s not addressing that, that’s going to be there whether we
have the old system or the new system so, let’s not muddy the waters with that,
that’s a totally different situation" – Herman Cain
This was a play common of most politicians, tiptoeing around
the question to save face, then quickly following it up with an irrelevant point.
The concern that msNBC’s host Chuck Todd inquired about was that
“sticker shock” would affect consumerism negatively which could hurt the
economy further. In Cain’s response he stated that “the [state sales tax] is
going to be there whether we have the old system or the new system.” Unfortunately,
the presence of the state tax alone was NOT the concern, the idea of a national
tax on TOP of the state tax was the concern. Cain knew this.
The truth about Cain’s 9-9-9 plan is that mathematically
it will not work, it would kill the middle class. However, the shortcomings of Cain’s 9-9-9 plan
should be expected once one takes into consideration who wrote the plan, Art Laffer, the man who not only gave the economy a clean bill of health just before the collapse, but laughed at Peter Schiff who was accurately predicting catastrophe.
His
Failure to Foresee the Housing Market Collapse
On August 17th 2005 Herman Cain
not only gave the economy a clean bill of health but he followed it up by insulting
those who were predicting catastrophe:
"coverage of the bush economy reads like
a collection of democratic party press releases, calling a strong economy everything
from struggling to volatile or dicey... that kind of ignorance make homeowners
fear that their most expensive possession could turn worthless overnight. That
won't happen."
Herman Cain’s predictions couldn’t have been more wrong. The
housing bubble collapsed as all bubbles must and countless American‘s went into
foreclosure. When Mr. Todd asked Cain what signals he missed in 2005 were Cain
scapegoated his lack of economic foresight. He claimed that at the time he didn’t
know just how much Freddie Mac and Fannie Mae distorted the housing market. I am sure many listeners hastily accepted this
fantasy, although the twist should’ve been obvious.
Freddie and Fanny couldn’t distort the housing market, only
the fed can do that by lowering interest rates which creates bubbles. Bubbles
form when the Federal Reserve lowers interest rates below the natural levels of
a market, it influences expansion of investments well beyond sustainable
levels. This distorts the signals that business uses to assess risk. These
distortions then lead businesses (Freddie and Fannie) to believe that consumers
have the savings to back up their investments. However, artificially low (below
market) interest rates don’t generate new wealth to make good on investments.
So when the bubble pops these fallacies are realized in lost investments.
Looking back on Herman Cain’s past position as a Federal Reserve
chairman surely he understood this. I imagine it’s safe to assume that he has a
thorough understanding of how the Fed works. Having said that, one can only
draw the conclusion that Mr. Cain purposely put the blame on Freddie and Fannie
in order to protect his interest with the Fed. I go over why the Federal Reserve is
problematic and why Herman Cain’s involvement in the Fed should concern all of us in a
previous article.
This wasn’t his only economic failure, on September 1st of
2008 Cain wrote:
“The supposed failure of bush's economic policies has been a
constant theme of the democrats since the 2006 elections, when the democrats regained
control of the house and senate by convincing enough of the voters that the sky
was falling, and that the war in Iraq could not be won. Based on all of their
convention speeches, they plan to continue those themes right through Election
Day on November 4th”
Herman Cain’s incompetency here was made obvious within 15
days of that writing. His simple response when questioned about this statement
is that as president he will have people working under him who will understand
the economy for him, this person is Art Laffer who is equally incompetent. Herman's misguidance continued with the epic TARP bailouts which lead to the devaluation of our dollar. In our country’s state of economic crisis; in the world’s
state of economic crisis, can we really prepared to invite more bad economic
policy by electing a man who’s economically incompetent?
Bad economic policy got us into this mess and the only
person who can get us out of this mess, is a person who fully understands
economics, bubbles and how the collapse occurred. Herman Cain made clear he was
not that man. By now I am sure you have syllogistically figured out who I am referring
to; Ron Paul warned of the Housing Market collapse in 2001.
As most of us already know,
the Federal Reserve [Fed] came under expansive scrutiny in 2008 after the
housing bubble burst and reaped havoc on our dollar. What most people don’t
know is why the Federal Reserve came
under fire. The absence of that knowledge creates a lack of conviction and
rectifying our economic problems can only occur when both knowledge and
conviction are achieved. The majority of Americans perceive our Federal Reserve
as necessary and integral to our economy, as air is to our respiratory system.
Most people don’t understand the immoral inner workings of the Fed nor do they
understand the unconstitutionality of it. People are often surprised when they
learn that the fed is privately owned.
Ex-federal reserve chairman and now presidential candidate Herman Cain has
repeatedly defended the Federal Reserve claiming an audit would be “counterproductive”.
He also recently announced that he admired Alan Greenspan, the man who created
the giant bubble that led to our current crisis. Given the understanding that Herman Cain must certainly have
about the Fed, being that he was a Federal Reserve Chairman, his defense is
inexcusable, irresponsible and immoral to the wellbeing of the American people.
In this document, I will take you over the failures of fiat money, the corruption
it breeds and the negative effect it has on our savings. This document is for
those who want to understand the Fed more deeply, I offer a moderate history of
the Fed to hopefully elucidate the subject and display why Herman Cain would be a continuation
of bad economic policy and immorality against the American people.
“It is well that the people of the nation do not understand our banking
and monetary system, for if they did, I believe there would be a revolution
before tomorrow morning." - Henry Ford
History of Fiat Currency
In 1775 the Continental Congress
began issuance of a paper currency called the Continental in preparation of the war with Great Britain. Since the
notion of taxation was highly ridiculed and the war costs were so high, they
began printing Bills of Credit (short term public loans
to the government) in
order to fund the war.
This proved problematic as by
1776, due to inflation (diluting the money supply), the Bills of Credit
depreciated to 66% of initial value. In an attempt to combat the
depreciation the states made paper currencies legal tender for all purchases
and debts, enacted price controls and continued to print more money. In 1778
state and federal directed Procurement Officers (soldiers) to seize and pillage
the people giving certificates of debt in return, which also quickly diminished
in value. By 1780, hyperinflation led Congress to the conclusion that further
printing was futile; the money supply had been diluted to just 1% of its
original value in 6 years.
The overall failure of the paper Continental led our founders to authoring
Article 1 Section 10 of our Constitution, which declared that only gold and
silver were to be legal tender. This law was designed to protect us from
the immorality of a devaluating currency; the theft of wealth at the behest of
others.
The Federal Reserve Act
"This [Federal Reserve Act] establishes the most gigantic trust on
earth. When the President [Wilson] signs this bill, the invisible government of
the monetary power will be legalized....the worst legislative crime of the ages
is perpetrated by this banking and currency bill." Charles A. Lindbergh,
Sr., 1913
On December 23 of 1913 under Woodrow Wilson, the Federal Reserve Act
was instated, which, at the peril of our Constitution, was granted legal
authority to issue Federal Reserve notes. This system would be built around the
ideology of macroeconomics, (later labeled Keynesian economics
post 1936). Initially, as a safeguard, the dollar was fixed on the value of
gold and was to be redeemable in gold at a rate of $20.67 per ounce. This
assured low inflation and placed natural market restrictions on the Fed by
allowing the market to influence the economy (although notably hindered by
intervention).
During that time the Federal
Reserve comptroller assured the people that it was mathematically impossible to
have economic recessions, claiming that this form of economic planning was
superiorly more sophisticated; perfect. However according to the National
Bureau of Economic Research, this notion was quickly invalidated as between
1918 and 1919 we experienced our first bubble and recession.
Bubbles
Bubbles form when the Federal
Reserve lowers interest rates below the natural levels of a market, it
influences expansion of investments well beyond sustainable levels. This
distorts the signals that business uses to assess risk. These distortions then
lead businesses to believe that consumers have the savings to back up their
investments. However, artificially low (below market) interest rates don’t
generate new wealth to make good on investments. So when the bubble pops these
fallacies are realized in lost investments.
The bubbles and economic
recessions continued, just as they had with every other central bank. Bubbles
occurred in 1918 to 1919, 1920 to 1921, 1923 to 1924, 1926 to 1927, and 1929 to
1933. As you might be aware, 1933 was the year that President Franklin D. Roosevelt
issued Executive
order 6102 which not only
restricted Americans from owning gold but ordered the seizure of gold. The gold
fixed value of the dollar was then immediately changed from $20.67 to $35 per
ounce. The Bubbles continued, 1937 to 1938, 1945, 1948 to 1949, 1953 to 1954,
1960 to 1961, and 1969 to 1970. Then things changed with a new Chairman of the
Federal Reserve.
When Arthur Burns was
appointed Chairman of the Fed (1970-78), he pushed for more secrecy by ending minutes keeping
during meetings, allowing for concealment in meetings. He also made arguments for
elasticity in our dollar by removing the “restriction” of the gold standard. On
August 15, 1971 he got his wish.
We went off the gold standard and introduced ultimate elasticity to the Fed.
This afforded them the ability to control the value of the dollar at their whim. This allso allowed
the fed to interject the business cycle to make economic booms last longer,
which in turn allowed the recessions last longer. The presence of real market
restricts the boom from perpetuity, that is, every period of economic euphoria
must be respected by an equal period of economic misery.
The recessions from 1918 to
1970 were relatively short and went fairly unnoticed due to the dollars fixed
value. Once elasticity was granted and was perverted over time by intervention
through inflation and low interest rates, the severity of the recessions were
much more notable. Post gold fixed bubbles include 1973 to 1975, 1980, 1981 to
1982, 1990 to 1991 and 2000 to 2007, which brings us to our current crises.
The Great Bubble
The great bubble was largely
attributed to the bad policies of Alan Greenspan (Herman Cain’s hero) who was the
chairman of the Federal Reserve from 1987 until 2006. Greenspan intervened in
the recession that should’ve followed the dot-com bubble. Instead of accepting the natural
recession that should have occurred in 2001, the Fed began expanding the
Housing Market. This didn’t negate the previous bubble; it merely stalled it by
creating a bigger bubble. The Fed arrogantly continued its efforts to stop
recession through low interest rates and actual interest rates fell below
historical averages. At that point the Fed had abandoned all monetary rules in attempts to prop
the market.
Alan Greenspan slashed the
federal fund targets from 6.5% in January of 2001 all the way down to 1% by
June 2003. He fixed the rates at an artificial low of 1% for a full year, which encouraged more bad
investments and caused a massive expansion of the bubble. Then, by June of 2006,
Greenspan had raised it back to 5.25%, a move that popped the bubble and
unleashed the havoc of three overdue recessions.
“The few who understand the system, will either be so interested from
its profits or so dependent on its favors, that there will be no opposition
from that class.”
- Rothschild Brothers of London, 1863
Surly a man of Alan
Greenspan’s intelligence saw what was happening as he undoubtedly understands basic
economics and the business cycle. Bearing that leads to the question, what
motive would Greenspan have for knowingly doing this? All one has to do is look
to who gets the money, and the answer is obvious. Alan Greenspan was protecting
the fed’s banking, big business and political interest by skirting the
financial burden on the people, essentially socializing loss.
“Inflation is the most
evasive and aggressive form of taxation it transfers wealth from the middle
class to the privileged rich”. – Ron Paul
Corruption
The Federal Reserve is falsely known as a politically neutral part of our
government. This cannot be further from the truth on either count. As a private institution the Fed succumbs to
the interest of its controllers and shareholders. The Federal Reserve, being
the most secret institution in our country, can give undisclosed money to
corporations and influence politics by adjusting (loosening) rates during
elections. An example of this, which can be found in Ron Paul’s best-selling
book “End The Fed”, is Arthur Burns (Fed Chairman
1970-78) attempt at seducing President Carter in 1976.
It is well documented that Arthur Burns, in an attempt to be reappointed,
cut discount rates and accelerated money growth to alter the perception of the
economy. He told Carter that reappointment would make him out to be a high
minded statesman and suggested that if reappointed he (Arthur Burns) would
stop criticizing everything near and dear to him (Carter). He failed and his
intervention in the market brought on the worst bout of price inflation in a
century and caused the democrats to lose the office to Regan.
People like this are the masters of our economy?
"Give me control of a nation's money and I care not who makes its
laws"
-Mayer Amschel Bauer Rothschild (Rothschild family is the largest Fed shareholder)
The Audit
"Some people, I
believe, think there is some sort of smoking gun or some sort of secrecy that
the public doesn't know that goes on behind those closed doors and the reason
why that is not one of my big issues is, I don't think they are gonna find
anything. I know that the internal controls of the Federal Reserve are as tight
as a drum, that’s what I learned serving on the Federal Reserve board for 5
years " – Herman Cain Minneapolis, MN on June 18th, 2011
Although they do have regular
audits, the auditors are extremely limited in what they can actually audit which
makes them irrelevant altogether. Contrary to Herman Cain’s claim that calling
the Fed will provide all the answers, the reality is that all past requests for
information have always been met with arrogance from Fed chairmen, turning them
down, as if the requests were outrageous.
In 2009 Ron Paul introduced
the Federal Reserve Transparency Act (H.R.1207), which requested a full audit of the
Federal Reserve, the first in its 100 year history. It gained wide attention
and support but what passed was Senator Bernard Sanders lite version titled Federal
Reserve Sunshine Act (s.604), which demanded a partial audit, and
here are their findings. (unelected.com)
The list of institutions
that received the most money from the Federal Reserve can be found on page 131
of the GAO Audit and are as follows:
Citigroup:
$2.5 trillion ($2,500,000,000,000)
Morgan Stanley:
$2.04 trillion ($2,040,000,000,000)
Well Mr. Cain did they find
anything? Was it counterproductive? How could you, bearing this knowledge, say
the fed is not an issue? Mr. Cain, millions of dollars of this money, at our
expense, went to the Libyan government and to Mohammar Quadaffi
yet you still support the Fed?
This secret stimulus inflates our
dollar and thus is a tax on the people; our money went to these thieves by way
of devaluation of our savings.
Ben Bernanke & Quantitative
Easing:
Ben Bernanke is the current
chairman of the Fed. He continues with the bad practices that Greenspan used. He
continues the inflation of our currency and devaluation of the dollar, a direct
tax on the people’s savings and earnings. Ben Bernanke believes that he can “fix”
our current economic crisis by printing money; stimulus through quantitative
easing. Essentially treating the illness with what caused it in the first
place.
Quantitative Easing (QE) is another form
of stimulus, an injection of money into our supply. QE happens as a result of artificially
low interest rates. To better understand this process I urge you to watch this
film QE Explained.
This is Ben Bernanke’s secret (and only) weapon, and its proliferating the
problem.
Private Counterfiters:
"Some people think that the Federal Reserve Banks are United States
Government institutions. They are private monopolies which prey upon the people
of these United States for the benefit of themselves and their foreign
customers; foreign and domestic speculators and swindlers; and rich and
predatory money lenders." The
Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in
the 1930s
Each of the twelve Federal Reserve Banks is organized into a corporation
with shares. Those shares are sold to the commercial banks and thrifts
operating within each of the twelve Fed Bank's district. The shareholders get
to elect six of the nine the board of directors for their regional Federal
Reserve Bank, they also elect the president. I urge you to look over which
banks got bailed out and contrast them to the list below. Corporate interests
at its finest.
The shareholders are kept mostly confidential, however author Eustace
Mullins exposed some of the members in his bombshell book titled “Secrets
of the Federal Reserve” Citibank, Chase Manhattan,
Morgan Guaranty Trust, Chemical Bank, Manufacturers Hanover Trust, Bankers
Trust Company, National Bank of North America, and the Bank of New York to name
a few.
The Fed is guilty of secretly counterfeiting money and creating credit for private, corporate and political interest.
Conclusion:
Herman Cain has been asked
time and time again if he believes the Federal Reserve should be scrutinized or
even audited and his answer is always a resounding “no”. During the Bloomberg
debate Ron Paul asked Mr. Cain, if he still thinks the Fed shouldn’t be
audited.
Herman
Cain’s response:
“First of all you have
misquoted me, I did not call you or any of your people ignorant. I don’t know
where that came from so you gotta be careful of the stuff you find on the
internet because that’s just not something that I have said. Secondly, when I served
on the board of the Federal Reserve in the 1990s we didn’t do any of the things
that this Federal Reserve is doing I don’t agree with the actions of this Federal
Reserve. I don’t agree with the actions that have been undertaken by ben Bernanke.
We didn’t have a $14 trillion dollar debt to prop up some of the actions they
are taking and I have also said, to be precise, I do not object to the Federal
Reserve being audited.”
A blatant, provable lie:
He claimed that it would be
“counterproductive” to do so, echoing Fed chairman Ben Bernanke’s words verbatim.
How can he say this when taking into considerations immoralities of inflation,
stimulus, bailouts, political intervention and war funding? How can he endorse
the secret nature of the Fed, while claiming to be a freedom loving American?
It certainly cannot be because he is ignorant of the facts.
Mr. Cain also claimed that
the fed wasn’t doing “the things that they are now” when he was Director of the
Kansas City branch from 1992 to 1996, which is another blatant lie. Alan Greenspan
was chairman from 1987 until 2006; his practices have always been the same. All
of his predecessors’ practices were the same and his successors practices are
the same. It’s the flawed Keynesian system that the Federal Reserve was founded
on.
Regarding the comment about
the $14 trillion in debt, that “we didn’t have” while he was Director. This was
a direct result of the policies that Herman Cain endorsed, an
accumulation of things including the tarp bailouts.
Mr. Cain, if time and time again the government has been wrong in the
allocation of our capital (nasdaq, housing, stimulus), then how can we trust
them to be right in the future? How can we trust you?
The flaws of the Fed, the
great depression and the current crisis can be proven syllogistically and down
to central economic planning, the departure from the gold standard and Keynesian
economics. The benefits of an elastic fiat currency allow for
rich men to prop up their interests (often overseas) at the expense of the
American people. It’s a morally corrupt system that claims ethical high ground,
this moral high ground drives us into socialism.
It’s the American people’s job
to stop encouraging the Fed’s existence by demanding benefits from congressmen
that can only be produced by printing fiat money. We are neglecting our future
and our children’s future and selling it out for the short term benefits of now.
We encourage the Fed by supporting wars which could only be funded with an
elastic money supply.
Often people make the
reference that we should not “throw the baby out with the bathwater”. This is
an ignorant notion as it cannot apply to a private institute with private
interests. If the baby is the American Peoples interest, the baby has long
since left the bathwater.
Resources:
A major resource was my copy of Ron Paul's book End The Fed
He also said he didn't call speculators ignorant:
“Coverage of the Bush economy reads like a collection of Democratic Party press releases, calling a strong economy everything from struggling to volatile or dicey. That kind of ignorance makes homeowners fear that their most expensive possession could turn worthless overnight. That won’t happen.” - herman cain
Anyone who would still vote for this man has no moral compass and obviously have no problem inviting more deceptive politicians into their lives.
Herman Cain’s immigration plan involves building a colossal wall well over 700 miles long and 20 feet tall envisioned in the same vein as the Great Wall of China.(link) He completes his vision by incorporating an electrified section at the top of the wall and an alligator moat on the other side.(link) Estimated costs would project at over $50 billion (link) His supporters embrace this idea, but do they really take into consideration what the repercussions could be? Furthermore, do we honestly believe that this expensive and immoral act would actually end illegal immigration?
Allow me to play devil’s advocate for a moment and jump ahead into a future where Herman Cain is president and he has successfully built the magnificent 1,000 mile electrified wall depicted in his grand vision for America. Obviously, one cannot tell the future, but I will offer my thoughts on a post wall future, please keep in mind this is mostly theoretical. Having said that, one cannot deny at least some validity of my forecast as I base them in logic and reality.
How would Herman Cain’s wall affect our relations with the Mexican people or all of Latin America for that matter?
Trade
Mexico currently exports between $160 and $200 billion dollars worth of product to America each year (link). Mexico imports about $130 to $180 billion dollars of product from America each year (link) for a combined total of well over $300 billion in trade per year. This is a considerable amount of revenue that directly translates into jobs and wealth for a good number of Americans. Herman Cain’s wall would be a direct hit to our national economy and a devastating blow to southern US ports such as Houston, Texas which conducts about $17 billion in business with Mexico each year. (link)
As Herman Cain’s Great Wall of America casts its shadow over Mexico it waves a blatant tribute to our rejection of her people. Deep resentment of us would naturally arise from the Mexican people. A growing bitterness that, for some, would undoubtedly evolve into hatred. One could be certain that groups of Mexicans would begin to rally for boycotts of American imports and exports, even at their own economic hazard. Those groups would expand.
Yes, wealthy men would prevail and trade would continue but only at a noted deficiency. Certain Mexican companies, especially smaller ones (who rely greatly on local business), would choose to discontinue exports to America as a means to end the boycotts, and the principle could trend.
Imagine if just 10% of companies stopped trading with us on account of Herman Cain’s wall. In this scenario, conservatively speaking, around $30 billion would be lost annually. This directly renders into tens of thousands of jobs lost alone. Now imagine an escalation of resentment on both sides pushing that number to 50%? What would that do to our Nation? To Texas?
Again this is all theoretical, yet plausible.
Travel & Threat
The resentment from the Mexican people, who are now confined to poverty, drug violence and a weakening economy, would be most certain.
Of course American tourists would still safely travel to major cities. It might be wise to stay near the attractions as even in the most tourist friendly areas would be interleaved with some dissent. Seeing wealthy Americans who travel to spend their surplus money; perhaps more in their brief visit than most Mexican families earn in a year. The same Americans who’s detest for the Mexican people is so great that they constructed a monstrous wall to keep them out. Americans would almost certainly meet with violent differ in other parts of Mexico.
During the lengthy construction of such a wall, workers could expect some insurgency from a variety of affected groups ranging from local guerrillas to drug trafficking gangs who see their window for profit closing.
Would it be too difficult to imagine a Mexican extremist? A person so outraged with our actions that they come here by plane and attack our people?
This could become more commonplace than you think. The War on Terror marches on.
Effectiveness
Back to reality.
Throughout time mankind has overcome just about every obstacle that has impeded his ambition. The Great Wall of America would be an incentive for such innovation. Although, undoubtedly, there would be a slight fall in the numbers of illegal immigrants this method would ultimately fall short of its intended duty. Unless the wall is made from magic - man will find a way past.
Mexican people will show up in record numbers to vote against Herman Cain.
Conclusion:
America was founded on immigrants, our ideas and philosophies were forged through the merging of different cultures. In fact, most of our ancestors immigrated here at one point in time. Our statue of liberty is a symbol of freedom and liberty, not just for the American people, but for all people through the world. The current system, Herman Cain included, has waged war on this philosophy as the illegal immigrant battle has become a racist act of isolationism in its truest form.
What we aren’t fully grasping is the current living conditions that the Mexican people struggle through. Their government either cannot or will not control the drugs and guns, their economy is in shambles and their children are at risk of everything from disease to human trafficking. For the people of Mexico, a better life urgently awaits them in America, yet we demonize them for wanting better for their families and having what we have.
The common argument to this is, don’t come here illegally then; if you want to come here do it on our terms.
I would agree in principle, however, it’s more complicated than that. Currently, the wait time to gain citizenship is over 5 years (link), and that’s if you’re granted citizenship at all. Furthermore, without an attorney it’s highly unlikely to attain citizenship period, which adds a hefty toll to that avenue. So rather than attempting the convoluted and unlikely road to legal citizenship. The preferable choice, as we have made it, is to come here illegally, besides the punishment for doing so is considerably lax.
The unfortunate truth is that this wall wouldn’t be effective at stopping the problem and could potentially cause serious problems with our relations to Mexico and to our already damaged economy. However, there is a much simpler solution to the illegal immigrant problem.
Remove the many attractive incentives that tempt illegal immigrants to come here such as cheap housing, welfare, food stamps, free medical care, tuition, birth-right citizenship, jobs and various other programs, as Ron Paul has suggested. Then if we made the pathway to becoming a legal resident easier, and they were held to the same requirements as we are, the overall immigrant flow would slow down all-together. This method is not only practical but it’s a moral approach as well. It would yield far superior results and be less costly for our nation than Herman Cain’s Great Wall of America solution.
Herman Cain’s movement towards a flat tax is his widely coveted 9-9-9 plan which looks very attractive from a distance. However, upon further scrutiny one finds that this system may be much worse than the current flawed system.
For those of you unfamiliar with Herman Cain’s plan it’s a 9% business flat tax, 9% personal income tax and 9% national sales tax. At a glance, 9% is a very attractive number for anyone in the middle class with incremental tax rates ranging from 15% to 35%. What isn’t obvious is that Cain’s plan would be achieved by eliminating most deductions. With the current tax code deductions, a tax rate of 28% could drop to about 17%. That said, keep in mind the National Sales Tax at 9% is a new tax added on top, so this is really just shuffling of numbers.
The 9% business flat tax creates a perverse loophole incentive by lowering the taxation on capital gains and dividends to 0%. This naturally encourages businessmen to pay out 100% of their income as dividends or hide it by “reinvesting” it into the business rather than pay the 9%. So while the people pay both a state and federal tax (up to 33%), the businesses get away with paying no tax. Another thing to take into consideration is that smaller businesses
wouldn't be able to utilize this 0% income tax to their advantage because often their only shareholder would be themselves. I find it hard to believe a businessman of Herman Cain's stature could mistakenly overlook a loophole like this.
Before continuing with the final portion of the 9-9-9 plan I’d like to take a moment to explain the challenge with transitioning into the 9-9-9 plan. With our current tax system our national revenue last year was about $2.2 trillion, leaving a national deficit of $1.7. Adjusted to the 9-9-9 plan the total national revenue would be $1.7 trillion, this inflates our deficit to $2.2 trillion. (source) Mr. Cain has not presented a spending proposal that would allow for our current boated government to function on $1.7 trillion dollars, nor has he detailed which, if any, cuts he’d make to make his plan plausible.
Now for the real evil of the 9-9-9 plan; the national sales tax. Since Herman Cain’s 9-9-9 plan is can’t be immediately instituted due to the sheer size of our government. Herman Cain has created a series of phases, that have, in my opinion a low probability of success. Initially the 9-9-9 plan would be more like a 9-9-25 (or so) plan. So initially we would need to begin with a National Sales Tax of 22-30% to fund our government. Which would undoubtedly have detrimental effects on our economy, as the author of the following scenario suggests.
“Generally, when you purchase a final,
refined good, you are paying for the raw materials that went into processing
it. So let’s use a hypothetical example and compare current tax law with Cain’s
9 / 9 / 9 plan.
Under
current law: As a manufacturer, you go to purchase raw materials.
Suppose your Widget needs a stack of lumber that costs $1000. Because of state
sales tax, that lumber costs, on average, $1070. That cost is built into the
end price of the Widget.
Now, you
manufacture these widgets. To make up for the expense of the Widget, and to
ensure you’re making money to pay for labor, transportation, inspection,
regulation, etc. and profit, your final product costs $2000, and one of your
customers will pay $2140 it. Your customer has to get the Widgets to market,
and charges $3000, or $3210 with final state tax.
Under the
Cain 9% plan: Now the stack of lumber comes with a 16% tax on it (state’s
7% plus 9% for Federal), which makes the lumber cost $1160 for raw materials,
$2320 for the manufacturer, and $3480. Notice a few things here–
A) The
profit margin for the manufacturer has decreased. In order to make up for this,
his end product needs to be more expensive. So let’s call his end price to
market is $2410 to make up, just in revenue lost from paying the extra tax on
raw materials. Notice this now a 20.5% increase in price with built in
taxation– not 16% as figured from the state + the Cain 9%).
B) The end
distributor for customers now also has to make up for that increase in price,
so let’s put that new term at $3750 for recouping what was lost in tax before,
so the end price is now 25% higher. If this distributor is pushing items out to
stores for end-sales, we’re looking at a 30% increase in prices from a 9%
increase due to a NST.” – The Autopsy
In that scenario the author gives Mr. Cain
the benefit of the doubt, that is, instead of using a more realistic 23% for
his math he uses a 9%. One only needs to extrapolate those numbers to
understand what turmoil our country would be in under those circumstances. I
agree with the author, as he goes on to conclude, that both businesses and the
middle class would suffer greatly from this while the rich would gain.
UPDATE:
The Detroit Free Press revealed today that Herman Cain's 9-9-9 plan was written by Art Laffer. Laffer is the same man in this video who laughed at Peter Schiff when Schiff was correctly predicting economic collapse. An impossible plan written by and incompetent man.
