Friday, October 21, 2011

Herman Cain's 9-9-9 Plan: 'Is It 'Wacky' or 'Constitutional'?

We have heard some pundits say that Herman Cain's '9-9-9' plan is a 'bad idea'.

'Compared to 'what'?', you have to ask yourself.

And you have to ask the brain surgeons such as Chris Matthews of 'Hardball' who deify themselves as the arbiters of all that is good about this great nation of ours.

(Why do the images of the Pharisees and Sadducees come to mind on the rare occasions we happen to catch Mr. Matthews harrumphing on a channel hardly anyone watches anymore?)

'Just how flipping 'great' is the current US progressive income tax system working out for ya, Chris?  With all the loopholes and exemptions, it looks like a case of moldy swiss cheese that is crippling the ingenuity and vigor of the American economy, especially now when we need clarity and certainty to get our economy going again'.

We heard Mr. Matthews sniff and snuffle and look down his nose at those who 'dare disagree' with him about how the 'grand tradition' of American public policy has 'long been the progressive tax system where people who earn more pay more of their income in taxes for the privilege of living in this great country of ours.' (paraphrased)

Oh, really?

Where in the US Constitution does it say anything about the vaunted 'progressive income tax system'?

Nowhere.

Where does the 'progressive income tax system' come into play in the Declaration of Independence, The Emancipation Proclamation or maybe even going back to the Magna Carta, all of which are 'freedom' documents of the nth degree?

Let's take a step back into time and think about what the early settlers of America and the Founding Fathers were thinking when they were forming this new great land that we have inherited from them and their sacrifice and labor:

'Well, after we pioneer our way from the East Coast into the Midwest and fight all the Indians and the French soldiers and conquer this land, let's make sure we institute the 'progressive income tax system' so all of the people who took those risks pay more of their income for the things the rest of us all want.'

(Overheard at the crossing of the Delaware on a freezing cold Christmas night in 1776)

'You know, George (Washington), after we surprise the British here on Christmas day, we think the best thing we can do for this new republic we are fighting to start is to institute the 'progressive income tax system' so primarily only the rich people will pay for most of the huge public sector we are sure we are going to need down the road.'

Nothing could be further from the truth. They were fighting for freedom, plain and simple.

Much of that freedom was tied into being freed from the capricious taxation decision-making of King George III who seemingly popped out new taxes on the colonists like popcorn from a Jiffy Pop Popcorn aluminum bubble.

You know what the very first order of business was in the very first Congress in 1789?

Finding a way to pay for the new Republic.

You can look it up in the Congressional Record in the Archives in the basement of the Senate Dirksen Building. Page 1 of Volume 1 starts out with the call to order and then dives right into the issue of instituting and raising revenues to pay for the new country through import taxes.

What are 'import taxes', class?

Right. 'Consumption taxes' based on the importation of goods from overseas.

And who would be more likely to buy expensive perfumes from France and fine linens from England in 1789 America?

Correct. The rich people. The more they bought, the more taxes that were collected for the young republic.

Talk about 'progressive'!  We have a feeling that the wealthy back then paid perhaps 75-90% of all import taxes whether they were consuming the goods or importing them and then re-selling them to the general public.

Here's an interesting 'fact' that many people, including the savant Mr. Matthews, don't know:

In 1805, President Thomas Jefferson reported to Congress that revenues from import taxes in 1804 totaled $11.8 million for the past fiscal year. Expenses totaled $8.7 million for the young nation.

The surplus in 1804 was $3.1 million. Which is about $80 billion in 2012 terms.

All of the revenue back then came from import taxes. It stayed mostly that way in America up until the Civil War when Abraham Lincoln instituted an income tax to help pay for the Union side of the things in that bloody war.

Which was summarily repealed in 1872 after years of heated debate. Income taxes were revived in 1894. The U.S. Supreme Court ruled the income tax to be unconstitutional in 1895.

Congress proposed the 16th Amendment in 1909 to make the income tax constitutional and it was ratified in 1913.

Here is the entire text of the 16th Amendment:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
It says absolutely nothing about the 'progressive' income tax system.  It could be a flat tax.  In fact, the first income tax system under Lincoln was a 'flat tax' of 3% on any income above $800 earned in a year so there is some precedent for the flat tax from one of our 3 greatest Presidents, yes?

So for over half of our nation's history, import 'consumption' taxes were the way we funded virtually all of our federal government's activities. 'Consumption taxes' have always been a part of the US landscape ranging from import taxes to excise taxes to sales taxes.

They all work the same.  And guess what?  They all produce far more income from people who buy more goods and purchase large consumer goods such as Bentleys than from people who purchase 30 year-old used Gremlins. If they were applied to new mansions as a true consumption tax would work if truly universal, a person buying a $10 million home might pay 9% in a consumption tax to the federal government at closing.

Today, he/she pays zero to the federal government for a purchase of a new home.  Or a Bentley.

More later on the details of the 9-9-9 plan as we get the chance to study it in more detail.

But the operative question we want to leave you with today is this:

'Are you willing to keep putting up with a bankrupt and corrupt current federal income tax system?  Or are you willing to try something simpler and more transparent and direct?

If you answer affirmatively to the second question, you need to take a deeper look at Herman Cain's 9-9-9 plan.

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