By Tera Ertz
The most fervent cries against the 9-9-9 tax structure in recent days have been laments about its impact on the poor and those on fixed income. In this series I will attempt to continue to treat one aspect of impact at a time, but there will be some overlap, and this is one of them. But first a refutation of those on the right decrying Mr. Cain’s plan because there have been changes since its introduction.
I have been noting a distinct train of thought in recent days saying that Mr. Cain is somehow unprepared to be President because upon outside analysis of his plan he has made mention of 9-0-9 and empowerment zones to address concerns about the real effects of 9-9-9 when it passes. To those promoting this narrative, I offer a different perspective. Mr. Cain is a businessman and a leader. As such, he views his role as one of offering up ideas and setting a firm goal for his plans, and then allowing healthy debate to find the flaws in his plans and fix them before they get implemented. Most politicians choose to do this after they have won the election, behind the closed doors of entrenched Washington politics, where politicians can massage legislation to satisfy those who got them elected while seeming to adhere to their campaign promises. Mr. Cain, being a businessman and leader, and not a politician, has chosen a different path. He recognizes America’s great need for immediate solutions to our current economic malaise. As such, rather than waiting to be elected to put forth a detailed, workable plan that can then be co-opted by partisan politics only to die aborning under the weight of inertia that characterizes our legislative body, he proposed his full fledged initial plan as part of his platform. He did this to spur debate, to find the holes, and to allow a referendum and debate by the electorate out in the open as part of the election process. By doing this, he has given the voters of this country the unique opportunity to not only shape the eventual legislation that will comprise this new tax system, but to also help assure its passage by seeking Congressional and Senatorial candidates who are committed to changing the current tax plan rather than maintaining the status quo.
Folks, the Tea Party demanded candidates that were willing to put their money where their mouth was, step up and show leadership, and allow the citizens more participation in the process. Mr. Cain heard you, and is delivering on that request. Please keep that in mind as accusations of waffling or wishy-washy policies are leveled against this highly courageous and atypical candidate. Shifting the entire paradigm of debate for a Presidential election is a big undertaking, there are bound to be revelations that lead to changes in the final form. But, won’t it be nice to have that final form in place come January 2013?
Now, onto the 30%. One of the main concerns with the 9-9-9 plan that I have heard is that it will add an additional burden on people when they make purchases through the 9% national sales tax. This fear is founded in a lack of understanding of how our current tax structure affects the price of goods and services. So, first we’ll focus on what comprises the cost of the things you currently buy, then we’ll look at one of two ways 9-9-9 addresses those costs.
The price you pay at the store for any item is composed of two overall parts: cost of goods and profit. Profit is comprised of the money earned by a company above and beyond how much it costs them to produce their product. This money is then used to pay investors dividends on their investments in the company. Now sometimes profit is also used to reinvest in the company in the form of expansion, hiring or research, but at that point it shifts from being profit to being a part of the cost of goods. As I noted in yesterday’s article, the purpose of a corporation is to make a profit, and in pursuit of that purpose, the profit must justify the continued production of the item, so there is very little wiggle room in how much pricing can be reduced by reducing profit before it begins to defeat the primary purpose of the corporation.
We then turn our attention to the cost of goods category. There are many subcategories in this section, first there is the raw materials used to produce an item, then there is the labor used to produce that item, then there is the infrastructure and research costs associated with producing that item, and lastly there are administrative overhead costs. There are probably more categories for breaking this down, but for simplicities sake, this should serve as a pretty accurate reflection that applies to all businesses. Because a company does not set the price on the cost of raw materials, there is very little wiggle room in this aspect of cost of goods. Because a company needs labor at a price that employees are willing to work for (and we’re not even going to get into minimum wage and the like), there is also very little wiggle room in this aspect of cost of goods. There is a little more flexibility in infrastructure and research costs, but if the long term goal of the corporation is to grow profit over the course of time, these costs too can only be reduced so much without harming the overall purpose of the company. Administrative costs however are another story. And for these, we do need to break down a little further.
Editor’s Note: Part 2 will be posted tomorrow!