Archive for the ‘Politics’ Category


Best Foreign Affairs Web Stories of 2011
Foreign Affairs Magazine

The year began with the Arab Spring and ended with a dent in Russian Prime Minister Vladimir Putin’s armor. There were big budget talks in Washington, and Europe watched its fiscal union teeter on the brink of collapse. Of course, U.S. forces killed Osama bin Laden. Perspectives and analysis on those world-changing developments and more

http://m.foreignaffairs.com/features/collections/best-foreign-affairs-web-stories-of-2011?cid=nlc-this_week_on_foreignaffairs_co-122911-best_foreign_affairs_web_stori_3-122911


Jon Huntsman takes on the military.

Bring U.S. military in line with new reality – CNN.com
Republican presidential hopeful Gov. Jon Huntsman speaks to students at George Washington University in October.
Republican presidential hopeful Gov. Jon Huntsman speaks to students at George Washington University in October.
Editor’s note: Jon Huntsman, former governor of Utah and U.S. ambassador to China, is a candidate for the Republican nomination for president. (Republican presidential candidates take on national defense, the economy, international relations and terrorism issues in the CNN Republican National Security Debate in Washington, D.C.., moderated by Wolf Blitzer at 8 p.m. ET Tuesday, November 22, on CNN, the CNN mobile apps and CNN.com/Live.)
(CNN) — A president’s most solemn duty is to protect America and her people — a responsibility that, in a time of evolving security threats and unsustainable debt, will only grow harder for the next administration.
In the aftermath of the failure of the super committee, we are facing cuts in defense. Yet there has still been little discussion about overall defense spending priorities and how we must transform our defense infrastructure for the 21st century.
Some of my opponents suggest maintaining the status quo, thus avoiding the tough decisions. Others advocate retrenchment and isolationism through draconian across-the-board cuts, which brings greater instability and risks.
Still others revert to the oft-repeated pledge to eliminate waste, fraud and abuse from the Pentagon — a worthy cause yet one of minimal consequence. Cutting wasteful spending alone amounts to only pennies o

These approaches miss the target in two respects. First, they let resources drive strategy, rather than using strategy to drive force structure and capabilities. Second, they fail to fundamentally alter our defense posture — so any short-term savings will be quickly erased.
In recognition of the growing asymmetrical threats we face and the evolving requirements of counterterrorism, we need a different set of capabilities. The world may have seen its last heavy armor battle between two nation-states. The relative importance of counterterrorism, intelligence, training and equipping foreign security forces, and special forces operations will continue to grow.
Our forces must be designed appropriately. This means a greater focus on intelligence gathering and more agile special forces units, which can respond swiftly and firmly to terrorist threats in any corner of the globe. We must be prepared to respond to threats — from al Qaeda and other terrorist cells — that emanate from a much more diverse geography, including Yemen, the Horn of Africa, Pakistan and the Asia-Pacific region.
We must also transform our orientation. By almost any objective measure — population, economic power, military might, energy use — the center of gravity of global human activity is moving toward the Asia-Pacific region. Embracing this reality may bring a dramatic change to the look of our military.
The Asia-Pacific region is a maritime theater whereas Europe was mostly a land theater. For the U.S., the Asia-Pacific features a collection of bilateral military alliances in contrast to our involvement with the multilateral NATO in Europe. We are a Pacific nation living in a Pacific Century, and our vital interests in that region cannot be compromised.
We can cut our base force and transition more responsibility for contingency operations to our National Guard and Reserve. In addition to being our most precious and valuable resource, our troops are also the most expensive part of our military.
If we simultaneously transform our capabilities and posture while enhancing our Guard and Reserve, our active duty army could be reduced to around 450,000 troops, from the approximately 565,000 we now have. Our Department of Defense civilian work force can also be cut by 5% to 7% of its current size.
At the same time, we should conduct a global posture review with the goal of closing at least 50 overseas military installations. The U.S. military maintains more than 700 installations outside the United States, the vast majority of which were opened during the Cold War. With a more mobile and flexible force, we simply don’t need as many facilities overseas.
We must risk American blood and treasure overseas only when there exists a vital national security interest. I have consistently called for our troops to return from Afghanistan as soon as possible. But I also believe President Barack Obama has been too quick to commit forces to other missions not core to our security interests.
Within the same week of announcing a troop drawdown in Iraq, the president announced a deployment of a small number of combat forces to Africa — an unnecessarily risky and costly mission.
America alone cannot police the world. We should increase burden-sharing for the protection of the global commons among countries that share our values and security objectives. Unfortunately, we are not the only democracy stuck in a Cold War mentality. It is time for countries such as Japan and India to play a greater role in regional security matters. We must also throw out the old map and forge new security arrangements with regional partners such as Vietnam and Brazil.
As we prepare to fight in the new battle spaces, we need to let go of old “sacred cows.” Our military and defense establishment must be effective in the cybersphere, dominant in space and able to handle the increasingly lethal and accurate ballistic and cruise missiles being acquired by many of our potential foes. This will likely mean trade-offs away from heavy armor units, fighter air wings and aircraft carriers toward a more advanced cyberwarfare infrastructure, more capable unmanned aerial vehicles and more flexible sea-based assets.
For America to remain a global force for good, we must maintain the world’s most capable military. And being the best is not simply a function of spending the most. Staying on top will increasingly depend on our willingness to adapt to the realities of the 21st century security environment.
The opinions expressed in this commentary are solely those of Jon Huntsman.


2021: The New Europe

By NIALL FERGUSON

Map illustration by Peter Arkle
‘Life is still far from easy in the peripheral states of the United States of Europe (as the euro zone is now known).’

Welcome to Europe, 2021. Ten years have elapsed since the great crisis of 2010-11, which claimed the scalps of no fewer than 10 governments, including Spain and France. Some things have stayed the same, but a lot has changed.

The euro is still circulating, though banknotes are now seldom seen. (Indeed, the ease of electronic payments now makes some people wonder why creating a single European currency ever seemed worth the effort.) But Brussels has been abandoned as Europe’s political headquarters. Vienna has been a great success.

“There is something about the Habsburg legacy,” explains the dynamic new Austrian Chancellor Marsha Radetzky. “It just seems to make multinational politics so much more fun.”

The Germans also like the new arrangements. “For some reason, we never felt very welcome in Belgium,” recalls German Chancellor Reinhold Siegfried von Gotha-Dämmerung.

Life is still far from easy in the peripheral states of the United States of Europe (as the euro zone is now known). Unemployment in Greece, Italy, Portugal and Spain has soared to 20%. But the creation of a new system of fiscal federalism in 2012 has ensured a steady stream of funds from the north European core.

Like East Germans before them, South Europeans have grown accustomed to this trade-off. With a fifth of their region’s population over 65 and a fifth unemployed, people have time to enjoy the good things in life. And there are plenty of euros to be made in this gray economy, working as maids or gardeners for the Germans, all of whom now have their second homes in the sunny south.

The U.S.E. has actually gained some members. Lithuania and Latvia stuck to their plan of joining the euro, following the example of their neighbor Estonia. Poland, under the dynamic leadership of former Foreign Minister Radek Sikorski, did the same. These new countries are the poster children of the new Europe, attracting German investment with their flat taxes and relatively low wages.

But other countries have left.

David Cameron—now beginning his fourth term as British prime minister—thanks his lucky stars that, reluctantly yielding to pressure from the Euroskeptics in his own party, he decided to risk a referendum on EU membership. His Liberal Democrat coalition partners committed political suicide by joining Labour’s disastrous “Yeah to Europe” campaign.

Egged on by the pugnacious London tabloids, the public voted to leave by a margin of 59% to 41%, and then handed the Tories an absolute majority in the House of Commons. Freed from the red tape of Brussels, England is now the favored destination of Chinese foreign direct investment in Europe. And rich Chinese love their Chelsea apartments, not to mention their splendid Scottish shooting estates.

In some ways this federal Europe would gladden the hearts of the founding fathers of European integration. At its heart is the Franco-German partnership launched by Jean Monnet and Robert Schuman in the 1950s. But the U.S.E. of 2021 is a very different thing from the European Union that fell apart in 2011.

* * *

It was fitting that the disintegration of the EU should be centered on the two great cradles of Western civilization, Athens and Rome. But George Papandreou and Silvio Berlusconi were by no means the first European leaders to fall victim to what might be called the curse of the euro.

Since financial fear had started to spread through the euro zone in June 2010, no fewer than seven other governments had fallen: in the Netherlands, Slovakia, Belgium, Ireland, Finland, Portugal and Slovenia. The fact that nine governments fell in less than 18 months—with another soon to follow—was in itself remarkable.

But not only had the euro become a government-killing machine. It was also fostering a new generation of populist movements, like the Dutch Party for Freedom and the True Finns. Belgium was on the verge of splitting in two. The very structures of European politics were breaking down.

Who would be next? The answer was obvious. After the election of Nov. 20, 2011, the Spanish prime minister, José Luis Rodríguez Zapatero, stepped down. His defeat was such a foregone conclusion that he had decided the previous April not to bother seeking re-election.

And after him? The next leader in the crosshairs was the French president, Nicolas Sarkozy, who was up for re-election the following April.

The question on everyone’s minds back in November 2011 was whether Europe’s monetary union—so painstakingly created in the 1990s—was about to collapse. Many pundits thought so. Indeed, New York University’s influential Nouriel Roubini argued that not only Greece but also Italy would have to leave—or be kicked out of—the euro zone.

But if that had happened, it is hard to see how the single currency could have survived. The speculators would immediately have turned their attention to the banks in the next weakest link (probably Spain). Meanwhile, the departing countries would have found themselves even worse off than before. Overnight all of their banks and half of their nonfinancial corporations would have been rendered insolvent, with euro-denominated liabilities but drachma or lira assets.

Restoring the old currencies also would have been ruinously expensive at a time of already chronic deficits. New borrowing would have been impossible to finance other than by printing money. These countries would quickly have found themselves in an inflationary tailspin that would have negated any benefits of devaluation.

Getty Images
Some bumpy moments in recent EU history.

For all these reasons, I never seriously expected the euro zone to break up. To my mind, it seemed much more likely that the currency would survive—but that the European Union would disintegrate. After all, there was no legal mechanism for a country like Greece to leave the monetary union. But under the Lisbon Treaty’s special article 50, a member state could leave the EU. And that is precisely what the British did.

* * *

Britain got lucky. Accidentally, because of a personal feud between Tony Blair and Gordon Brown, the United Kingdom didn’t join the euro zone after Labour came to power in 1997. As a result, the U.K. was spared what would have been an economic calamity when the financial crisis struck.

With a fiscal position little better than most of the Mediterranean countries’ and a far larger banking system than in any other European economy, Britain with the euro would have been Ireland to the power of eight. Instead, the Bank of England was able to pursue an aggressively expansionary policy. Zero rates, quantitative easing and devaluation greatly mitigated the pain and allowed the “Iron Chancellor” George Osborne to get ahead of the bond markets with pre-emptive austerity. A better advertisement for the benefits of national autonomy would have been hard to devise.

At the beginning of David Cameron’s premiership in 2010, there had been fears that the United Kingdom might break up. But the financial crisis put the Scots off independence; small countries had fared abysmally. And in 2013, in a historical twist only a few die-hard Ulster Unionists had dreamt possible, the Republic of Ireland’s voters opted to exchange the austerity of the U.S.E. for the prosperity of the U.K. Postsectarian Irishmen celebrated their citizenship in a Reunited Kingdom of Great Britain and Ireland with the slogan: “Better Brits Than Brussels.”

Another thing no one had anticipated in 2011 was developments in Scandinavia. Inspired by the True Finns in Helsinki, the Swedes and Danes—who had never joined the euro—refused to accept the German proposal for a “transfer union” to bail out Southern Europe. When the energy-rich Norwegians suggested a five-country Norse League, bringing in Iceland, too, the proposal struck a chord.

The new arrangements are not especially popular in Germany, admittedly. But unlike in other countries, from the Netherlands to Hungary, any kind of populist politics continues to be verboten in Germany. The attempt to launch a “True Germans” party (Die wahren Deutschen) fizzled out amid the usual charges of neo-Nazism.

The defeat of Angela Merkel’s coalition in 2013 came as no surprise following the German banking crisis of the previous year. Taxpayers were up in arms about Ms. Merkel’s decision to bail out Deutsche Bank, despite the fact that Deutsche’s loans to the ill-fated European Financial Stability Fund had been made at her government’s behest. The German public was simply fed up with bailing out bankers. “Occupy Frankfurt” won.

Yet the opposition Social Democrats essentially pursued the same policies as before, only with more pro-European conviction. It was the SPD that pushed through the treaty revision that created the European Finance Funding Office (fondly referred to in the British press as “EffOff”), effectively a European Treasury Department to be based in Vienna.

It was the SPD that positively welcomed the departure of the awkward Brits and Scandinavians, persuading the remaining 21 countries to join Germany in a new federal United States of Europe under the Treaty of Potsdam in 2014. With the accession of the six remaining former Yugoslav states—Bosnia, Croatia, Kosovo, Macedonia, Montenegro and Serbia—total membership in the U.S.E. rose to 28, one more than in the precrisis EU. With the separation of Flanders and Wallonia, the total rose to 29.

Crucially, too, it was the SPD that whitewashed the actions of Mario Draghi, the Italian banker who had become president of the European Central Bank in early November 2011. Mr. Draghi went far beyond his mandate in the massive indirect buying of Italian and Spanish bonds that so dramatically ended the bond-market crisis just weeks after he took office. In effect, he turned the ECB into a lender of last resort for governments.

But Mr. Draghi’s brand of quantitative easing had the great merit of working. Expanding the ECB balance sheet put a floor under asset prices and restored confidence in the entire European financial system, much as had happened in the U.S. in 2009. As Mr. Draghi said in an interview in December 2011, “The euro could only be saved by printing it.”

So the European monetary union did not fall apart, despite the dire predictions of the pundits in late 2011. On the contrary, in 2021 the euro is being used by more countries than before the crisis.

As accession talks begin with Ukraine, German officials talk excitedly about a future Treaty of Yalta, dividing Eastern Europe anew into Russian and European spheres of influence. One source close to Chancellor Gotha-Dämmerung joked last week: “We don’t mind the Russians having the pipelines, so long as we get to keep the Black Sea beaches.”

***

On reflection, it was perhaps just as well that the euro was saved. A complete disintegration of the euro zone, with all the monetary chaos that it would have entailed, might have had some nasty unintended consequences. It was easy to forget, amid the febrile machinations that ousted Messrs. Papandreou and Berlusconi, that even more dramatic events were unfolding on the other side of the Mediterranean.

Mark Nerys
Back then, in 2011, there were still those who believed that North Africa and the Middle East were entering a bright new era of democracy. But from the vantage point of 2021, such optimism seems almost incomprehensible.

The events of 2012 shook not just Europe but the whole world. The Israeli attack on Iran’s nuclear facilities threw a lit match into the powder keg of the “Arab Spring.” Iran counterattacked through its allies in Gaza and Lebanon.

Having failed to veto the Israeli action, the U.S. once again sat in the back seat, offering minimal assistance and trying vainly to keep the Straits of Hormuz open without firing a shot in anger. (When the entire crew of an American battleship was captured and held hostage by Iran’s Revolutionary Guards, President Obama’s slim chance of re-election evaporated.)

Turkey seized the moment to take the Iranian side, while at the same time repudiating Atatürk’s separation of the Turkish state from Islam. Emboldened by election victory, the Muslim Brotherhood seized the reins of power in Egypt, repudiating its country’s peace treaty with Israel. The king of Jordan had little option but to follow suit. The Saudis seethed but could hardly be seen to back Israel, devoutly though they wished to avoid a nuclear Iran.

Israel was entirely isolated. The U.S. was otherwise engaged as President Mitt Romney focused on his Bain Capital-style “restructuring” of the federal government’s balance sheet.

It was in the nick of time that the United States of Europe intervened to prevent the scenario that Germans in particular dreaded: a desperate Israeli resort to nuclear arms. Speaking from the U.S.E. Foreign Ministry’s handsome new headquarters in the Ringstrasse, the European President Karl von Habsburg explained on Al Jazeera: “First, we were worried about the effect of another oil price hike on our beloved euro. But above all we were afraid of having radioactive fallout on our favorite resorts.”

Looking back on the previous 10 years, Mr. von Habsburg—still known to close associates by his royal title of Archduke Karl of Austria—could justly feel proud. Not only had the euro survived. Somehow, just a century after his grandfather’s deposition, the Habsburg Empire had reconstituted itself as the United States of Europe.

Small wonder the British and the Scandinavians preferred to call it the Wholly German Empire.

—Mr. Ferguson is a professor of history at Harvard University and the author of “Civilization: The West and the Rest,” published this month by Penguin Press.

Read the story here: Niall Ferguson on 2021: The New Europe – WSJ.com

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The presidential race one year out

America’s missing middle

The coming presidential election badly needs a shot of centrist pragmatism

IT IS a year until Americans go to the polls, on November 6th 2012, to decide whether Barack Obama deserves another term. In January the Republicans start voting in their primaries, with the favourite, Mitt Romney, a former governor of Massachusetts, facing fading competition from Herman Cain, a pizza tycoon, and Rick Perry, the governor of Texas. Already American politics has succumbed to election paralysis, with neither party interested in bipartisan solutions.
This would be a problem at the best of times; and these times are very far from that. Strikingly, by about three to one, Americans feel their country is on the wrong track. America’s sovereign debt has been downgraded. Unemployment remains stubbornly above 9%, with the long-term unemployed making up the largest proportion of the jobless since records began in 1948. As the superpower’s clout seems to ebb towards Asia, the world’s most consistently inventive and optimistic country has lost its mojo.
Some of this distress was inevitable. Whatever the country’s leaders did in Washington, the credit crunch was always going to cause a lot of suffering. Rising inequality, unfunded pensions and bad schools are not new problems. But politics, far from offering a remedy, is now adding to the national angst. Eight out of ten Americans mistrust their government. There is a sense that their political system, like their economy, has been skewed to favour the few, not the many.
The European Union may seem the epitome of political dysfunction, but America has been running it close. All this year the deadlock between the Republicans in Congress and Mr Obama has meant that precious little serious legislation has been passed. The president’s jobs bill is stuck; the House of Representatives’ budget plans have been scuppered by the Democrat-controlled Senate. At the end of this year temporary tax cuts and other measures, worth around 2% of GDP, are set to expire—which could push America back into recession.
Surrender to extremists
On the face of it, neither side has gained from this stand-off. Only 45% of Americans approve of Mr Obama’s performance. The approval rating for Congress dropped to 9% in one recent poll. A plurality of Americans call themselves independents, and on the most divisive economic argument—how to solve the budget mess—two in three of them back a combination of spending cuts and tax rises. But politics is being driven by extremists who reject any such compromise (see article).
The right is mostly to blame. Ronald Reagan, a divorcee who did little for the pro-life lobby and raised taxes when he had to, would never be nominated today. Mr Romney, like all the Republican presidential candidates, recently pledged to reject tax rises, even as part of a deal where spending cuts would be ten times bigger. Mr Cain surged briefly to the front of the pack because of a plan that would cut personal taxes to 9% (seeLexington); Mr Perry lost support for wanting to educate the children of illegal immigrants. Meanwhile, in Congress, the few remaining pragmatic Republican centrists, like Senator Richard Lugar, are being hunted down by tea-party activists.
Mr Obama has tried harder to compromise. But he foolishly failed to embrace a long-term budget solution put forward by the bipartisan Simpson-Bowles commission, which he himself appointed. Ever since the furore over the debt ceiling this summer, he has “pivoted” to the left, dabbling in class war, promising his supporters that the budget can be solved by taxing “millionaires and billionaires”. He is also trying to issue more executive orders, to bypass Congress (see article).
The divisiveness is hardly new, but it is increasingly structural. As the battle for billions of campaign dollars heats up, neither side dares grant the other any modicum of success, or risk the ire of its donors by appearing to compromise. Gerrymandered districts mean that most congressmen fear their partisans in the primaries more than their opponents in the general election. Ever more divisive media feed the activists’ prejudices. So, at worst, a bitter contest could merely reinforce the gridlock, with a re-elected, more leftish Comrade Obama pitted against a still more intransigent Republican Congress.
Wishing on a star
In other countries such a huge gap in the middle would see the creation of a third party to represent the alienated majority. Imagine a presidential candidate next year who spelled out the need for deep future cuts in spending on entitlements and defence, as well as the need to raise some revenue (largely by getting rid of deductions); who explained that the pain would be applied only after the recovery was solidly in place; who avoided class or culture wars; who discussed school reform without fear of the Democrats’ paymasters in the teachers’ unions. Better still, imagine a new centrist block in Congress, which might give that candidate (or for that matter a President Obama or Romney) something to work with in 2013.
And so the fantasy continues, for that is sadly what it is. Even if the money were forthcoming, there are all sorts of institutional barriers, especially to starting new parties, and the record of even very well-heeled third-party presidential candidates is bleak. Instead, the middle will have to be recreated from what is already there.
The immediate, rather slim, chance is of a grand bargain on the budget emerging out of a congressional “supercommittee” set up after the debt-ceiling fiasco. If it were to embrace a centrist option, politics over the next year would be considerably more civilised. But it too appears deadlocked, with the Republicans once again ruling out tax increases of any kind.
So, back to the campaign. It is not entirely without hope. You can win the White House only by winning that disenfranchised middle. For Mr Romney and his party the danger is clear: the Republicans’ intolerant obstructionism could drive independents away. But Mr Obama also has a lot to prove. Why re-elect a man who has failed to unite Americans? Now should surely be the time for the president to seize the centre ground. Otherwise, in a year’s time he may well see his own name added to the rolls of those who have lost their job.

The presidential race one year out: America’s missing middle | The Economist


From Peter Schiff of Asia-Pacific capital

SOUNDS GOOD, BUT WAIT, There is something hidden behind all those 9’s…

Theres A Hidden 9 In Herman Cains 9-9-9 Plan

http://www.businessinsider.com/theres-a-hidden-9-in-herman-cains-9-9-9-plan-2011-10

October 18, 2011
Herman Cain has been gaining much traction with his 9-9-9 Plan, a bold proposal to replace our dysfunctional tax code with what could be a simpler, less invasive, and more economically stimulative alternative.
While I don’t agree with the full spectrum of Mr. Cain’s policy choices, I applaud his courage on the tax front.
Judging by his rising poll numbers, this appreciation is widely shared.
However, the plan has deep flaws, the most glaring of which is its creation of a hidden payroll tax which represents a fourth “nine.” This serious pitfall has been unmentioned by Mr. Cain and overlooked by those who have analyzed his plan.

Cain would replace the current system of income and payroll taxes with a 9% flat-rate personal income tax, a 9% corporate tax, and a 9% national sales tax. Great idea. Such a system would unburden businesses, provide a tax cut for most Americans, and shift taxation to consumption and away from income generation. \
This is exactly what our economy needs. But unlike our current corporate tax system, the plan eliminates the deductibility of wages and salaries from corporate income. The net effect is the creation of a brand new 9% tax on wages. When this fourth 9 falls from Cain’s sleeve, many of his opponents will likely accuse him of cheating.
Much of the plan’s virtue lies in its elimination of Social Security and Medicare taxes (payroll taxes) that fall heaviest on lower income workers. This includes the 6.2% Social Security tax and the 1.5% Medicare tax paid directly by the worker. But it also includes the 6.2% and 1.5% portions paid indirectly by workers through their employers. Payroll taxes are, in reality, a cost of employment.
From the employer’s perspective these costs are part of the wage package. Absent these taxes, employers could raise wages by an equivalent amount without raising labor costs. Inclusive of this portion, payroll taxes currently cost workers 15.4% of their wages.

The Cain plan scraps this tax. But the elimination of wage deductibility from corporate taxes replaces it with a 9% payroll tax. Therefore a more honest name for Cain’s proposal is the 9-9-9-9 plan. The forth nine changes everything.
Cain admits that the 9% sales tax would fall heaviest on the poor, but he claims that the elimination of the payroll tax would more than compensate. But when the hidden 9% payroll tax is factored in, more than 50% of workers who currently pay an average income tax rate of just 3% would see a huge tax hike, from 18.4% (former payroll tax plus income tax) to 27%: 9% payroll tax, 9% income tax and 9% consumption tax (poorer workers generally spend all their income).
On the other hand, high income tax payers get a huge break. Not counting the consumption tax, the 9-9-9 plan reduces the highest marginal tax rate from 38% (35% income tax and 3% payroll tax – on income over $105,000) to just 18% (9% income tax plus 9% payroll).
For the self-employed, who can transform their wages into dividends (that are deductible business expenses under the 9-9-9 plan), the rate would fall to just 9% (all income tax, no payroll or business tax). Of course, in either case, the 9% sales tax will apply to spending, but even if 100% of earnings are spent (which is generally not true of high earners) the top rate would still top out at only 27% for the highest salaried employees and just 18% for the self-employed. In essence, tax cuts for the rich are paid for with tax hikes on the poor and middle class. If these aspects were widely known the plan would become a political dead letter.
Even with its flaws, the 9-9-9-9 plan would create an economic windfall by lowering the top corporate rate to 9% from 50% (35% at the corporate level and 15% on dividends taxed at the individual level), and simplifying the tax code to reduce unnecessary compliance costs and the economically inefficient behavior that is created by perverse tax incentives.
These changes alone will make America far more globally competitive. Also by taxing individuals based more on what they spend rather than on what they earn, the plan will encourage more savings (which is a key ingredient for economic growth). As a result, the economy will grow faster, generate greater output of goods and services, and create more jobs.
The problem for Herman Cain is that unless he slashes government expenditures, his pro-growth tax structure will inevitably shift more of the tax burden to low and moderate-income people. The only way to combine tax reform with tax reductions for most taxpayers is to shrink government to a more manageable scale.
The size of the tax increases required to keep Cain’s 9-9-9-9 plan revenue neutral demonstrates just how high a percentage of our current taxes are being paid by affluent taxpayers. Couples making more than $250,000 and individuals making more than $125,000 only constitute about 3% of taxpayers but pay almost half of all taxes. Any policy that cuts their taxes will inflict a disproportional hit on government revenue.
Contrary to the rhetoric emanating from the American left, the “rich” are currently paying a lot more than “their fair share.” It is only a handful of mega-rich, those whose entire incomes are derived from dividends and capital gains, rather than salaries or business profits, who have the ability to pay lower tax rates than some members of the middle class. The left knows this but continues to build their “free loading millionaire” straw man because it makes good politics.
In the final analysis, if Cain really wants a 9-9-9 plan that doesn’t raise taxes he needs to remove the hidden 9% payroll tax. However, the only way this could be done, without blowing an even bigger hole in the federal deficit, is to combine his plan with significant spending cuts. If he can pull that off, three nines may be a winning hand after all.

There’s A Hidden 9 In Herman Cain’s 9-9-9 Plan

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Posted By David Rothkopf

Little could seem so remote from one another than the 9-9-9 tax reform plan of Herman Cain and the chants of the “other 99 percent” as they occupy Wall Street. One is the politically motivated brain-child of a millionaire businessman while the other is a product of the barely contained anger of young people frustrated by the corruption and inequity inherent in the global politics and business today. Yet these two movements are actually linked together in more ways than you might think, nine to be exact:
1.) Both are products of the politics of alienation. Vast majorities on the right and left feel that the system is no long the means by which we fix our problems — it is the problem. They feel that politicians and Wall Street and big business are self-dealing and leaving the vast majority of Americans
2.) Both are fueled by a belief that the American dream is broken. The self-dealing has essentially gutted the promise of a better future for all those willing to work for it. The essentials of that dream — a home, the value one can build in that home, rising wages, a better tomorrow for our kids — they’re all gone or compromised for most Americans. For those who didn’t go to college there was once an opportunity to join the middle class and have a life of dignity — also gone. The idea of retiring seems also destined to soon become an exhibit in the Smithsonian as few Americans indeed will be able to afford it.
3.) Both turn on a common theme — driven by an intense indignation at inequity. It’s not just that they system is broken, as Nick Kristof writes compellingly in yesterday’s New York Times, it is that it has been gamed. A tiny few benefit and the rest of us of the country — the 99 percent, the residents of Main Street — are falling hopelessly, helplessly behind.
4.) Both a reactions against “the establishment” — although different halves of the establishment. The Tea Partiers think government is the problem. The Occupy Wall Street crowd think it’s the financial community or big corporations. The reality is that it is the collaboration between the two for decades (centuries actually) to change the rules of the system to give monied interests the upper hand, a free ride, bailouts when they need it (even when average home owners get nothing), etc.
5.) Both have “good hooks” — they are easily digested, communicated, understood. The reason that 59 point plans and 1000 page pieces of legislation get no traction is that they are difficult to communicate, understand, debate effectively. Condemn Cain or the protestors all you want, they are connecting because they are dealing at a visceral level with a problem that actually lives in people’s guts.
6.) Neither is truly radical. One is the defense of the status quo dressed up in the garb of “change” (where have we seen that before?). The other is unfocused anger. Radical would require an effort to really, truly and deeply challenge and change the system — to get money out of politics through federally financed elections, to limit the size of banks, to demand transparency and tighter regulation of derivative products, to effectively challenge corporate compensation systems, to toss out the current tax code and start over with something simpler…and, sorry Herman, fairer. We are at a time that demands real, constructive radicalism, a willingness to question everything, to embrace “dangerous’ ideas, to ask why we have markets, why we have the system of government we have, what our collective goals are, what our core political philosophies are and to be willing to remake and rebuild those institutions and systems and processes that don’t conform to our vision and our ideals
7.) Both are preludes to real change — but neither in its current form is the ultimate vehicle for that change. Because there is no “ask” for the Occupy Wall Street people, because 9-9-9 doesn’t add up and would be deeply unfair to poor and middle income Americans, the movements are more noteworthy for what fuels them than where they are going. The frustration will either lead to a real constructive change agenda…or it won’t, problems will deepen…and the real call for change will come more emphatically later.
8.) Each is being misinterpreted by the other. The Occupy Wall Streeters are not, as accused by the right, “anti-American.” At their core what they are doing is as fundamentally American as can be. The Tea Partiers may not be my cup of…well, they may be hard for me to swallow…but they do have a legitimate beef that the government needs to operate in their interests and within its budget. That’s not to say one side will agree with the other…it’s to say that both should listen carefully for what is the same in their arguments. (So too should politicians on both sides who are too quick to view all this as politics as usual…and to play it as such.)
9.) Both should be welcomed by everyone — they are a sign of long-overdue activism. Now the job is to translate that activism into meaningful change…which I think may require a very different set of political leaders and parties than we have today.

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Nine things that 9-9-9 and the ‘Other 99’ have in common – By David Rothkopf | David Rothkopf

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