Herman Cain is now considered a front-runner in the race for the Republican nomination. Mr. Cain's meteoric rise in the polls has been driven by his proposed 9-9-9 tax plan, which would scrap the current tax code in favor of a 9% flat tax on personal income, sales, and "business income." Mr. Cain is to be commended for trying to drastically reform the tax code, but his plan presents an unending list of problems.
Here is a small sampling:
The Misleading Business Tax
First of all, Mr. Cain's presentation of his plan is misleading. His "business income tax" is nothing like the current corporate tax.
Here is a simple way to prove that the two tax systems would be completely different: Currently, the corporate tax code raises about $300 billion per year with a 35% tax rate (although because of various deductions, the effective tax rate is closer to 23%). Mr. Cain estimates that his 9% business tax would raise $862 billion per year. If Mr. Cain's plan were a corporate tax, corporate profits would have to increase by a factor of six to make these numbers line up. Clearly, Mr. Cain's business tax is not a corporate tax as we know it.
So what is his business tax? Many others have looked at what few details exist of Mr. Cain's plan, and they have come to the conclusion that it resembles a value-added tax, or VAT--which is essentially a sales tax. In other words, Mr. Cain's plan would really involve a 9% personal income tax and an 18% (9% + 9%) sales tax.
Revenue Estimates
The US had a $1.3 trillion deficit this fiscal year. Affordable tax reform must at least be revenue neutral. Mr. Cain has stated that his plan meets that criterion, but this is a very dubious claim: An analysis by Bloomberg says that Mr. Cain's plan would fall short by $200 billion per year.
But in reality, both Mr. Cain's and Bloomberg's analyses are unreliable because of the guesswork involved in creating these estimates. When Mr. Cain was asked why Bloomberg came up with different numbers than he did, he said it was because "they start with assumptions that we don't make."
This is the precisely the point.
Both Mr. Cain and Bloomberg were presumably using a dynamic model, in which they assume that the lower tax rates will increase economic growth, and thus, tax revenue. But the precise quantitative relationship between tax structure and economic growth is unknowable, especially for such a radical departure from the current tax code. By altering your starting assumptions, you could come up a broad range of revenue estimates. To put it simply, we have no idea how much Mr. Cain's tax plan would raise.
Whittling Away at the Base
One thing that we do know is that the simple 9-9-9 plan would not stay so simple. Already, Mr. Cain's plan will allow deductions for charitable contributions--what's to prevent Congress from adding deductions for retirement savings, or health insurance, or any other tax benefit?
Similarly, Mr. Cain has exempted used items from the sales tax. I predict similar exemptions would be extended to food and clothing.
Mr. Cain's plan would soon fall prey to the same lobbying that created our current convoluted tax code. In this way, the political realities of broadening the base make revenue neutrality even more difficult to achieve.
Making the poor pay
The previous problems--the misleading business tax, the unreliable revenue estimates, and inevitable hacking away of the tax base--are minor inconveniences compared with Mr. Cain's proposed transfer of wealth from the poorest to the richest.
Right now, the United States has a (mostly) progressive tax system: in general, higher-income earners pay more in taxes than lower-income earners. By only having flat rates of 9%, Mr. Cain immediately destroys any progressivity in the tax code.
But the reality is worse than that:
Most poor and middle-class workers earn their income through wages, which would then be taxed at 9%. Wealthier people also earn a significant portion of their income as capital gains, which Mr. Cain would not tax at all. Furthermore, the poor tend to consume what they earn immediately, paying Mr. Cain's sales and VAT taxes immediately. While the rich will eventually consume most of what they earn, some of it will be left to their estates at their death, which would, again, not be taxed.
In other words, 9-9-9 would invert the tax code. Instead of the wealthy bearing the greatest share of taxes, the poor and middle-class would have the highest tax burden.
This country needs a serious discussion about the tax code. I am thankful that Mr. Cain has initiated this discussion, but 9-9-9 is not the solution we need.
Follow Robert Pozen on Twitter: www.twitter.com/Pozen
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"In other words, 9-9-9 would invert the tax code. Instead of the wealthy bearing the greatest share of taxes, the poor and middle-class would have the highest tax burden."
I've said this numerous times and I'll say it again and again until I'm blue in the face: this all goes back to Universal Tax Rule #1:
When rich individuals and big multinational corporations don't pay taxes or pay less than their fair share, SOMEONE ELSE MUST MAKE UP THE DIFFERENCE. Here's a question for all you working class folks who post here: Can you guess who that someone else always is?
[cue the "Final Jeopardy" theme]
Because Cain and his fellow Republicans KNOW the immortal words of P.T. Barnum:
"THERE'S A SUCKER BORN EVERY MINUTE"
Now as far as proving them wrong is concerned, remember G.W. Bush and the 2000 presidential campaign? I feel it's only fair to warn you: in the end, enough people voted for Bush -- TWICE! Remember the ancient proverb, "Fool me once, shame on you -- fool me twice, shame on me".
'Nuff said.
Dear Josh: I believe Robert said it best with this line from his article:
"In other words, 9-9-9 would invert the tax code."
Correct me if I'm wrong on this, but isn't 9-9-9 the inversion of "6-6-6" (i.e. upside down)?
;-)
“Cuts" demanded by RepubliCons to "reduce the deficit", predictably impact the poor & middle classes disproportionately, while no one dares support cuts to wasteful trillions in "defense" spending. What makes a nation united - the forgotten concept of nationhood, has been abandoned by a system that rewards greed & waste; the quaint notion of the Common Good replaced by common greed, & tens of millions will remain, or become, wage slaves & serfs to the new robber barons, corporate greed & uber-wealthy leisure-class, who don’t care about their brothers & sisters except as sources of wealth.
When the richest 400 families control more wealth (& therefore more political influence & power) than the “bottom” 100 million households, there is something terribly wrong with our nation & so-called leaders. http://www.politifact.com/wisconsin/statements/2011/mar/10/michael-moore/michael-moore-says-400-americans-have-more-wealth-/
Greedy inhumane Capitalism has infected & subverted the very foundations of our Democracy & MUST be broken! OWS!
Why not have a national sales (Consumption or Value Added) tax, disband the IRS, and fire most of the IRS employees.
Call this a "Value added tax" or a "Consumption Tax" and it will be easier to sell to the US public.
Make New Products, New Vehicles, New Houses, New House Additions and Improvements, Fast Food, pre-prepared food from grocery stores, Restaurant Charges, Sports Tickets, Entertainment Expenses, New Vehicles, New Boats, Building Materials, all labor, and other similar new purchase items taxable.
Make uncooked food, used clothing, rent up to a minimum monthly amount, and any similar items exempt to help the poor.
Businesses would also pay these taxes on new plant constructions, new plant expansions, plant maintenance supplies, replacement parts, consumable office supplies, and other similar expense items that are used in the manufacture of products (and not re-sold).
Utilities consumed in manufacturing products for retail sales, maintenance labor, operating labor, administration Labor, manufacturing labor, could be (remain) exempt from consumption taxes since these tax costs will be collected at the retail sales level.
Wholesale materials, parts, etc. that are re-sold should not be taxed until the final sale is made to the end user or retail consumer (like state taxes).
Foreign Exports could be taxed at a different rate, or maybe not taxed at all to make our export products less expensive to foreign buyers and this might improve our balance of trade,
Generally each item produced shall pay taxes only one time when that item is newly manufactured and sold into the market to the final user and/or retail consumer. Pay the states to collect these taxes (these systems are generally in place) and minimize the number of federally paid employees collecting taxes.
Make the sales tax one time on new cars, and then no additional sales taxes on the subsequent times that the used vehicles are sold. Tax the new parts and maintenance labor as these expenses are applied to these used cars.
Make the sales tax one time on new Houses, and then no additional sales taxes on the subsequent times that the used houses are sold, except on the amount that the sale increases above the previous sale price.
Repeal the Tax Code with its special tax breaks for various special interests, farmers, tobacco growers, dairymen, etc.
I've got a simplier plan, tax all business on the gross and only allow one deduction, wages and benefits for employees in the USA between $35k and $250k. No other deductions allowed. People would go back to work with some responsible income to spur retail. We could start to walk away from foreclosures and we would have a stimulus that would work.
Then came Reagan and the laughable curve and tax codes to"equalize.'"AND SOME DANDY WARS and bush tax cult cuts and 2 more ten year wars unwinnable at that.Who voted Republican?
By the way Bush signed the first trade deal with communist Vietnam 25 years after they beat us.
It would raise taxes on the poor and decrease taxes for the rich - exactly the opposite of what we need.
A sliding tax rate based on the ability to contribute to our society has always worked best.
9-9-9 is just special interests' big money at work again... watch for other similar efforts!
Truly is mind-boggling that a large portion of our country is so undereducated and willfully ignorant that they've mistaken a meal deal for a tax plan.
Answer: NONE.
Romney is quiet, but gladly taking in huge contributions from big business. Bachman is turning into a wacko in my opinion, Newt has some great points, but has not taken a stance on tax matters.
Adjust 9-9-9 so it DOES tax across the board. Tax those stock earnings at 9%, tax the death rate at 9% (instead of 50%), cut off the 9% at $25,000 so those earning substantially lower don't pay 9% but something different.
As for charities - STOP sending US Tax dollars to other countries and leave it up to the actual tax payer to determine where they want to contribute.
In any case, it may be that the other candidates know that a bumper sticker tax plan is not a plan at all; they understand the complexities involved even if their taxation preferences are somewhat "misguided"...
Absolutely disgusting.
Americans, if you fall for this crap, you richly deserve it.