Is Herman Cain's 9-9-9 tax plan fair?
WASHINGTON – Herman Cain's standing in the polls in the race for the Republican presidential nomination has risen with the popularity of his 9-9-9 tax plan, which has become a signature issue for the former pizza company executive.
By Evan Vucci, AP
Republican presidential hopeful Herman Cain during a speech at the Values Voter Summit in Washington on Friday.
The crowds who come to see him speak routinely cheer at its mention.
The plan, which calls for a 9% income tax, 9% national sales tax and 9% corporate income tax, would create tax equality and stabilize federal finances, Cain said.
"And it'll save all of us, collectively, $430 billion a year that we spend to fill out the stupid tax code — 9-9-9," Cain said at a speech in Washington last week.
Not so fast, say tax experts from all parts of the political spectrum. While Cain's plan has an appealing simplicity to Americans frustrated with the nation's labyrinthine tax system, it would dump a much heavier tax burden on low-income citizens.
Cain's campaign has not released enough specifics about the plan to determine whether it is progressive or regressive, said Will McBride, an economist with the nonpartisan Tax Foundation, but "any sort of movement to a consumption tax, which this is with the sales tax, is a move away from progressivity."
"Warren Buffett can't reasonably spend $40 million a year on consumption," he said. "It just happens that folks that make more money, they consume less of their income."
Cain’s 9-9-9 tax plan
9%
Business flat tax
Taxes gross income minus all investments, purchases from other businesses and dividends to shareholders. Creates empowerment zones that will offer deductions for payrolls of people employed in the zone.
9%
Individual flat tax
Taxes gross income minus charitable deductions. People who live or work in empowerment zones will receive additional deductions.
9%
National sales tax
This would be in addition to state and local sales taxes.
Source: Herman Cain campaign
Business flat tax
Taxes gross income minus all investments, purchases from other businesses and dividends to shareholders. Creates empowerment zones that will offer deductions for payrolls of people employed in the zone.
9%
Individual flat tax
Taxes gross income minus charitable deductions. People who live or work in empowerment zones will receive additional deductions.
9%
National sales tax
This would be in addition to state and local sales taxes.
Source: Herman Cain campaign
For the 46% of Americans who did not pay income tax last year, the 9% tax would mean an automatic increase, said Roberton Williams, a senior fellow at the non-partisan Urban Institute.
Even the elimination of the payroll tax for Social Security benefits would not be enough to prevent a tax increase for lower-income Americans, Williams said. That's because 23% of taxpayers pay no taxes or get a tax credit greater than the payroll tax, he said.
Meanwhile, Williams said, wealthier Americans would get a tax cut.
"On the top end, 9% is a lot better deal than what people at the top end are paying," he said, adding that the Urban Institute estimates that those who make more than $1 million pay 18% in personal income taxes.
"Going to 9% is going to save them half; that's a nice savings," Williams said. "That's the income tax side: The rich will pay less; the poor will pay more."
Cain's plan would remove tax credits that help lower-income Americans, said Steve Wamhoff, legislative director for the left-leaning Citizens for Tax Justice. Those lost credits would include the earned income tax credit and child tax credit, Wamhoff said. "That stuff would all be lost with Herman Cain's plan," he said.
Cain defended the plan during a speech Friday in Washington, saying his ascent to "top tier" candidate status has put a "bull's-eye" on his back.
"Well, see, the critics are already trying to try and prove why 9-9-9 is not a good idea," he said. "When you see some of these reports talking about it won't do this and it won't do that and it won't do this and it won't do that, they have changed the assumptions. If you want to know what the assumptions are, why don't you come to me and my people, and we'll explain to you what the assumptions are. But they don't want to do that."
Cain's campaign did not return a request for comment.
It's also uncertain whether a consumption-based tax can coexist "alongside an income tax, no matter how low the rates," said Mike Franc, vice president of government studies for the conservative Heritage Foundation.
Also, Franc said, the rates would increase as the government needed more money. "Will a 9-9-9 plan inevitably over the years become a 15-15-15 plan, and ultimately a 30-30-30 plan? Or worse?" he asked.
Cain said on CNN Sunday that unnamed critics who said the plan would not raise enough money "are absolutely wrong because they did a static analysis. We had this done with the dynamic analysis with an outside independent firm, so they are making an erroneous assumption."
Kevin Hassett, director of economic policy studies at the American Enterprise Institute, said the plan would simplify the tax code and not sacrifice current tax revenue. "We'd have pretty high confidence that it could increase growth a lot," he said.
"This is a far more sophisticated plan than one might have expected, given that he is not a person that has been inside politics his whole life," Hassett said. "The Cain plan is really solid. The only criticism one could make is it's too bold or something like that."
