This week, we take a look at Herman Cain’s 9-9-9 plan. Cain’s recent surge in the polls could be nothing more than the flavor-of-the-week dance that best describes the Republican primary to date. That being said, it is worth noting that his radical approach to the tax system strikes a frustrated chord with many Republican primary voters and helped bring his campaign out of single-digits.
The plan itself is simplistic and gimmicky, yet not well thought out, resulting in a de facto 25.38% national sales tax before deductions and dividends. But see for yourself in this week’s episode of 90 Second Summaries.
90 Second Summaries: Season 2, Episode 25
Herman Cain’s “9-9-9” Plan
Status: Mostly dependent on the fate of Herman Cain’s presidential campaign. If he is elected, the plan would still need to pass through both houses of Congress.
Purpose: At the outset of his 2012 presidential campaign, businessman, conservative commentator and former 2004 Senate candidate Herman Cain was considered an afterthought, the longest of longshots. Having never held public office of any sort, Cain has demonstrated rather undefined beliefs on a variety of issue areas. Yet as conservatives have failed to consolidate around an alternative to Republican frontrunner Mitt Romney, Cain is gaining significant momentum in the polls and attracting increased scrutiny in the process. In need of a substantive policy proposal to distinguish his campaign and further boost his momentum among Tea Party supporters, Cain introduced the now-famous 9-9-9 plan.
Summary: The 9-9-9 plan radically restructures the federal tax code in the following way:
1. Eliminates the personal and corporate income taxes, payroll taxes supporting Social Security and Medicare, capital gains taxes, estate and gift taxes, and taxation of repatriated corporate profits.
2. Replaces the eliminated revenue sources with three simple taxes:
• 9% Business Flat Tax – encompasses gross income minus all purchases from other U.S. located businesses, all capital investment, and net exports (but not wages). Its effect is very similar to a VAT (value-added tax) like those used in Europe.
• 9% Individual Flat Tax – encompasses all wage and dividend income minus charitable deductions. As a flat tax, it is actually very similar to the plan’s business tax, except the tax is paid by individuals and not businesses.
• 9% National Sales Tax – a tax similar to that levied by most states, but is included in the retail price of a good or service rather than added on. Also, unlike most states, it does not exclude basic necessities like food, health care or clothing.
Given that these three taxes are in fact very similar in nature, they can functionally be combined into one rate. After accounting for the effect of overlapping tax sources, the plan would result in a de facto 25.38% national sales tax before deducting charitable donations and corporate dividends paid to nonprofit organizations. Cain also calls for the ultimate adoption of a “Fair Tax”, but this plan would effectively achieve that goal.
(See our summary of the Fair Tax plan: http://www.mainstreetinsider.org/90secondsummaries/?p=104)
Note: The Cain campaign’s policy documents include mention of “empowerment zones” to lower the individual and business burden on certain communities, but no details are given.
CBO Score: None provided. The Tax Policy Center did evaluate the plan, and found it would be roughly revenue neutral (assuming current tax policy is extended indefinitely), but dramatically shift the tax burden from the rich to everyone else.
Supporters: most Cain campaign supporters, leading supply-side economist Arthur Laffer, most FairTax supporters
• Supporters believe the 9-9-9 plan will create a more efficient tax system that will improve incentives to work and decrease the economic costs of tax compliance.
Opponents: virtually everyone else
• Opponents arise from across the political spectrum and thus derive their opposition for a variety of reasons. Democrats and progressives generally decry the massive shift of the tax burden to lower- and middle-income Americans, while some conservatives oppose the creation of a new national sales tax.
Cain campaign official overview: http://www.hermancain.com/999plan
Cain campaign video promoting 9-9-9: http://www.youtube.com/watch?v=-IuiEmXoBhI
Tax Policy Center study with distributional effects (includes charts): http://www.taxpolicycenter.org/taxtopics/Cain-9-9-9-plan.cfm
TPC analyst Howard Gleckman’s explanation of the study results: http://bit.ly/rnM7V6
Miami Herald article on business opposition: http://www.miamiherald.com/2011/10/14/2453651/business-groups-blast-cains-9.html
Arthur Laffer op-ed in support of the 9-9-9 plan: http://on.wsj.com/r768vd