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Does Cain’s 9-9-9 tax plan add up?

By Kay Bell · Bankrate.com
Thursday, October 13, 2011
Posted: 11 am ET

Who here ordered a new U.S. tax system? You? Great. Here you go. That'll be 9-9-9. And don't worry about tipping your delivery blogger.

Actually, 9-9-9 isn't the price of the tax reform plan offered by Republican presidential candidate Herman Cain. It's the name of his proposed solution to our convoluted tax system.

Cain wants to scrap the current federal tax code and replace it with a 9 percent national sales tax, a 9 percent individual income tax rate and a 9 percent corporate income tax rate.

But can Cain and his tax plan really deliver?

Americans have a strong love-hate relationship with the Internal Revenue Code. We love the provisions, regardless of how complicated they are, that provide us personal tax breaks. And we hate the rest of the tax laws that benefit others.

That's why, despite the loud cries for tax simplification, the tax code keeps growing each year. Once a tax break makes it into law, it's very difficult to erase it. And once someone else gets a benefit, another group raises Cain, so to speak, to get their own tax benefit.

But you've got to give the former Godfather's Pizza executive props for trying.

And it's already been a winner on one level. Cain's tax plan has raised awareness of his presidential quest enough to vault him into first place among GOP candidates in the latest Wall Street Journal/NBC poll, slightly ahead of former frontrunner Mitt Romney.

Of course, part of the reason folks like the Cain 9-9-9 plan so much is that it's (a) new and (b) short on details.

After an unspecified time of the flat 9 percent individual and corporate tax rates, Cain would then transition his system to the FairTax.

This tax plan was suggested by the group Americans For Fair Taxation. It has been around for 20 or so years. Under it, all income, estate, capital gains and payroll taxes would be abolished and replaced with a flat sales tax on all goods and services.

FairTax advocates say the rate would be 23 percent. Others say it would be closer to 30 percent. And a presidentially appointed panel that looked into tax reform in 2005 determined that a national sales tax would have to be set at 34 percent to produce the same income (back then) as the current system.

Let's stop right here.

Cain says his system is simple. But he wants to redo the current U.S. taxation method twice, first with his triple nines plan and then by scrapping that to go to the FairTax. That's seems rather complicated to me.

And we've not even addressed the $800 billion a year for Social Security that would disappear when the payroll tax goes.

As for the FairTax, it really isn't. A sales tax is the most regressive form of taxation around. A regressive tax is one that poses a greater burden relative to a consumer's resources. And a sales tax at any rate costs poorer consumers more than it does wealthier individuals.

Cain has said that his FairTax will include a form of rebates for low-income residents. But again, he's not offered any specifics. And again, setting up such a system will start adding complexity to his supposedly simpler tax system.

And don't forget that the national sales tax at any rate would be on top of state sales taxes.

So enjoy the attention, Mr. Cain, that the public loves to give shiny new (or seemingly new) ideas put forth by novice political candidates. But don't expect your 9-9-9 plan to add up to real tax reform.

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13 Comments
Scott
October 17, 2011 at 3:35 pm

"Cain has said that his FairTax will include a form of rebates for low-income residents. But again, he's not offered any specifics. And again, setting up such a system will start adding complexity to his supposedly simpler tax system."

Kay Bell, you are completely incorrect on so many levels. Let me count the ways:
- First off, it's not Cain's FairTax. He just endorses the plan.
- Secondly, the prebate has been laid out in great detail. It covers basic essentials up to the poverty line, so the poor still pay nothing in this "regressive" tax system. Try reading "The Fair Tax Book" by Linder and Boortz, then rewrite your article.
- Thirdly, the government sends out checks (or direct deposits) into a huge number of accounts every day already. This adds no more complexity.
- Fourthly, do we really believe the current system is unbelievably regressive, when 47% of the population pay no federal income tax? Maybe something a bit more regressive is in order. This isn't it, but I could support this, especially in how it expands the tax base and taxes the underground economy, which includes illegal aliens, drug dealers, etc.

Gil
October 17, 2011 at 3:23 pm

I dont understand how you get to the conclusion that Rich people will pay less than poor people, doyou know how much rich people consume ???. 9% is 9% here and in China, the more expensive what I buy the more my 9% and Vice Versa.
I dont understand either why no one talks about big Corporations getting ALLL their loop holds closed, I would love to see GE finally pay taxes...
I also do not understand how no one seems to see that at that rate, Companies will come back to the US to spend their hard earned money of China, in the US... nor how I will pay 9% of my middle class salary instead of 16% and then buy what I want makinf it my decision... It's strange that something so simple, is failled to be understood... Incredible !!

Steve Hamilton
October 16, 2011 at 11:13 pm

Just what we need: another hip shooter, who can't analyze complex problems, and so proposes a simple "solution", without examining the unintended consequences; lower income citizens will end up paying more dollars in taxes to fund the Federal government. Why does Cain, (or anyone) think this is a good idea? I think it's terrible. I subsist on a Social Security pension that I paid for over a 50 year career, and I barely get by now. His system could end up making me homeless. And what about returning vets, who are having a tough time finding decent paying jobs, why should we increase their tax bills?

RB Boren
October 16, 2011 at 10:40 am

mastadonarmy:

A sales tax costs poorer consumers a greater proportion of their income than it does wealthier individuals..

Contrary to your nitpick, wealthier individuals do not necessarily pay more dollars than others under a sales tax, because it depends on what exactly is taxed.

For example, under the FairTax, rent is fully taxed, including property taxes embedded in rent...while the purchase of an existing home (the vast majority of home purchases) is not taxed, and property taxes paid by a homeowner are not taxed.

So under the FairTax, most of a homeowner's mortgage payment (the principal, the property taxes and part of the interest) might be exempt from tax, thereby allowing a (wealthier) homeowner to spend more than a renter while paying less FairTax than the same renter.

Jim
October 16, 2011 at 7:25 am

So, Barack wins and Citizens of the USA lose. Whichever candidate wins... it's a sad tale of two sad Parties.

bob ellis
October 15, 2011 at 9:59 pm

I'm in favor of a federal sales tax because when I disagree with the government, I can eat rice and beans, and ride my bike, and deny the government of any meaningful revenue.

And I'd certainly like to see all the tax accountants, tax lawyers, and IRS employees getting laid off by the implementation of the 999 plan. Think of all the people that will be put out of work by it, both in the government and private sectors. Fantastic!

It'd be interesting to know what Cain will do with all the IRA and 401(k) plans. Will they all get taxed at your current income levels before moving into the no taxes for capital gains and dividends state? That'd be a nice windfall for the government.

And just before the 999 plan goes into effect, I imagine there'd be a huge amount of purchases being made, by folks who can afford to buy now and save on the federal sales tax. It'd be just like the cash for clunkers program where car sales went up, and then way down.

I'd bet that Cain's 999 plan will devastate this country, and he's got my vote 'cause I'd like to see just how many stupid Americans there are.

Ruben Lopez
October 15, 2011 at 6:28 pm

Let me see if I can dissect this correctly. We got into this mess because our elected government did not do their due diligence. We are spending and spending at an accelerating pace, funding programs that do nothing more than promote lazy people. We got shoved a healthcare that we cannot possibly fund, then they are going to suck our wallets for more money because they overspent OUR money so we now have to pay OURSELVES, and now they are making us feel so bad that we owe so much money that we are willingly saying yes to raising taxes, yes to take more of my money. This plan from the government is BRILLIANT! a massive psychological attack on the human race.

mastadonarmy
October 15, 2011 at 4:15 pm

"And a sales tax at any rate costs poorer consumers more than it does wealthier individuals."

Ok, so a 'poor' person spends all 25-35k and their tax is 9 percent on what ever they buy. When a 'rich' person earns $1,000,000 and they spend most of it they pay 9 percent tax on, say, $900,000. Those numbers add up to the rich paying MORE.

Keith
October 13, 2011 at 3:01 pm

Commenters: Stop yelling! :)

Yeah, this plan is politically tone deaf. Giving the wealthy a huge tax break right now? Going towards an even more regressive tax system? What?

This change would kick off a double dip recession as the tax would hit people who spend all of the money they make the hardest.

The code needs to be adjusted in some simlified way -- most agree on that -- but there are simplifications that are equitable rather than this garbage.

robert scorza
October 13, 2011 at 1:06 pm

SORRY REPUBLICANS, YOU HAVE A VERY WEAK GROUP OF CANDIDATES BARACK WILL WIN AND EASILY