Cain’s 9-9-9 Plan Would Cut Taxes for the Rich, Raise Taxes for Almost Everyone Else

By :: October 18th, 2011

Herman Cain’s 9-9-9 tax plan would result in a massive tax cut for nearly all of the highest earning Americans and a steep average tax hike for everyone else, according to a new Tax Policy Center analysis.

As Cain knows, when you are in the fast-food pizza business marketing is everything.  Your white cheese, pureed tomatoes and slightly-sweet dough are not much different than the other guy’s. So it’s all in the promotion. That’s what’s so clever about his 9-9-9 tax. It sounds great: small numbers, nice symmetry. What’s not to like?

Except this pie is not at all what it appears to be.  A middle income household making between about $64,000 and $110,000 would get hit with an average tax increase of about $4,300, lowering its after-tax income by more than 6 percent and increasing its average federal tax rate (including income, payroll, estate and its share of the corporate income tax) from 18.8 percent to 23.7 percent. By contrast, a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of  nearly$1.4 million, increasing his after-tax income by nearly 27 percent. His average effective tax rate would be cut almost in half to 17.9 percent. In Cain’s world, a typical household making more than $2.7 million would pay a smaller share of its income in federal taxes than one making less than $18,000. This would give Warren Buffet severe heartburn.  

When you get right down to it, Cain’s plan is a 25 percent flat-rate consumption tax—not all that different from the FAIR tax that he says is his ultimate goal. This tax would be paid three times: first on wage income, again at the cash register as a sales tax, and yet again by businesses on their sales minus their cost of goods and services. For tax junkies, the first is a flat tax. The second is a retail sales tax and the third a business transfer tax.  But they are all consumption taxes.

Cain’s triple tax would replace payroll and estate taxes as well as the corporate and individual income taxes as we know them. All deductions, exemptions, and credits (except for charitable gifts) would be eliminated from the individual tax. Because businesses could deduct all their capital purchases, capital income would be tax free. But wages would be taxed—again and again and again. First, directly through the individual flat tax and then, because firms can’t deduct wages as an expense, twice more through the business tax and the sales tax.  

Say you want to buy a pizza. First, under the business tax the pizza guy pays a tax on the difference between the retail price and his cost of producing the pie. Every firm along the supply chain would do the same: The farmer would pay 9 percent on his sales of raw tomatoes minus his costs, the sauce manufacturer would pay another 9 percent. This is just like a retail sales tax, except it is collected at every step of production along the way. But it is still passed on to consumers. Next you pay a separate 9 percent retail sales at the register.  Finally, you have to pay the 9 percent individual flat tax.

There is more. Because employers would be taxed on wages they pay, economists figure the levy would result in lower salaries. Not only would the combination of lower incomes and higher taxes reduce the current standard of living for many middle-class households, those lower wages would also result in lower Social Security benefits down the road.

Cain apparently has an idea for a credit to protect low- and middle-class households from some of the burden of this triple tax, but he has not yet said what it is. And the problem, of course, is the more generous the credit, the less revenue the tax will generate. Because his plan is roughly revenue neutral now, that would force him to either increase the deficit or abandon that nice sounding 9-9-9 and raise his proposed tax rates.

Now, there is nothing wrong with a well-designed consumption tax. There are even benefits to adding a Value-Added Tax to a personal income tax while using it to buy down corporate income and payroll taxes. But a well-designed consumption tax retains a progressive rate structure somewhere in the system.  Cain’s does not. Instead he opts for what is effectively a 25 percent flat rate sales tax. And that’s why he raises taxes on typical middle-income households by more than $4,000 while cutting them on those with the highest incomes by an average of $1.4 million.      

 

50Comments

  1. EMichael  ::  6:23 pm on October 18th, 2011:

    And of course no concerns about tax evasion, which would skyrocket under this thing.

    Pa has a 6% sales tax rate(7 in Phil & Pitt). They lose an estimated $1 Billion a year in tax fraud just in the restaurant industry.

    http://www.bu.edu/law/faculty/scholarship/workingpapers/documents/AinsworthR092010.pdf

    Add 9% of incentive and you will not be able to count the losses, let alone try and enforce the law.

  2. Ralph H  ::  6:39 pm on October 18th, 2011:

    Thanks for starting the dialog. A couple of points. (1) if there were a 4th 9, say a 9% surcharge on income above some threshold, like 300K and it was used for a flat deduction for the first 50K of income would this help cure the problem? I know its not his proposal, but there is no way anything becomes law without changs. It would also retain the simplicity.

    (2) I disagree on the effect of the company 9%. Instead of reducing wages the more likely effect will be to increase prices on new goods. Also this would presumeably eliminate medicare and SSI???

    (3) One thing I like is that we would tax imports so we shift US tax burden to foreign goods from just the US.

    (4) This change could assist in our mortgage mess, by reducing the price of existing homes while increasing the cost of new.

    (5) All companies and persons would save on tax preparation costs. Sorry H&R Block.

    Everything being said it will never pass!!!!

  3. Michael Bindner  ::  6:53 pm on October 18th, 2011:

    It would have been better to have the income tax kick in only on high income earners (and make it range from 4% to 27%), increase the business tax to 33% before the health insurance exclusion and a $500 per month per child refundable child tax credit, with additional credits for providing retiree health care and long term care, a 9% VAT (or more) to fund discretionary spending – with receipts visible (unlike the business tax, which would not be receipt visible or border adjustable because it can be zeroed out with exclusions and credits) – and with net income and Social Security getting a matching 13% bump to compensate for the higher levy, an a 13% payroll tax for OASI, which essentially makes up for lower gross wages because most tax liability is transferred to the employer. Of course, if Cain did that, he would be using my tax plan.

    The real untold story is how he closes the budget gap – by ending federal entitlement programs to states, and presumably the funding as well, and letting them chart their own course. Telling that story essentially makes him unelectable by Tea Party seniors and their families who would have to support Grandma when she is kicked out of her nursing home (since she gave up her house to qualify for Medicaid) as well as GOP governors who would bear the brunt from either cutting back on TANF, SNAP and Medicaid or raising taxes to fully fund them. It is more likely that they will simply tell their party organizations to support someone else.

  4. YesWeCain  ::  6:56 pm on October 18th, 2011:

    I don’t know if it has already been applied to the analysis, but Cain has said that the sales tax will only apply to new (as opposed to used) goods; that he will not tax social security and medicare as income (for obvious political reasons); and that will create empowerment zones with lower tax rates (e.g. 3-3-3).

    I can’t believe that we’re expending serious national brain-power discussing this plan, tho’!

  5. billyblog  ::  7:25 pm on October 18th, 2011:

    DAVID GREGORY: Mr. Cain, the Tax Policy Center has published an analysis claiming that your 9-9-9 plan would result in a $4,000 INcrease in taxes for the average middle class taxpayer and an average $1.4 million DEcrease in taxes for anyone making over $2.7 million. What is your response?

    HERMAN CAIN: I don’t even know who the Tax Policy Center is. Nor does my tax expert, Rich Lowrie. I’ll bet they have never run a business. I’ll leave it to the people to decide whether they should trust me and their instincts or believe some obviously biased inside-the-beltway lobbying group.

    DAVID GREGORY: Fair enough. Let me now ask you about your proposal to let inner city kids bring concealed weapons to school to protect themselves.

  6. EvelynU  ::  9:33 pm on October 18th, 2011:

    This is a perfect example of everything that is wrong with Herman Cain. Ignorance joined to arrogance. “I don’t know anything about that” is not a presidential answer. It’s evasion. He sincerely appears to have no idea at all that running the US economy is orders of magnitude more complex than running Godfather pizza.

  7. Eric S.  ::  10:01 pm on October 18th, 2011:

    Your analysis is (to be charitable), deficient… 1) If you’re going to reduce 9-9-9 into an equivalent 25.4% sales tax, you must equally reduce current taxes, in order to make a mathematically valid comparison. At present, taxes passed along & built into goods/services are in the vicinity of 23%, with income/payroll taxes ON TOP OF THAT (a contribution which I assume is more than just a couple of percent, except at the very lowest brackets). You also must add all other Fed. taxes, gasoline taxes, excise taxes, etc. So, using your own assumptions on both 9-9-9 AND the present system, 9-9-9 should result in LOWER taxes for almost everyone. The worst case possible increase (taxpayers currently paying a net of zero to Feds when ALL Federal taxes are summed) gives a tiny increase. 2) You seem to come quite close to calling all or portions of 9-9-9 a VAT, but the present system has corporate taxes being passed along to the customer @ every step of the way, and is thus logically almost indistinguishable from a VAT already. Any comparison to a VAT is a strawman.

    At least you don’t make the absurd claim that a Fed. sales tax is a new revenue stream (as if nobody’s ever heard of an excise tax).

  8. Cain’s 999 Tax Cut For The Richest 1 Percent: $210,000 Per Year | Greediocracy  ::  10:04 pm on October 18th, 2011:

    […] “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s […]

  9. Michael Bindner  ::  10:26 pm on October 18th, 2011:

    Anderson Cooper also mentioned this study in the debate (I shared the link with him).

  10. Michael Bindner  ::  10:28 pm on October 18th, 2011:

    What Cain was unclear on was that his corporate tax really is a VAT. He thought that the VAT talk was about his Retail Sales Tax – he missed the entire point.

  11. Eric S.  ::  10:28 pm on October 18th, 2011:

    Unfortunately, this study is seriously flawed. (See earlier comment.)

  12. Eric S.  ::  10:30 pm on October 18th, 2011:

    No, its just that people keep throwing the VAT term around (often in ignorance) but it’s just a strawman argument. Our *current* corporate tax is equally as much a VAT.

  13. billyblog  ::  10:45 pm on October 18th, 2011:

    @Eric

    Right, the producers will lower their prices by the implied VAT to which Eric refers as soon as 9-9-9 is enacted, or promptly send consumers a refund check for the difference, you know,like the Americans and Japanese line up for at the counter on the mezzanine at Galeries Lafayette after binge shopping.

    And if they don’t lower their prices or send the refund checks, exogenous producers will, of course, drive down domestic prices by lowering the prices of their goods by (some appreciable fraction of?) what Eric calculates the (“indistinguishable from a”) VAT refund ought to be.

    Get real, Eric. Sharpen your intuitions, along with your pencil. This is not amateur hour.

    BTW, if “9-9-9 result[s] in LOWER taxes for almost everyone,” then 9-9-9, contrary to what its proponents claim — and its opponents concede, at least for the sake of argument — could not be revenue neutral, or nearly so.

    We can cheerfully let Eric decide which horn of that particular dilemma he would care to gore himself on.

    Hmm, I wonder if Eric also mathematically fetishizes Ricardian equivalence?

  14. Eric S.  ::  11:06 pm on October 18th, 2011:

    Weak. You might want to think a bit about competitive forces. The only way your scenario (prices DON’T change) happens is if EVERY SINGLE COMPANY colludes to keep it that way. Not going to happen. Also, taxes can lower for everyone and still be revenue-neutral, because the tax base increases. Not realizing that is, well, amateur.

  15. jmayer  ::  12:24 am on October 19th, 2011:

    Splitting my sides with laughter! “Taxes can lower for everyone and still be revenue-neutral, because the tax base increases”???

    Increasing the tax base, by definition, means raising taxes on those at lower income levels. It’s a potent way of raising revenue, but at best reduces the progressiveness of the tax structure, and at worst, as in the case of 9-9-9, makes it breathtakingly regressive.

    But if one doesn’t understand that increasing the tax base inherently means raising some peoples taxes, and similarly that everyones taxes can’t fall without revenue also falling, then it’s not so much economics as primary school arithmetic that one needs to revise…

  16. syskill  ::  9:38 am on October 19th, 2011:

    Because businesses could deduct all their capital purchases, capital income would be tax free. But wages would be taxed—again and again and again.

    I have a strong sense that this gets to the heart of the 9-9-9 plan’s appeal to the right, and more broadly the appeal of the Bush tax cuts which likewise conferred the greatest benefit on the top 1 per mil. It often seems that the right’s pervading idea of economic justice is that the wealthiest deserve more than the rest of us, but I think the real pervading idea is that wages are by nature less “deserved” than profit or rent. Viewed from this point of view, shifting the tax burden from away from the rich is an expected but unintended consequence of the “rightful” shift from rentiers and entrepreneurs to wage earners.

  17. Cain’s 999 Tax Cut For The Richest 1 Percent: $210,000 Per Year |  ::  9:41 am on October 19th, 2011:

    […] “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s […]

  18. Kelly  ::  12:44 pm on October 19th, 2011:

    I would love to see a valid comparison of Cain’s plan to the current tax structure, but this unfortunately is not it. To boil it down to a 25% flat consumption tax without offering a comparison to the current system (in a similar fashion) is inexcusable. Also, businesses already pay a corporate tax which I am positive is taken into account when they set the prices on the goods we purchase, so I would like to see how anyone thinks they can accurately predict how companies will change prices in accordance with tax policy changes. I know taxes are never a simple thing, especially with the mess that it is in today with all of the deductions/credits, etc, but the typical middle class individual currently is in a 25-28% bracket and would be moved to a 9% bracket…this is a good thing. Now lets throw on top of it the 9% sales tax, and we are up to 18% (yes math is never this simple, but humor me).

    I actually do not believe anything like this would ever pass without a lot of meddling by the politicians (some good and some bad), but I would love to see an honest un-biased analysis on it to determine how it really compares to the current system which is what TPC is normally so good at and why I regularly read each article.

  19. Live-Blog Of CNN Las Vegas Debate | h-info.co.in  ::  1:19 pm on October 19th, 2011:

    […] Cain claims his 999 tax plan “does not raise taxes on those making the least.” Several different analyses disagree. Everyone who makes less than $210,000 would see their taxes go […]

  20. Aaron Krager  ::  1:19 pm on October 19th, 2011:

    Middle class income between 64k-110k? More than half the households in this country earn less than 50k. I’ve always thought of near & just above six figures to be upper middle class if not higher.

  21. Vivian Darkbloom  ::  1:41 pm on October 19th, 2011:

    The 9-9-9 concept is intriguing and it certainly has its potential problems. Nevertheless, I don’t think it is fair for critics to mischaracterize the effects of the plan, or better, the concept.

    Gleckman argues that wages are taxed three times at a tremendous cost to labor . I don”t believe that is true, or at the very least it sensationalizes the effects to the extent that it makes any comparison with the existing system invalid. To what extent labor would be better or worse off under the 9-9-9 system depends on who, exactly, bears the burdens of the respective taxes we currently have, and who would bear the burdens of the taxes proposed under 9-9-9. That’s a tricky question that I don’t think any economist is capable of answering with any degree of accuracy. So, perhaps as a starting point one should try to figure out how this system might work, in practice.

    First, while wages are no longer deductible by the employer under the 9-9-9 concept, most wages are indirectly deductible. For example, if an extractor of raw materials has labor costs of $50 and “capital” costs of $50 and sells those extracted materials to a manufacturer for $150, his labor costs are not deductible while his capital costs are. He is therefore taxed on net income of $100 and pays tax of $9. His employees pay cumulative tax on their wages of $9. Total taxes would be $18. Under the current regime, the employer would pay $3.83 in payroll taxes and the employees would pay the same. Employees would pay, say, $6 in income taxes assuming an average rate of 15 percent. Corporate income taxes (timing differences ignored) would be $17.50 at the statutory rate of 35 percent. Who bears these respective taxes is a good question, but it is likely that at this stage labor pays a higher effective rate than under current law. All taxes under current law would be about $30 and under 9-9-9 about $18. Most economists argue that employees indirectly bear the cost of payroll taxes paid by the employer and a part of corporate income taxes, too. If this is true, one would expect wages to rise and certainly net income. So far, things are looking good for labor.

    Suppose the manufacturer processes these materials into a product using an additional $25 of “capital costs” and $25 of labor and sells the product to a retailer for $250. The total deductible costs are $175 (including the cost of the raw materials and additional “capital costs” but excluding the costs of his own labor). The total taxable profit is $75. Manufacturer pays corporate tax of $6.75. Labor pays income tax of $2.25 for total taxes of $9. Under the current regime payroll taxes would be a cumulative $3.83, corporate income taxes would be $17.50 and individual income taxes (15% rate) would be $3.75. Total taxes would therefore be about $25. Note, however, that at this stage the manufacturer has, in effect, been able to deduct the wages paid by his suppliers. To say that wages are not deductible is at best a half-truth—most wages are deductible by someone except in the last stage of the process–basically the labor costs of retailers.

    Now, suppose the retailer sells the product to the public for $300 after incurring an additional $25 of capital costs and $25 of labor costs. Retailer and its employees are in the same position as manufacturer.

    Consumer pays $27 in tax on the retail of the item purchased. That’s a lot. But how much cumulative tax compared with the existing system remains to be seen. It’s clear that net wage income after income taxes (and eliminated payroll taxes) would be higher and gross wages should be higher, too, given the economic theories of who bears the incidence of current taxes that would be reduced or eliminated. Whether that would be enough to make up for the higher consumption taxes remains to be seen.

    The main problem with the Cain plan is not the theory, it is that the theory really cannot be scored with any degree of accuracy and it is not clear how wages would be adjusted in the market. The “plan” also does not address how we can eliminate the payroll taxes and yet continue to fund social security and Medicare. This type of radical change in the tax system just is not in the cards even in the three stages Cain proposes. On the other hand, If you think the Cain plan is crazy, perhaps you should consider the prevailing systems in Europe and much of the rest of the world where we have income taxes on top of payroll taxes and corporate taxes culminating not in a consumption tax of 9 percent, but consmption taxes commonly 20 percent and more.

  22. pope1944  ::  2:19 pm on October 19th, 2011:

    The current tax law is thousands of pages long and is so full of loopholes the makers of swiss cheese are embarrassed. Maybe 9-9-9 is not the right number but I certainly applaud the effort to get us out of the lobby dominated tax code that we now have and into something much simpler. The premise presented above is heavily flawed and it totally ignores the fact that almost 50% of the “taxpayers” in this country pay NO Federal Income Tax. This proposal will result in less duplicity, more fairness and it should satisfy Warren Buffet and his friends since Warren and his secretary will both pay 9%.

  23. Graphical Representation of the 9-9-9 Plan « The Progressive Discovery of Our Own Ignorance  ::  2:24 pm on October 19th, 2011:

    […] plan the U.S. will entertain for a long time. For more info on the plan, check out other analyses here, here, and here. GA_googleAddAttr("AdOpt", "1"); GA_googleAddAttr("Origin", "other"); […]

  24. Laurie Bowen  ::  3:01 pm on October 19th, 2011:

    Attacking Working Families and The “Widow’s Mite” Paradox:

    There is a the dual definition of taxable income now used by the IRS and Congress today . . .

    If, say Warren Buffet, invests his money his taxable income (profit) is different from the “income” (actually gross receipts) received by his secretary . . . . Warren Buffet may use and does use a principle expressed in:

    Title 26 Subchapter O > PART I > § 1001. Determination of amount of and recognition of gain or loss

    Whereas his secretary is required to use her gross receipts as income . . . even though the prevailing code follows:

    A. TITLE 26—INTERNAL REVENUE CODE
    Subtitle C – Employment Taxes – CHAPTER 24- COLLECTION OF INCOME TAX AT SOURCE ON WAGES – § 3401. Definitions (a) Wages

    1. § 3401 “For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid— . . . .

    § 3401 (8) (B) for services for an employer (other than the United States or any agency thereof) performed by a citizen of the United States within a possession1 of the United States (other than Puerto Rico), if it is reasonable to believe that at least 80 percent of the remuneration to be paid to the employee by such employer during the calendar year will be for such services;” or

    1possession: Title 26 Section 7651 defines any possession as if it were a state and . . . “extend to and be applicable in any possession of the United States in the same manner and to the same extent as if such possession were a State, and as if the term “ United States ” when used in a geographical sense included such possession.” 26 §7651 (1)

    2. § 3402 (e) Included and excluded wages – If the remuneration paid by an employer to an employee for services performed during one-half or more of any payroll period of not more than 31 consecutive days constitutes wages, all the remuneration paid by such employer to such employee for such period shall be deemed to be wages; but if the remuneration paid by an employer to an employee for services performed during more than one-half of any such payroll period does not constitute wages, then none of the remuneration paid by such employer to such employee for such period shall be deemed to be wages.

    3. § 3402 (n) Employees incurring no income tax liability – Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold any tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding exemption certificate (in such form and containing such other information as the Secretary may prescribe) furnished to the employer by the employee certifying that the employee—
    (1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and
    (2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.

    The Secretary shall by regulations provide for the coordination of the provisions of this subsection with the provisions of subsection (f).

    B. TO CONFIRM – TITLE 42—THE PUBLIC HEALTH AND WELFARE – CHAPTER 21—CIVIL RIGHTS SUBCHAPTER I—GENERALLY – § 1994. Peonage abolished
    “ The holding of any person to service or labor under the system known as peonage is abolished and forever prohibited in any Territory or State of the United States; and all acts, laws, resolutions, orders, regulations, or usages of any Territory or State, which have heretofore established, maintained, or enforced, or by virtue of which any attempt shall hereafter be made to establish, maintain, or enforce, directly or indirectly, the voluntary or involuntary service or labor of any persons as peons, in liquidation of any debt or obligation, or otherwise, are declared null and void.”

    4. “The Sixteenth Amendment provides that Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration. U.S. Const. amend. XVI. Furthermore, the U.S. Supreme Court upheld the constitutionality of the income tax laws enacted subsequent to ratification of the Sixteenth Amendment in Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916). Since that time, the courts have consistently upheld the constitutionality of the federal income tax.” For a further discussion see: Internal Revenue Bulletin: 2007-14, April 2, 2007, Rev. Rul. 2007-19.

    Brushaber v. Union Pacific R. Co., 240 U. S. 1 (1916) explains why USC 26 3401 & 3402 exist, when it said on page 9 . . . “nothing could serve to make this clearer that in the Pollock ( v. Farmers’ Loan & Trust Co., 157 U.S 429; 158 U.S.601) case in so far as the law taxed incomes from other classes of property . . . The whole law was however declared unconstitutional on the ground that to permit it to thus operate would relieve real estate and invested personal property from taxation and “would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way what was intended as a tax on capital would remain , in substance, a tax on occupations and labor,” (Id, p637) a result which it was held could not have been contemplated by Congress.”

    6. It will take great political will to change the policies that are predicated on this error that are repeated year end and year out for the millions of people in this country. In other words, the best we can tell is that the IRS computer systems can not accommodate these (this) exceptions to the code without major “SNAFU’s”.

    7. It is asserted that clearly Title 26 Sections § 3401 & § 3402 does confirm and does exclude remuneration as ‘taxable wages’ or ‘gross income’. Further, Title 26 Sections § 3401 & § 3402 is confirmed by and clarifies Sections 61a., Section 64., Sections 1001,1011,1012; IRS Publications: and, are as dictated by the Congress, the United States Supreme Court, Article 1 Sections 2.3, 8.1, and 9.4, and 6.2 of the U.S. Constitution; as well as Articles 1, 6,16, 13, 5, 8, and 7 of the Bill of Rights and VISE VERSA.

    8. Title 26 Sections § 3401 & § 3402 does confirm and does recognize labor as an expense and a cost to the employee expending such labor just as any “co-operation” or employer does and can expense and employee’s labor as a matter of accounting practice.

    9. The IRS has made the basic and primary error of illogical EQUIVOCATION by asserting that “what comes in” is the same and as “income” which is not supported by Title 26 or the USSC nor is this equivocation enforced upon and “co-operation”, corporation, business, church etc. in the United States of America who has a respectable tax accountant and/or lawyer.

    AND this calculation and your calculations do not include all the real indirect taxes that his hardworking secretary pays . . . like unemployment insurance, sales tax, phone tax, fuel tax, property tax etc . . . AND the calculation does not include a deduction for the direct taxes that she pays such as medicaid and social security. The income tax has never been a gross receipts tax and was never intended as such, but it has become one for anyone who is in a profession, trade, employment, or vocation who’s only source of cash flow is wages.

    And then after you calculate the costs of what it takes maintain any kind of decent standard of living . . It becomes clear to me, this is again the “widows mite” paradox . . . . replayed.

    Congress fixed it long ago, but if the IRS refuses to implement it through their “policies” you should understand why nothing changes or will change. Neither has our current congress the will to improve the lot of the employee working-stiffs . . . and refuses to “recognize the reality” that these policies don’t work, won’t work and have never worked . . .

    It is also how . . . so much wealth is now in the hands of so few, once again . . . This note to you is hastily gathered so please overlook any editing errors I may have made . . . It is a abject wonder to me why the professionals of this country have let such a primary principle slip through . . . but being a student of “conspiracies of silence” I don’t wonder for long . . . and for this and all those like them will always be a GIGO artists to me . . . .

    The same result will occur with the Flat Tax or 999 Tax propositions to replace the Income Tax which is basically flawed for the above reason.

    Laurie Bowen

    We all know that famous quote . . . . . . . . . . “Knowledge is Power . . .
    but, not many know the rest of it which is . . . . & Ignorance is Control”

  25. MVBerry  ::  3:25 pm on October 19th, 2011:

    Simplicity is nice, but the golden ticket contained in Cain’s plan (as with many over the years proposed by the wealthy…see Steve Forbes’ plan years ago)is the elimination of a progressive tax model. The very and ultra wealthy have long lusted after a return to the days when they were taxed at the same rate as someone who pays 100% of their income for food and shelter. Fairness indeed…

  26. Bill  ::  7:15 pm on October 19th, 2011:

    Kelly,
    Companies do not set prices on their products based on their rate of tax. They set their prices based on what the market will bear. Taxes have nothing to do with how companies sell their products. No matter if they are not taxed or taxed 99%, their goal is always to maximize profits and their is a price point for their products that theoretically allow them to do this. Now, if people start buying less good because of the 9% sales tax that could adjust the demand side of the market.
    Bill

  27. Cain’s 999 Tax Cut For The Richest 1 Percent: $210,000 Per Year | h-info.co.in  ::  7:38 pm on October 19th, 2011:

    […] “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s […]

  28. Eric S.  ::  10:47 pm on October 19th, 2011:

    Splitting my sides with laughter now… The pretense comes off. First off, if everybody is taxed equally, it is, by definition, NOT a regressive tax. Secondly, increasing the tax base means just that, raising revenue from a GREATER NUMBER OF PEOPLE than currently. So, yes, taxes can be lower for EVERYONE presently *paying* taxes, if those not currently paying (which includes more than those benefiting from redistributionist policies).

    A side point (not germane to the errors in the TPC analysis) is that eliminating progressivity and removing the whole socialist redistribution functions in the tax code are a HUGE POSITIVE result of 9-9-9!

  29. Ringer  ::  1:02 am on October 20th, 2011:

    Since WHEN was payroll not considered a cost of service????

  30. Brian Dell  ::  1:38 am on October 20th, 2011:

    As a long time reader of TaxVox I’m disappointed in this, Howard. Not the “Cain’s plan is a 25 percent flat-rate consumption tax” part, which is, of course, right on the money. But rather the fact that there was an unprecedented audience waiting for the TPC to weigh on on 9-9-9 and that this was the big chance to say something about the current fragmented tax code and the merits of taxing consumption instead of investment, broadening the base in order to buy down the rate, the efficiency of VAT-like taxes relative to, say, corporate profits taxes, etc etc. But this chance has been effectively blown by just obsessing over the distribution effects, as if there is never a trade-off between equalization and economic growth.

    There’s the line at the end that there are “even benefits to adding a Value-Added Tax to a personal income tax while using it to buy down corporate income and payroll taxes” but this is promptly downgraded to a throw away line by the declaration that this is trumped by distribution concerns. I would think that if the TPC is truly non-partisan, neither growth effects nor equality effects would entirely trump the other. In this piece there is not only no analysis of growth effects, there really isn’t even any admission that growth effects matter at all. In keeping with what I believe is a left-wing bias here, Krugman is thrilled. “awesome” says the redoubtable Professor K.

    The TPC has hurt the prospects of bringing in a VAT here. It is going to be extremely difficult to shift the tax burden off of investment and on to consumption if distribution is the be all and end all. “a well-designed consumption tax retains a progressive rate structure somewhere in the system,” you say. Of course, and Cain has proposed cutting 9-9-9 to as low as 3-3-3 in designated geographical areas of historical inequality (e.g. downtown Detroit). But this is ignored…

  31. Brian Dell  ::  1:55 am on October 20th, 2011:

    Perhaps my more general question here would be to ask if the TPC appreciates the role that it COULD be playing with regard to policy. Point out the Cain’s plan is regressive? There’s already a deafening number of voices out there hammering away on this point. And they are shouting down everyone else who dares to suggest that this isn’t the only consideration. By failing to acknowledge advantages to Cain’s plan, it can now be used to disparage many tax reform proposals, saying “taking a page from Cain’s discredited 9-9-9 plan, Congressman X proposes…” You couldn’t have said that while the plan should be taken “seriously” it has extremely problematic distribution effects, instead of just giving a green light to those who want to treat the plan as an absolute non-starter?

    I understand there wasn’t enough details about the “empowerment zones” to do an analysis. But it could have been acknowledged in this blogpost that there is an idea here, even if undeveloped.

  32. Shocking! Cain’s 9-9-9 Plan Is a Joke! → → Off The MarkleyOff The Markley  ::  2:11 am on October 20th, 2011:

    […] to the Tax Policy Center, Cain’s genius idea amounts to a 25% consumption tax, which will slam down on the fingers of […]

  33. Ralph H  ::  11:39 am on October 20th, 2011:

    A couple more comments. You assume the company 9% is added to consumer. I believe it will depend on the type company. For example Wallmart and Exxon pay essentially the statutory rate of 35%, and in all likelyhood their taxes would drop, and being competitive, so would their prices. GE and Google pay little or no income taxes, so they would have to pay more and in some way increase prices, however they are not producing as high a percentage of consumer goods, so the additional price adder would not be 100%. Also, lower income households buy more purchases used, particularly big ticket items like cars, trucks and houses.

    Another point, is that many left leaning writers make light of Mr Cain’s experience by callingt him a Pizza man. In fact, he worked for Pillsbury and turned around the Godfather5’s division and spun it off. He also was on the Federal Reserve Board of St. Louis. Coupled with his advanced degrees and other experience I suggest he has a broad work experience, certainly much more business experience than a community organizer/law professor.

    Finally, the reason this seems attractive is its apparant simplicity. The present system stinks, and has resulted in a wide range of tax rates paid depending on how clever the company or person is in exploiting the tax code. Why not give this a chance and devise a simple way to modify his plan to introduce a progressive component to i (such as a higher rate on income over $300K and a flat credit). You will need a much more dynamic analysis than was given due to the radically different taxation approach.

  34. Daniel J  ::  7:03 pm on October 21st, 2011:

    People might be “taxed equally” under a lump sum tax, but I wouldn’t call that fair by any means. “Regressive” means decreasing rates, not absolute amounts. And given that 9-9-9 would remove capital gains taxes, and most wealthy people make most of their money off of capital gains anyway (that’s why you see Warren Buffett and Mark Zuckerberg arguing for higher income taxes – it wouldn’t affect them), it would be EXTREMELY regressive. A wealthy American earning most of their money by investing the money they already have would only have to pay the 9% sales tax, whereas someone making all their money through work would have to pay 9% individual income tax AND 9% sales tax. If taxing the working poor twice as much as the non-working rich isn’t regressive, I don’t know what is.

  35. Daniel J  ::  7:13 pm on October 21st, 2011:

    Yeah, something tells me a 99% tax on corporate profits wouldn’t go down so well. The two major factors you fail to take into account:

    1. Corporations can leave. If they’re taxed 99% in America vs 40% anywhere else (the world’s highest corporate tax rate is 41% in Japan), they’ll just go somewhere else and make their money exporting to us from outside. Even if you have extremely high tariffs preventing foreign corporations from selling to us, you’d be reducing their incentive to stay here because…

    2. It heavily skews the cost-benefit analysis. Say I am thinking about a business venture that would cost me $10 million. If it has a 50% chance of netting me $20 million in profits and a 50% chance of netting me $10 million in losses, it would normally make sense to take that risk and stimulate the economy through hiring and investment. However, if you tax 99% of profits, that means I’d have a 50% chance of earning $100,000 yet my potential losses would stay the same.

    Now #2 might be a good thing depending on what you think about risk-taking. Highly taxing profits would make it so that corporations would have to be pretty dang sure before investing in a business venture, meaning that what they do invest in would be fairly recession proof. It’s the economic equivalent of letting small fires clear out a forest’s underbrush uninhibited so that large fires have less chance of sustaining themselves.

  36. Michael Bindner  ::  7:49 am on October 22nd, 2011:

    Not true, since corporations don’t pay taxes on labor in the current tax.

  37. Live-Blog Of CNN Las Vegas Debate | BLOGSPOT TEMPLATES  ::  10:35 am on October 22nd, 2011:

    […] Cain claims his 999 taxation devise “does not lift taxes on those creation a least.” Several opposite analyses disagree. Everyone who creates reduction than $210,000 would see their taxes go […]

  38. Mayolar – All the News That's Worth Reading » Cain’s 999 Plan Would Cut Taxes for the Rich  ::  3:00 am on October 23rd, 2011:

    […] TaxVox » Blog Archive » Cain’s 9-9-9 Plan Would Cut Taxes for the Rich, Raise Taxes for Almost E…. Category : News 0 Comm facebook Twitter del.icio.us digg […]

  39. Owen  ::  9:17 am on October 25th, 2011:

    Anyone who would state that corporations would lower their prices because of a tax cut is either deluded or lying. If the market will bear the current price, that’s what the corporation will charge. Any savings due to reduced taxes will be happily added to profits.

    1. Corporations can leave. Corporations already have and not due to taxes. Cheap labor pools in 3rd world countries. They still ship their products here, where the consumers are.

    2. Anyone could see the 99% tax in Bill’s comment was an exageration for effect. Get a clue.

  40. GOP Presidential Hopefuls Flat Tax Proposals — A Big Handout To Wealthy | The Blue States  ::  9:14 am on October 26th, 2011:

    […] “a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly $1.4 million, increasing his after-tax income by nearly 27 percent” under Cain’s […]

  41. Philip Bryans  ::  11:00 am on October 26th, 2011:

    Under current tax law, the federal government would receive $3390 (22.6%) when a person makes $15,000 per year in wages working for an employer, and taking the “standard deduction” on her federal tax form. This does not include any portion of taxes paid by businesses that this tax payer patronizes.

  42. Philip Bryans  ::  12:39 pm on October 26th, 2011:

    Why does Gleckman describe the flat 9% income tax as a “Consumption Tax”? By my understanding of the term “Consumption Tax”, he is inaccurate.

  43. Andrew Leigh » Blog Archive » What I’m Reading  ::  5:59 pm on November 13th, 2011:

    […] The regressivity of Herman Cain’s tax plan […]

  44. 9-9-9 ways to raise your taxes  ::  2:27 pm on November 29th, 2011:

    […] that seems to have captured the hearts of the GOP base with the catchy slogan is in effect a tax increase on the middle class. But as our commenters are fond of reminding me, I’m not an economics professor, so […]

  45. WeMustChange » Blog Archive » 8 GOP Primary Moments That Would Make Jesus Weep  ::  5:08 am on January 3rd, 2012:

    […] that would take a huge chunk out of Americans in the lower income brackets while at the same time saving “a taxpayer in the top 0.1% who makes more than $2.7 million” an average of $1.4 million a […]

  46. A Gentleman’s view. | Jesus Would Just Love These Christians, Right?  ::  2:49 pm on January 3rd, 2012:

    […] that would take a huge chunk out of Americans in the lower income brackets while at the same time saving “a taxpayer in the top 0.1% who makes more than $2.7 million” an average of $1.4 million a […]

  47. Kate  ::  12:32 pm on January 20th, 2012:

    Hello Mr Gleckman,
    In this article on Cain’s plan, you referred to his three taxes as all being consumption taxes. However, you seem to be using that term in a way that does not match textbook or wikipedia definitions of a consumption tax.

    Can you help me understand your use of the term better? Others seem to use it as you do too.

    I would very much appreciate any help.

    Kate, St. Paul, MN

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