2012 Tuesday: A deeper look at Herman Cain’s 9-9-9 plan

If one thing comes of tonight’s GOP presidential debate, I hope it’s some understanding of why Herman Cain’s 9-9-9 plan is actually a good idea.

The first two 9’s sound good — no, great — at first blush: a 9 percent flat tax on individual and corporate income! No deductions, exemptions or credits (except for charitable gifts). No payroll taxes, capital gains tax or estate tax.

The last 9 is more problematic on its own: a 9 percent national sales tax. Let’s look first at why this is a potentially large problem, and then look at some broader criticisms of the entire plan.

Cain sells his plan as a first step toward the Fair Tax, which calls for the federal government levying only a consumption tax to fund itself. The problem that I and other people — mostly, but not only, conservatives — have with the plan is the 16th Amendment, which created the federal income tax.

Fair Taxers say their plan includes repealing the 16th Amendment, but in my estimation they gloss over the sheer difficulty of doing so. Amending the Constitution is very difficult, for good reason. I have never seen or heard a credible explanation of how fundamentally altering our federal revenue system is going to be possible to get through Congress and the states. While there are good economic arguments to be made for shifting the tax burden to consumption, in my view it’s not worth the constitutionally necessary effort. Better to work toward something more politically feasible: a flat tax on income.

Cain says his plan “unites Flat Tax supporters with Fair tax supporters.” Then, “amidst a backdrop of the economic boom” he says would result, a President Cain would “begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax.”

But what if this economic boom doesn’t come? Or what if it does — but a contented public decides not to follow through with the amendment process? Or what if it simply proves impossible to garner a two-thirds vote in Congress to forswear taxing individual and/or corporate income? Even if Cain could marshal the support of all Republican members, which is no gimme, does anyone think we’re going to have 67 Republican senators or 290 Republican members of the House any time in the next eight years? Or that a sufficient number of Democrats are going to vote to end the corporate income tax?

So, it seems far more likely that, even if Cain were to be elected president and get the first step of his tax plan elected, we would simply end up with a consumption tax in addition to an income tax on individuals and corporations. At a low rate, yes — but for how long? The likelihood is slim that any or all of those rates would remain so low. And then we’re heading toward European-style taxation — with a hefty consumption tax (the VAT, or value-added tax, rate was 21 percent when I lived in Belgium) on top of punitive income tax rates.

But we also need to look at the “economic boom” Cain says his plan would create. As Kevin Williamson at National Review Online observed:

Mr. Cain says the proposal would be revenue-neutral. I have my doubts. The federal government took in about $2.2 trillion last year. Based on personal-income and business-income figures from the IRS, and consumer-spending figures from the Gallup survey, my English-major math suggests that a 9 percent tax on all of the above produces about $1.7 trillion in revenue, meaning that 2010’s $1.7 trillion deficit would have been more like a $2.2 trillion deficit — from calamity to catastrophe. If Mr. Cain’s team is building in some growth assumptions into the fiscal forecasts, they must be sunny indeed. (emphasis added)

I’m all for using dynamic scoring to try to predict the effects a policy will have in the real economy; basing estimates on the premise that nothing will change is the surest way to get it wrong. However, as I pointed out just this morning in another post, predicting the effects of policy in a large and diverse economy is extremely hard. Yes, reactions to long-term policies, in the aggregate, may be a little easier to predict than changes based on short-term tweaks. But making up an apparent $500 billion revenue shortfall requires a great deal of transparency about the assumptions Cain’s economic advisers are using — and discussion about whether they’re anywhere close to correct.

I would guess that Williamson is right that these assumptions are very sunny in this case. And that relates not only to the impact on revenues — and deficits, since a Congress that nearly blows up over cutting $100 billion can hardly be expected to cut $2.2 trillion anytime soon — but on whether there will truly be an “economic boom” from 9-9-9.

I don’t know how much of all this Cain can explain within the format of a televised debate with limited time for answers. But it’s time to press him on these details and let the public start wrestling with whether his plan is really as great as it sounds.

– By Kyle Wingfield

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19 comments Add your comment

Jefferson

October 11th, 2011
11:48 am

So why should I embrace this plan when my parents who are retired on fixed incomes, now will have to pay 9% sales tax on top of the already outragous 7% they already pay. Its easy to see who wins and loses on his plan.

Karl Marx

October 11th, 2011
11:58 am

This is nothing more that a Value Added Tax plan. There is no such thing as a “transition” or “Temporary” tax. Heck the telephone tax for the Spanish American was is still being collected under certain circumstances. Ask the State of Georgia when a toll becomes a tax. When the extended the GA 400 toll that’s when. Once a national sales tax is implemented it will never go away just like income tax and Fair Tax will never happen. Politicians will never give up that much power.

the original and still the best John Galt

October 11th, 2011
11:58 am

Cain’s plan is a gimmick. It would not begin to resolve the Congressional borrowing and printing that has resulted in 100 trillion dollars in unfunded liabilities, and on top of that the Cain plan is regressive.

The gimmick has people talking about Cain, and that was its purpose from the start.

Road Scholar

October 11th, 2011
12:00 pm

Kyle, while the housing industry is in the crapper, how does this plan affect the housing industry and its recovery? No one has addressed this!

From a blog that Jay has done previously, it showed the tax burden on the poor to increrase and the burden on the rich to decrease. How does the poor afford to pay additional taxes?

Finally, I do not trust the current Congress to fart let alone change the Constitution!

ByteMe

October 11th, 2011
12:11 pm

Why would you ever want a tax change to be “revenue neutral” when we’re so far in the hole deficit-wise? If you’re all for shrinking the government, say what you’re willing to give up an then sell it to the other people who will have to give something up. Don’t just say “I’m for getting rid of Medicare” when you don’t receive it and have no credible plan to get health care to seniors who insurance companies don’t want to insure.

And if you tax consumption and don’t tax capital gains and dividends, do we just become a huge financial services economy instead of a consumer-based economy? Isn’t that what conservatives are taught: if you tax something it’s because you don’t want it to happen? Seems counter-intuitive to what we want to have as an economy, which is one that can sustain folks who are not bankers and CEOs.

the

October 11th, 2011
12:12 pm

Road: it is better to light a single candle…….(reference the congress farting)….than to curse the darkness……

Hillbilly D

October 11th, 2011
12:13 pm

Better to work toward something more politically feasible: a flat tax on income.

I’d agree with Kyle on that. Tax a percentage of income and tax all income the same.

I’m against a consumption tax because it’s the most regressive of all taxes.

I’m against a VAT tax because it can very easily become a hidden tax. People always need to know exactly what they are paying, whatever the system is.

the

October 11th, 2011
12:15 pm

If we tax capital gains the stock market will soar!!! No one will risk selling just to be taxed to death. People will hold. Things will stabilize.

If you don’t believe me, then believe the Etrade baby. He actually did scientific measurements of the dead cat bounce with a teeny tiny widdle baby kitten. His book will be out in the spring. buy.

morons

Gordon

October 11th, 2011
12:39 pm

I oppose 9-9-9 because I think taxes should be progressive. The one thing I do like about it is that it eliminates the payroll tax and combines the expenses of Social Security in with everything else, and gets rid of this ridiculous “trust fund” idea that doesn’t exist.

I think we should just have a much simpler way to get to line 34 on the 1040 combined with lower rates that are either revenue neutral or raise revenue, and have everyone paying something by eliminating the payroll tax and setting the lowest rate at 5% and the top rate at 33%.

CJ

October 11th, 2011
12:47 pm

This simplicity of this proposal is attractive. Unfortunately, the result would be that, relative to household income, the poor would be paying higher tax rates than the middle class, and the middle class would be paying higher taxes rates than the rich.

Such regressiveness could be mitigated if all sources of income were treated the same. But again, income from investment and inheritances (i.e., primary sources of income for the very rich) are treated as sacred while income from work is treated as second-class. If Cain were truly interested in a fair tax system, then he would propose taxing inheritances, capital gains, and dividends at the same tax rates that he he seeks to tax income from work. In fact, if the Occupy Wall Street folks want to have a cause to rally behind, I’d suggest they rally behind that.

Uncle Jed

October 11th, 2011
1:16 pm

From a blog that Jay has done previously, it showed the tax burden on the poor to increrase and the burden on the rich to decrease.
+++++++++++++++++++

If you wish to discuss Jay’s blog, head over there and increrase your objectivity. This is Kyle’s forum, so let Kyle run his own blog. Besides that, just because Bookman writes something does not necessarily establish a benchmark on a particular topic. In fact, Bookman’s rants are frequently so biased a contortionist would likley be amazed.

UGA 1999

October 11th, 2011
1:18 pm

Uncle….Agreed….Bookman is more like “cartoonish” haha.

Dumb and Dumber

October 11th, 2011
1:58 pm

Let’s elect Cain and get rid of the EPA, FDA, ATF and all those other alphabet soup job killing thugs. They don’t provide any benefits to this country anyway.

jconservative

October 11th, 2011
2:06 pm

Cain started championing the 999 plan just to have something to talk about besides Sharia Law.

But he knows as much about the economy as he does the Constitution; which is very little.

He would have been better off promising “a chicken in every pot”. That plan at least worked once upon a time.

UGA 1999

October 11th, 2011
2:08 pm

jconservative…..what is wrong do you hate a strong black business man?

carlosgvv

October 11th, 2011
2:42 pm

Since our current tax situation is a disaster, I don’t see how Cain’s plan could possibly be worse than what we have to live with now. However, I agree that, even if he is elected, getting the 999 plan actually signed into law will prove to be nearly impossible.

UGA 1999

October 11th, 2011
2:51 pm

Carlos….we actually agree on something. I like the 999 plan however I dont think it would ever get passed. Unless the repubs take control of the Senate…..which I think is a very high possiblity.

UGA 1999

October 11th, 2011
3:26 pm

Kanye joins the WallStree protests….Surprise surprise….fool.

Linda

October 17th, 2011
1:44 pm

Seems like many of you folks have what is called Tunnel Vision because you only are seeing, hearing and or are reading only One of the 9’s. (LOL) There are 3 (9’s) of them and this is what they equal…….
9 % state tax – Consumption sales tax (State money NOT FEDERAL)(No tax on Used items)
9 % federal tax – Income tax(a 6 % RE…DUCTION from the 15 % we pay now)
9 % corporate tax – No IRS – No Lawyers – NO LOOP HOLES
So in GA. we would pay 2% more sales tax and 6% LESS income tax which gives “We the People” a 4% SAVINGS of our money in our own pockets.
Do you now see that you would NOT be paying more? And the 9-9-9 is a Simplified Fair Tax. This is a stepping stone to Fair Tax and Understandable to most.
If a business is failing, which the U.S. government is, you may have to do somethings drastic to turn it around. And if anyone thinks that changes to turn this country around wont be painful they are in serious denial. Yes they will have to PHASE OUT and bring to a close many in place policies and or programs. And yes it will take time. There is No Overnight Fix. So my question to you all is who has the balls to get on the Pain Ride?