Does the Herman Cain 9-9-9 tax plan have a fatal flaw?(Read article summary)
Herman Cain has made his 9-9-9 tax plan the centerpiece of his GOP presidential campaign. But is it politically unpalatable to conservatives, damaging Cain’s White House hopes?
Herman Cain has made his 9-9-9 tax plan the centerpiece of his GOP presidential campaign. He describes it as a sweeping and necessary remake of today’s unpopular US tax code – a revamp that would eliminate the current capital gains, payroll, and estate taxes.
In their place Cain would institute a nine percent tax on business, a flat nine percent tax on personal income, and a new nine percent national sales tax.
It’s “a bold plan to grow this economy” said Cain in his first answer to a question at last night’s New Hampshire GOP debate.
But does 9-9-9 have a fatal flaw that may render it politically unpalatable to conservatives, dooming its legislative chances, and in the end damaging Cain’s White House hopes?
Here’s Cain’s problem: that last “9” represents a brand-new type of US taxation. America doesn’t have a sweeping national tax on everything new for sale in the nation’s stores. By contrast, European nations have long had value-added taxes that slap a levy on items at every level as they move from factories to stores.
Conservative economists have long been suspicious of such a tax, on the grounds that it is easy for the central government to manipulate. It can be expanded to cover more items, or retracted to create loopholes, without much notice on the part of the citizenry. The rate can be tweaked just a touch in the same manner, increasing revenues a bit at a time.
And Cain would institute this new tax while leaving in place the current income tax system, albeit with lower rates.
All this has given his rivals an opening to criticize 9-9-9. And now that Cain has risen in the polls, they’re availing themselves of that opportunity.
“You can’t give the federal government an income tax and a sales tax. That’s doubling the opportunity for them to get you coming and going,” said fellow GOP hopeful Rick Santorum Wednesday morning in an appearance on “Fox and Friends.”
Mr. Santorum attacked Cain at Tuesday’s debate, asking members of the New Hampshire audience to raise their hands if they wanted such a new tax. No one did. Fellow candidates Michele Bachmann and Jon Huntsman got into the pile-on-9-9-9 act, with the former pointing out that turned upside down it represents 6-6-6, the mark of the devil, and the latter joking that the first time he heard of it, he thought it was the price of a pizza.
Dean Clancy, legislative director of the conservative group FreedomWorks, echoes these charges in an analysis of the 9-9-9 plan posted on the group’s web site. Mr. Clancy first praises the plan because it simplifies the current system, eliminating many loopholes and deductions. Then he asks (rhetorically) why Cain did not just eliminate the income tax altogether.
“The answer, most likely is that if he proposed to eliminate the income tax in one fell swoop, while trying to raise the same amount of revenue as we do today, he would have to set the rate for the sales tax so high – well above 9 percent – that voters would balk,” writes Clancy.
Clancy figures that the sales tax would have to be 25 percent in such a circumstance.
“No wonder Mr. Cain has fallen back to a two-step strategy: 9 percent is a teaser rate!” Clancy concludes.
Other experts have expressed concern that Cain’s plan is regressive, meaning that under it the rich would pay less than they do now, while the poor and middle class would pay more, in terms of the percentage of their incomes.
Cain has defended himself against this charge by noting that he is replacing the payroll tax, which charges workers 15.3 percent of income, with a 9 percent flat income tax rate.
“That’s a six percentage point difference,” said Cain Wednesday on MSNBC.
Currently, a family of four with an income of $50,000 annually pays about $10,000 in taxes, said Cain. Under 9-9-9, they would pay $4,500 in income tax, leaving them over $5,500 to decide how to spend on sales taxes for new goods.
“They are still going to have money left over,” said Cain.