Republican presidential candidate Herman Cain has made headlines recently with his ultra-catchy “9-9-9” tax plan. But what exactly is it?
There are three different streams of revenue in his plan: a 9% flat income tax for all individuals, a 9% corporate flat tax, and a 9% national sales tax. The basic idea behind the plan is that it is “revenue-neutral”—that is, it would raise just as much revenue for the government as the current plan, but his plan would also spur economic growth. The plan eliminates all other forms of taxation, such as the payroll tax, and programs such as Social Security that are currently funded by these other forms of taxation will be funded by the new three-stream tax system. Another main perk of his system, Cain claims, is that most (though not all) Americans will pay less in taxes: “Some people will pay more, but most people will pay less…If they do the math…people are going to benefit several other ways other than whether they pay more in taxes,” Cain told NBC’s “Meet the Press.”
Critics are quick to point out the extra burden of the flat income tax on the poor, and some say the new 9% sales tax would damper consumer spending. Some, including candidate Mitt Romney have criticized the plan’s simplicity. Cain, former CEO of Godfather Pizza and Chairman of the Kansas City Federal Reserve, maintains, though, that his plan is a work in progress. The 9% income tax isn’t actually as flat as it sounds, because he has said he would keep the deduction for charitable donations; and the 9% corporate tax could be changed if companies purchase new equipment that was U.S.-made. His plan was called into question, though, when asked what would happen if a company designed a good, such as a computer, domestically but assembled it overseas. His response to a question from a voter in New Hampshire was, “I have no idea.”
The “9-9-9” plan was the brainchild of Cain and his chief economist Rich Lowrie. Lowrie, who works at a Wells Fargo in Pepper Pike, Ohio, came up with the basic idea in collaboration with Cain to find numbers that would cut all sources of taxes except for three. An independent firm, Fiscal Associates Inc., did estimates on the plan and concluded that the plan would raise about $2.66 trillion after accounting for economic growth. Another analysis, by Virginia-based analyst Gary Robbins, says that the numbers would have to be 9.1% across the board in order to reach similar government revenue numbers.
So could Herman Cain’s plan really be effective? At this point it is, by Cain’s own admission, more of a work in progress and perhaps cannot be considered a legitimate tax plan. Certainly the idea of a flat tax that burdens the poor would be a tough sell to average Americans. That said, if the kinks could be worked out, such as what counts as eligible for tax deductions, and there was definitive understanding behind the specifics of the plan, then perhaps the plan would be plausible.
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About Jack Hopper
Jack Hopper covers finance and politics for NBR. Besides NBR, he is also Internal Affairs Chair at Ayers CCI.
