Posted on 10/13/2011 6:16:07 PM PDT by mdittmar
The “9-9-9” plan that has helped propel businessman Herman Cain to the front of the GOP presidential field would stick many poor and middle-class people with a hefty tax increase while cutting taxes for those at the top, tax analysts say.
The plan would do away with much of the current tax code and impose a 9 percent personal income tax, a 9 percent business tax and a 9 percent national sales tax, which tax experts say would mean that low- and middle-income Americans would pay more.
“Right now, we have a strongly progressive income tax. High-income people are paying a higher share of income in taxes than lower-income people,” said Alan Viard, a former Federal Reserve Bank economist and a resident scholar at the right-leaning American Enterprise Institute. “That is a pattern that would be disrupted by adoption of the Cain plan.”
The 9-9-9 plan has helped define Cain’s candidacy. Coupled with his buoyant, plain-spoken style, it has helped transform the former long shot into a front-runner. Cain has touted the proposal’s apparent simplicity and fairness, but he rarely delves into details in person. His campaign website shows that the plan is only a step toward achieving his ultimate goal: to eliminate the Internal Revenue Service after replacing all federal taxes with a national sales tax.
Meanwhile, analysts said the 9-9-9 part of Cain’s vision would place a further burden on those hit hardest by the nation’s economic problems.
Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, is working on an analysis of Cain’s signature policy proposal. Although the plan’s details remain sketchy, Williams said that it would increase taxes for the poor and middle class, despite Cain’s statements to the contrary.
For starters, about 30 million of the poorest households pay neither income taxes nor Social Security or Medicare levies. “So for them, doing away with the payroll tax doesn’t save anything. And you are adding both a 9 percent sales tax and 9 percent income tax. So we know they will be worse off,” Williams said.
At the top end of the income scale, meanwhile, the opposite would occur, he said. The top 1 percent of earners would get a tax cut under Cain’s plan, Williams said.
The nation’s top income earners have reaped the vast majority of the nation’s income growth over the past quarter century, pushing income inequality in the country to levels not seen since the Depression. The tax plan would exacerbate that gap, Williams said.
“People at the top end pay 20 or 21 percent in income and payroll taxes now,” he said. “This plan zeroes out their payroll tax and suddenly their tax is down to 9 percent. Then, like everyone else, they pay 9 percent on what they spend. But the rich don’t spend everything they earn.”
Many conservatives are leery of creating a national sales tax that could be increased in the future.
“I am extremely uncomfortable with the idea of letting the crowd in Washington have an extra source of revenue,” wrote Dan Mitchell, a senior fellow at the Cato Institute, a libertarian think tank.
Rich Lowrie, an Ohio money manager who is an economic adviser to Cain, said analysts who call the 9-9-9 plan regressive are not privy to details of its provisions to soften the impact of the tax plan on the poor. The critics are “ignoring the empowerment zone piece that we are rolling out next,” Lowrie said in an email. Lowrie did not explain how the empowerment zones would work, but h e said details would be forthcoming.
Cain, a one-time director of the Federal Reserve Bank of Kansas City and former chief executive of Godfather’s Pizza, has said his plan has the twin virtues of fairness and simplicity while creating incentives to boost economic growth and personal wealth.
“It basically empowers the poor rather than being regressive on the poor,” Cain told reporters earlier this week. “I don’t care about rich people. They’re already rich. I want to make it possible for people who are not rich to get rich.”
Cain said his plan would promote increased saving, investment and growth. When the increased growth is factored in, Cain says, the plan would be able to bring in as much money to the federal coffers as the current tax system. Tax analysts have mostly agreed with that assertion, although they cautioned that projections about the plan’s revenue potential are imprecise.
“I cannot promise that the plan is wholly revenue neutral compared to current law,” wrote Edward Kleinbard, a University of Southern California tax expert. “But in fact it should raise a great deal of revenue.”
The tax plan, which Cain has gleefully touted in GOP debates and his public appearances, has helped catapult the former executive to the front of the Republican presidential field, according to a new NBC News/Wall Street Journal poll, as well as a separate survey by the firm Public Policy Polling.
Experts say that adoption of 9-9-9 would mark the most radical federal tax change since the expansion of the income tax in the 1940s. It would upset the vast array of social policy that has been built into the tax code for years by, for example, removing tax breaks that subsidize home purchases and college tuition.
For that reason, many say that its adoption would be highly unlikely, even if Cain were elected president.
Although Cain talks about 9-9-9 as a concise, easy-to-understand plan to reform the sprawling federal tax code, it actually is envisioned as the middle step in moving the nation to a “fair tax” or national sales tax.
The fair tax, which former Arkansas Gov. Mike Huckabee, R, advocated during his 2008 presidential campaign, is viewed by supporters as efficient and transparent and as a way to encourage investment and broaden the tax base while eliminating the need for the IRS.
Opponents say the “fair tax” would discourage consumer spending, the biggest driver of the nation’s economy.
And the 9-9-9 plan that Cain envisions preceding it would be no better, critics said.
“The absence of current law’s package of a standard deduction, personal exemptions, child credit, child care credit and the earned-income tax credit means a huge tax hike for the working poor and a substantial tax increase on the labor income of the middle class,” Kleinbard said.
Staff writers Amy Gardner and Glenn Kessler contributed to this report.
Uh, maybe that's because the investment money has already had taxes paid on it......
“...kids having to file a tax return because they made $200 shoveling snow for the neighbors...”
A better solution is that they pay $18 and and pocket $182 and that way they learn to hate taxes just like grown-ups.
Typical Corp zombie think. It sounds good so therefore it has to be good. the “little” people will buy it, that’s all that matters. So what if after they buy it, they find out it is a mirage? sorry no refunds after 30 days.
Notice how quiet the unions are right now.
So, the bottom 50% would finally have “skin in the game,” as Barry the Class Warfare blowhard likes to say.
Boo hoo.
Yes! because paying more for product makes me want to buy stuff!/s
I personally think taxing food is a bad idea (we don't tax it in CA but some states do), some in the press suggest food and medicine would be taxed, but on his website presently there's not enough detail to know whether those items would be included or what mitigation there would be for low or fixed income situations. That's coming according to his chief economic advisor.
One of the "savings" is 9-9-9 will eliminating considerable levels of hidden taxation that you already pay in prices. This is why Cain makes the point critics are making assumptions based on circumstances in place under the existing tax code.
Ultimately Cain sees 9-9-9 as a gateway to the "Fair Tax" which is a national sales tax only. Such proposals often have a "prebate" system to address low and fixed income situations.
It’s to bad businesses have to be the tax collectors and incur the expense which they then hide the costs of accounting in pricing. Flat taxing would make things a bit easier and cheaper to account for.
Better the States collect taxes and the Federal Government collect from the States and isolate citizens from Federal over-site.
Amazon just doesn’t want to be bothered with accounting and responsibility for sending in tax payments.
Walmart (with their own prescription plans) and Amazon shows that even with all the government controls and regulations (not counting individual State bureaucracy) that consumers can look toward private enterprise for decent pricing.
yah...meaning the “poor” would actually be paying taxes for the first time ever.
We have the most affluent “poor” in the Country. Go down to your local Goodwill and get to know some of the handicapped people who are working full time. I have two different home improvement stores here locally that have severely disabled people working there, (amputees if you must know) full time, and doing one hell of a good job. It sickens me to see the miscreants of the world getting the attention because they are supposedly “poor” even though they miss no meals, have I-pods, PCs, facebook pages, cell phones...you name it.
There are certainly poor people in the Country that are deserving of some help, but as Rush Limbaugh has been telling us for years, too many make a hammock out of the safety net, and OWS is the natural result.
“Lots of reitired people don’t pay payroll tax because they aren’t working, they are living off Soicial Security, investments, maybe withdrawling from IRAs and 401Ks. A lot don’t have enough income to owe much in taxes after deductions. Under Cain’s plan they pay 18%, including 9% on money they already paid income tax on.”
1. Retirees have taken a BATH on their stock market investments over the last few years. An invigorated economy would get these people off dog food.
2. We’re already paying more than the 9% sales tax in imbedded and hidden taxes. That is a large part of the retail price. But cutting out the vast majority of these taxes, the retail prices of items go DOWN and the 9% sales tax will either keep prices the same or actually make items cost a little less.
3. In a thriving economy, charitable giving increases. programs like Angelfood Ministries or Meals on Wheels will get more cash to help the poor.
Poor people will not suffer.
Trust me, it’s better to be poor in a thriving economy than a dying one.
You noticed that too. The story changes to suit the purpose...
See my post #91.
My mother is on SS. I don’t want our elderly to be in a bad spot. I want them happy and retired and taken care of.
999 will NOT hurt the elderly. Quite the opposite.
You are already paying far more than 9% in hidden taxes that are imbedded in the retail price. Your new item purchases should be about the same. (It’ll probably take a couple of months to kick in, but the prices will drop.)
The other thing to realize: If we do nothing and try to maintain the status quo, the system will collapse and eventually there will be nothing for any of us. We must implement a plan that is close to this or we be seriously screwed. We can’t continue as we have been.
I have no idea if your SS will be taxed. I can’t see congress passing a bill that doesn’t at least exempt the first $20,000. Do you? The out cry would be deafening.
That’s why we can’t sit back on our laurels and just trust *anybody* to do the right thing. We’ve got to stay on top of them the whole way.
Yes you can't have people voting who have no skin in the game...otherwise they will always vote for more welfare...not for what's best for the country....
I am not for both a flat tax and a sales tax. One or the other.
If people really want to get more from ‘the rich’ you need the sales tax. They buy quite a lot, it’s the only way to get at someone like Buffet’s ‘wealth’, not interest income.
Sales tax would be a lot easier too because you’d pay it immediately, no need to file any federal taxes. All the IRS has to do is pare down and just manage incoming sales tax monies.
Yes we do have the most affluent poor in the world...even the homeless have cell phones...there are millions of people around the world who'd love to live in American poverty...
I agree. If there would be an exemption with a national sales tax it should be age related. There is a difference in having an incentive to improve your skillset and work efforts at a working age and penalizing the retired and elderly living on fixed incomes. Maybe an exemption over 65 for the first 25K but not for younger working age. We need to stop encouraging people to keep their incomes under a certain limit to avoid taxation...that's what led to 50% of Americans paying no federal income tax at all....the incentive for working Americans should be to earn and produce more not less....
The progressive wet dream...
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