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Herman Cain’s 9-9-9 Plan: Neither Simple nor Desirable

October 14, 2011
Herman Cain

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Herman Cain is the most recently anointed top-tier candidate who will challenge Mitt Romney for the Republican nomination. His Florida straw poll win and a string of solid debate performances have seen him surging in the polls, and he is consistently polling second.

The driving force behind Cain’s rise has been his tax reform plan, the drumbeat of 9-9-9 can be heard in most of his debate answers, and nearly all of his interviews and speeches.

Part of the appeal of his plan, aside from that it was a (relative to the other candidates) concrete plan for tax reform, was its apparent simplicity. The plan seemed so simple that Cain was even able to reduce it to a soundbite, 9-9-9. Cain even sought to capitalize on his plan’s seeming simplicity by contrasting it with Romney’s 59 point economic plan, dismissing the former Governor’s plan as too complex. In reality, the ‘9-9-9’ plan is not nearly as simple as Mr. Cain would have you believe.

The 9-9-9 plan is actually only an intermediary step in Mr. Cain’s plan for tax reform. The first step would actually be to reduce individual and business taxes to a statutory maximum of 25 percent from their current maximums of 35%.  Mr. Cain would also Mr. Cain would eliminate all taxes on profits earned by multinational corporations outside the United States and abolish all taxes on capital gains.

Mr. Cain would put these three measures  into effect immediately without offsetting the lost revenue, with the stated claim of promoting economic growth.

Only then would step two of his tax plan be implemented, the payroll tax would be eliminated, and the vaunted 9-9-9 plan would be put into effect.

The work at this point, is still not over. In the next and final phase, Cain would call for the quick exit of the 9-9-9 plan and introduce  a fair tax at a rate of 25-30%.

So the seemingly simple plan, the one that fits so neatly into the 9-9-9 soundbite, is much more complicated when Cain’s entire tax reform plan is drawn out. It would require two transformational tax reform laws, presumably in the space of four years. The monumental nature of this task is hard to convey, getting to the intermediary 9-9-9 phase would require the most comprehensive tax reform seen in recent times.

When asked how he would attempt to push through these tax reforms, a task that would be Herculean even if the GOP controlled one of the chambers of Congress, Cain claims that the American people will be so strongly in favor of the 9-9-9 plan that they will put overwhelming pressure on their representatives to pass the reforms.

This seems to be at odds with the situation in reality. As Bruce Bartlett points out regarding phase 1, where the maximum corporate and personal tax rates are lowered and the capital gains tax is eliminated:

No mention is made on the site of a tax cut for those now in the 10 percent, 15 percent or 25 percent brackets. This means that the only people who would get a tax rate cut are those now in the 28 percent, 33 percent or 35 percent brackets. According to the Joint Committee on Taxation, only 4 percent of taxpayers pay any taxes at those rates… [and] two-thirds of all capital gains are reported by those with incomes over $1 million

It is hard to see the logic behind the claim that the average American is going to clamor for phase one of the plan that would largely benefit the most wealthy Americans, while not even remaining revenue neutral at a time when the country is running up some of the largest deficits in its history.

The 9-9-9 plan itself hardly leads one to think that the citizen body will be so in favor that it would bring so much pressure on legislators that they would be forced to pass it. The burden of taxation would be increased on the vast majority of lower-income Americans under the new plan. As many politicians on the right are fond of pointing out, 47 percent of  Americans pay no federal income taxes, and the poorest are not liable for payroll taxes either, as when income is low enough, the earned income tax credit offsets this obligation as well. These Americans would all see their tax burden rise substantially, while wealthier Americans would see a lower effective tax rate. Value judgements of whether ensuring that all Americans pay some taxes is wise aside, it is illogical to think that they will be in favor of it. Mr. Cain’s plan would face nearly insurmountable odds in getting any of the phases passed.

The multiple phases also raises the question as to whether even those in favor of 9-9-9 or the fair tax would support the initial phase, what would happen if after the maximum tax rates were lowered, the next phase of reform that would usher in the 9-9-9 plan was forestalled, and we were left with a system taking in drastically less revenue while not lowering the tax burden for the poorest Americans.

More questions arise regarding the tax reforms effect on other aspects of American society. What will fund the entitlement programs like Social Security and Medicare in each phase of the plan? How does Mr. Cain explain his support of the Chilean model for Social Security, in which younger workers would be able to opt out of Social Security and its payroll taxes in favor of personal savings accounts, if there is no longer a payroll tax to opt out of? Would younger workers of my generation pay something like 9-9-7.5? How can he in any way that later Presidents and Congresses will not simply raise the rates, causing the plan to become the x-x-x plan with ever-increasing rates?

A closer analysis of the 9-9-9 plan leads to many more questions than it answers. One thing is for certain, the surface simplicity of 9-9-9 quickly melts away under the glaring light of closer scrutiny.

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From → Economics, Politics

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