Does the Herman Cain 9-9-9 tax plan have a fatal flaw?
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鈥檚 unpopular US tax code 鈥� 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鈥檚 鈥渁 bold plan to grow this economy鈥� said Cain in his first answer to a question at last night鈥檚 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鈥檚 White House hopes?
Here鈥檚 Cain鈥檚 problem: that last 鈥�9鈥� represents a brand-new type of US taxation. America doesn鈥檛 have a sweeping national tax on everything new for sale in the nation鈥檚 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鈥檙e availing themselves of that opportunity.
鈥淵ou can鈥檛 give the federal government an income tax and a sales tax. That鈥檚 doubling the opportunity for them to get you coming and going,鈥� said fellow GOP hopeful Rick Santorum Wednesday morning in an appearance on 鈥�Fox and Friends.鈥�
Mr. Santorum attacked Cain at Tuesday鈥檚 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鈥檚 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.
鈥淭he 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 鈥� 鈥� that voters would balk,鈥� writes Clancy.
Clancy figures that the sales tax would have to be 25 percent in such a circumstance.
鈥淣o wonder Mr. Cain has fallen back to a two-step strategy: 9 percent is a teaser rate!鈥� Clancy concludes.
Other experts have expressed concern that Cain鈥檚 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.
鈥淭hat鈥檚 a six percentage point difference,鈥� 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.
鈥淭hey are still going to have money left over,鈥� said Cain.
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