Herman Cain has gotten a lot of mileage from his 999 tax
plan . He explains it this way:
The first thing you do
is you throw out the current tax code which creates too much uncertainty, and
this is why I have proposed my “999″ plan. Very quickly, it imposes a 9 percent
business flat tax, a 9 percent personal income tax, and a 9 percent national
sales tax. It expands the base so that everybody has a lower rate. And
it is not regressive on the poor.
So, would Cain’s 999 plan work? Cain says it would be revenue neutral, would
bring in just as much revenue as now, and would be fair since everyone, rich
and poor, would pay at the same rate. Is
he right? Would his plan be revenue
neutral and fair?
Think Progress asked Michael Linden, Director of Tax and
Budget Policy at the Center for American Progress to run the numbers on Cain’s
plan. Linden says Cain’s plan doesn’t come
close to being revenue neutral. In fact,
it would cut federal revenues IN HALF. At the same time, Cain would cut taxes on the
richest Americans by as much as 40
percent while INCREASING taxes on the poorest Americans by as much as 900 percent.
Linden used data from 2007, the last year before the Great
Recession. Here is what he found about the revenue Cain’s 999 plan would have generated
in 2007 compared to actual revenues for that year:
– For the income tax portion: In 2007,
total Adjusted Gross Income on all income tax returns was $8.7 trillion. Since
Cain’s plan would exempt investment income, but would have no other deductions,
that brings taxable income down to $7.4 trillion. A flat 9 percent tax
would therefore have yielded about $665 billion in income tax revenue.
– For the corporate tax portion: In
2007, there was a total of $1.3 trillion in reported corporate income subject
to tax. A flat 9 percent would have yielded $112 billion in revenue.
– For the sales tax portion: I used
generally accepted estimates of the revenue generated from a value-added-tax.
Those estimates suggest that a broad-based 5 percent tax on goods and services
would generate about 2 percent of GDP in revenue. That implies that a 9
percent tax in 2007 would have generated about $500 billion.
– Together, then, the
9-9-9 plan would have generated a bit less than $1.3 trillion in total federal
tax revenue. That may sound like a lot, but it’s only 9.2 percent of
GDP. In 2007, we actually collected 18.5 percent of GDP in tax revenue. In
other words, the 9-9-9 plan would cut federal revenue in half!
IMPACT ON THE POOR—Their
taxes go up 900%
Linden then examined how Cain’s plan would impact the bottom
quintile of earners, the middle-class and the richest one percent. He found:
Someone in the bottom
quintile of earners — who currently pays about 2 percent of his or her income
in federal taxes — would pay about 18 percent under Cain’s plan (9 percent on
every dollar they make, plus 9 percent on every dollar they spent, which would
likely be close to all of them). A middle-class individual would see his or her
taxes go from about 14 percent to about 18 percent. But someone in the richest
one percent of Americans would see his or her tax rate fall from about 28 percent to
about 11 percent.
In short, Cain’s plan
brings in much less revenue AND shifts the burden of taxation from the rich to
the poor.
Cain’s 9 percent national sales tax hurts the poor in
particular. Here is why as explained by
the Institute on Taxation and Economic Policy:
Because sales taxes
are levied at a flat rate, and because low-income families spend more of their income
on items subject to the sales tax than do wealthier taxpayers, sales taxes
inevitably take a larger share of income from low- and middle-income families
than they take from the wealthy. Excise taxes on cigarettes, gasoline and
alcohol are also quite regressive, and property taxes are generally somewhat
regressive. Some believe that a proportional, or “flat,” tax structure is fair.
They argue that if everyone pays the same share of income in taxes, then
everyone is treated equitably. But this view ignores the fact that taking the
same share of income from a middle- or low-income family as from a rich family
has vastly different consequences for each. Low-income families must spend most
(or all) of their income just to achieve the most basic level of comfort. Even
middle income families spend most of what they earn to sustain only a modest
standard of living. A tax on these families can cut directly into their ability
to make ends meet.
