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.
Read more here: http://www.itepnet.org/pdf/guide1.pdf