Explainer: Herman Cain's 999 Tax Plan - Is it Really That Simple?
Monday, October 17, 2011
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Talk show host and conservative Herman Cain (Brendan Smialowski/Getty)
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Herman Cain has been getting a lot of attention lately, not least for his "9-9-9" tax plan. (Not "6-6-6", as Bachmann has devilishly suggested.) He explains the plan on his website with short, sharp bullet points, but most of the fine print is still a mystery.
The U.S. tax code has become extremely complex over the years. At Reason.com, Jacob Sullum said that while the instructions for filling out Form 1040 took up only two pages 75 years ago, "they're 179 pages long this year." Cain's plan, as it has been presented, would replace the entire existing tax code in three steps.
The 9-9-9 plan is the first step in the proposed tax code overhaul. It involves a 9 percent tax on corporate income, a 9 percent tax on individual income, and a 9 percent national sales tax. Here's how he explained it during the New Hampshire debate on Tuesday night:
It starts with three simple economic driving principles; producing drives the economy, risk taking drives growth and we need sound money. Measurements must be dependable. (As he points out on his website, "an hour is always 60 minutes) Now, what 9-9-9 does is it expands the base. When you expand the base, we can arrive at the lowest possible rate which is 9-9-9. The difference between the 9-9-9 plan and the other plans that are being proposed is that they pivot off the existing tax code.
During the debate, one of the moderators from Bloomberg said, after running some numbers, that the plan wouldn't cover the bills. In fact, it would not even bring in the amount of money the U.S. government spent last year. In response, Cain said he "disagreed" with the analysis.
What it does and what it is
Cain's plan eliminates certain taxes and tax deductions simultaneously. According to the breakdown on Cain's website, the plan would do away with the payroll tax (the money taken out of your paycheck that goes to Social Security and Medicare) as well as the capital gains and estate taxes, which disproportionately affect wealthier Americans.
Eric Toder of the Urban Institute and the Tax Policy Center said several deductions that the tax code currently supports—the Earned Income Tax Credit, the Child Tax Credit, and the Child Care Tax Credit, to name a few—would also be eliminated. Such credits, Earned Income in particular, directly benefit the poor. Toder said Cain's plan was "a massive tax increase on low-income working people...All those features of the current tax system which keep low-income people out of the income tax and in fact subsidize some low-income people are removed."
Also devastating, according to Toder, would be the "corporate tax" on Cain's 9-9-9 list. Toder says it's really another retail sales tax "dressed up": the consumer pays a 9 percent tax on the product they're purchasing, and the business pays a 9 percent tax on the profit from that sale. Buyer and seller are both taxed for the transaction, but chances are that businesses will pass on the cost of their tax to consumers in the form of higher prices.
Under Cain's plan, income from inheritance and investment would be exempt from taxation, while income from a paycheck would remain taxable at multiple levels—taxable when it's in your employer's hands, taxable when it's in your hands, and taxable when it leaves your hands.
"[Low income working people] are hit with these two sales taxes, plus on their income tax they're hit with 9 percent on their first dollar of earnings," Toder said.
Forget practical...is 9-9-9 even possible?
Toder added there are many details missing from Cain's plan and it's difficult to really understand how it would play out in other ways. He's not the only one who thinks so.
At National Review, Kevin D. Williamson writes that the most distressing thing about Herman Cain is his "wishful thinking that borders on fantasy":
Mr. Cain’s proposals are always bolstered by that economic boom he sees just around the corner, but he never is able to answer the question: What if the boom fails to show up on schedule?
At the Washington Post, Glenn Kessler voices another logistical nightmare for the Cain camp: 9-9-9 is the first of three complete overhauls of the federal tax code, eventually arriving at the Fair Tax. "It takes years, even decades, to fundamentally overhaul the tax code," Kessler points out. "Herman Cain is going to do this three times in his presidency?"
Cain simply dismissed a detractive analysis at the WaPo/Bloomberg debate on Tuesday—how many more can he brush aside before he addresses the litany of concerns that economists, politicians, and fact-checkers share?
Effects on the poor
Beyond objections strictly political or logistical, there are questions of the stripe that Eric Toder brings up: how 9-9-9 would affect the rich and the poor, and whether such tax policy is "just".
New York Times columnist Bruce Bartlett (who worked in both the George H.W. Bush and Ronald Reagan White House administrations) broke down the 9-9-9 plan this week, but also struggled through the analysis due to the lack of information. In closing, he called the Cain plan "a distributional monstrosity":
The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase. Even allowing for the poorly thought through promises routinely made on the campaign trail, Mr. Cain’s tax plan stands out as exceptionally ill conceived.
Bartlett also notes that Cain's plan would also get rid of business' tax deductions for employee wages. "The abolition of any deduction for wages is likely to raise the cost of employing workers, even with abolition of the employers’ share of the payroll tax," he writes. Much as businesses could pass their income tax bill on to consumers in the form of higher prices, they could also pass the increased cost of employing someone onto said employee in the form of lower wages.
What we know about 9-9-9
In a nutshell, here's what we know about 9-9-9:
- "It's essentially a tax on wages and consumption," according to Eric Toder
- It's the first of three steps toward a Fair Tax, or a pure tax on consumption rather than income
- Politically, it will be extremely difficult to implement as planned during a Cain presidency
- There are competing estimates for the revenue 9-9-9 would bring in. Depending on who you ask—Cain or his critics—the amount is either more than, less than, or equal to revenue generated under the current tax scheme.
- It eliminates tax deductions that benefit low-income individuals and families, while eliminating taxes that affect high-income individuals and families
- It isn't fully fleshed out. "We think he's subjecting health insurance premiums to the tax, but we don't know that," Toder said. "He's saying something about a poverty adjustment, but I don't know what that is."
So Cain's plan is deceptively more complicated—and less complete—than "9-9-9".
During Tuesday night's debate, Cain mentioned the plan twelve times (that's 36 "nines") and it became one of the main topics discussed among the contenders. Whether or not his plan has merit, it's catchy and people are paying attention.
Political satirist Andy Borowitz summed it up perfectly on Thursday's episode of The Leonard Lopate Show. "Cain is on to something," Borowitz remarked. "If you can get a 20-month old to repeat your entire economic plan, you've really come up with something."
This short and direct way of communicating his ideas is what Cain has become known for. His new book released last week is entitled, “This Is Herman Cain! My Journey to the White House." (In the book, Cain forecasts his election and presidency. More wishful thinking?) And how about this post on Twitter: "Can @MittRomney name all of the 59 points in his plan?"
Although Cain can't explain his entire plan with "9-9-9", as far as being message and policy rolled into one, it doesn't get much more straightforward than that.
Cain's commercial advocating Phase One of the overhaul; the 9-9-9 plan:
Comments [57]
HermanCain,please stay up for the right man to lead this country.OBAMA,Obama,Obama.That Mr.PRESIDENT BARACK OBAMA.
I love the 9% sales tax part. It gets all the big spenders, & little ones too for that matter who don't pay any tax at all now! Wake up, how many people do you know yourself who are pretty much on a cash economy, often making good money, and have little if any reportable income. But they are still driving around in their expensive imported cars etc. Cash is always King but sales tax on purchases hits all buyers exactly the same: 9%! Well here's the gov chance to capture some of this income. Right now its all the sad saps (myself included) on W-2 paying ALL the income tax! I could live with the 9% flat tax if the above were paying the 9% national sales tax, go Mr. Cain.
I agree that we need a flat tax.The poor and the middle class don't spend the kind of money that the rich do. For instance, They buy yachts where some people buy a small fishing boat, they have million dollar houses, while we(the poor and middle class) have small homes, they drive expensive cars, we drive Nissan's and Ford. So in this case a flat tax would be more for all the expensive toys the rich have, versus our cheaper toys. Also, if the candidates would consider the people that are unemployed. I haven't heard a single good plan for putting people back to work. Why can't they put a freeze on imports from companies that left the U.S. for cheaper labor such as Liberty, Levi-Strauss, Nike to name a few and not let them import their goods back into the states, they would be running back to the states to open new businesses, because the people of the U.S. are some of their biggest consumers. That would give back a lot of jobs! Another thing is, they keep borrowing money when the U.S. is very overly extended. Can u go to the bank and do this? No! The bank won't loan to us if we have poor credit or we are over extended. So why should the U.S. be allowed to borrow money they can't pay back. I feel better to have gotten this off my chest. Thanks,
Most people's calculations on the 9-9-9 plan aren't correct. Herman calculates it from GDP spending of 2008 (which will account for some difference from the #'s projected and the 2010 actual #'s). Drug dealers, prostitutes, illegal immigrants would now be paying at minimum 9% federal tax for income that they never report. Some have commented that they would buy from overseas websites, but that is to no advantage. All imports receive a 9% tax on them to the corporation, while al exports are not taxed, giving an incentive to corporations to invest of foreign economies and help fix the trade deficit. It DOES allow for income tax breaks and sales tax breaks on essential goods for people below the poverty line. Check the scoring report on his website
In order for a plan to be revenue neutral or positive without people paying a larger percentage in taxes it has to GROW the economy. That's what this plan is designed to do. He isn't selling this well enough. It doesn't just mean that the government will still get its money and that people are still being taxed fairly, it grows the economy.
Lets not forget, hes not just a pizza guy. He was Federal Reserve chairman in Kansas City.
I agree that there should be one flat rate , and there should be no refunds or having to pay at the end of the year
no one should ever get a refund of more then they paid in .
and on the ss get over it if you are 50 or over you will get yours before your dead do away with ss tax also and medicare
Has he lost his mind, oh excuse me he's got the money and we don't, so he doesn't care, so why does he have to worry. He will just take our money and throw it out the window. Let's just make the poor poorer and the rich richer and not do anything about it. Unless someone is willing to help us out, they don't deserve my vote and they shouldn't even be up there opening their mouth unless they come down and walk a mile in our shoes and know what they are talking about. Then and only then should they be able to open their mouth.
Somethings wrong between the labels and pie slices in the second pie. The right hand slice is the largest, but the label gives the lowest number. The top slice is the smallest but has the highest number.
Are new things that corporations buy taxed?
Also, I could easily foresee a way to make a new item a used item very quickly.
It's the dumbest thing I ever heard. Who would buy anything in NY State? You would have an 18% sales tax on anything you purchase. We would buy everything online from overseas websites that won't charge the tax.
I don't see any mention of the fact that the switch itself from income tax to consumption tax is egregiously unfair to those of us who have been saving all our lives. We've saved a decent amount of money that we paid 30-something percent income tax on, and now that we're ready to retire and start spending, Cain wants to say "oh, we've changed the rules -- now you pay tax when you spend it".
lol republicans
This idea frees the wealthy from paying ANY tax if their income comes from capital gains, dividends, or interest, which is most of the income for the "super rich". Meanwhile, those living on minimum wage or Social Security, while it lasts, will be paying 9% income tax, on top of a 9% national sales tax and the current state sales tax. So if you think groceries and toilet paper and paper towels are expensive NOW, wait until you are paying 17% above the retail price after you have given 9% of your SS check back! GREAT IDEA!!! (NOT).
Cain is got style without substance.
How about this;
a) 0.09% for the lower and working class'
b) 0.9 for those earning 0ver $100.000. and
c) 9.0 % for those over a million a year.
Cain will have his 999 's and the treasury will get a bit more to pay off AMERICA;s debt.
Regessive. Here's my proposal
.10/7/11 A Simple, Equitable Tax Plan and Related Subjects
There has been a great deal of discussion about “simplifying the tax code.” Much of the discussion is obfuscation, an attempt to justify low taxes for the rich by calling for a flat tax. A flat tax is not any simpler than a progressive tax. In one case you multiply your taxable income by the flat tax rate. In the other, you look up your taxes in a table. Both are quite simple.
Simplification is primarily related to calculating taxable income. We frequently hear the argument that we should close “loop-holes”. What’s a loop-hole? The answer is: it is a deduction that someone else gets. Very few of us consider our deductions loop-holes. I consider all individual deductions loop-holes, and accordingly believe we should eliminate all itemized deductions (except necessary and actual business expenses.) Is that simple enough? Note: Since the first $10,000 of income is tax exempt (see below) under my plan and tax on the second $10,000 in effect substitutes for FICA, everyone earning over $20,000 a year will be receiving a deduction equivalent to $20,000. This will more than cover all deductions presently received under existing tax formulas for all but the highest earning Americans.
What should be classified as taxable income? I propose all income (at the value thereof), earned and otherwise. This would include: salaries, fees, bonuses, perks, stock and stock option awards, profit distributions, deferred earnings distributions (Company pension contributions would be considered deferred income.), interest, dividends, capital gains, pensions (including Social Security benefits), gifts, and inheritances. I know that the argument will be made that if we cut out the capital gains advantage people will stop investing. I don’t believe this. A similar argument could have been made regarding savings when interest rates were reduced to near zero; still people continue to own bonds and to put their money in the bank. There are simply no alternatives…few will keep their money under the mattress. Corporations will be motivated to repatriate profits under this plan and distribute it as annual dividends which will result in an increased stream of government tax revenue.
And how would I tax this income? As I have already implied, progressively.
Now the good news…I would eliminate corporate and payroll taxes. Medicare and SS would be paid for out of the general fund.
More complete proposal but i am out of space.
Problem with 9% national sales tax is that it does not address the local and state sales taxes. In NJ it would be 9+7 = 16% sales tax. Even higher in NY City. That would fall disproportionally on the poor who already have insufficient funds for comfort. 9% income tax would probably CUT the income tax burden of people who earn over $100,000 (not the milliionaires, but even the comfortable middle class) by about 50%. And how would we fund social security, which I think most people, especially those who rely on that income for a significant portion of their retirement income, do not want to eliminate.
All the pie charts are missing the fact that 2010 income, the basis of comparison, was about 30% less than the amount needed to balance the budget. Where is that money going to come from?
Let's see all the comlainers and critics come up with a better plan. Don't say just tax the rich because even doing so won't help to reduce the deficit while keeping the country moving. No more free rides or rewarding lower income earners for being, well, lower income earners. Everyone should pay an income tax that hurts a little.
Isn't Herman Cain the same guy who ran for mayor of New York yelling that the "Rent is too damn high!"
Herman Cain: Why I Keep Winning the Polls
Republican presidential candidate Herman Cain says his supporters don't care that he's never held public. http://www.newslook.com/videos/360762-herman-cain-why-i-keep-winning-the-polls?autoplay=true
I'm glad Mr. Cain has the courage to offer something different. Are there holes? Of course. Will it be enacted exactly as he proposes? Of course not. Folks, he's running for President, not omnipotent dictator.
I'm not impressed by the critique I've heard/read so far. Yes, a corporation will look to pass its tax burden back on consumers. It passes ALL its costs onto consumers and its profit goals too, including executive compensation, retained earning and/or dividends, and mergers. To state, "[Low income working people] are hit with these two sales taxes, plus on their income tax they're hit with 9 percent on their first dollar of earnings" implies that they are the only group to be so hit. More accurately, Mr. Loder might have said "Everyone is hit..." but that would not have had the same liberal emphasis.
Maybe Mr. Cain's numbers, 9-9-9, aren't the right ones to cover the full extent of Government spending (I haven't read the Bloomberg News analysis). And the current system does?!? The level of scrutiny of 9-9-9 is welcome; too bad it isn't applied to ALL candidates and their "plans."
someone who has just retired at 65 or over has spent his entire life paying heavy income taxes. Now he is living on his nest egg; money he has, net after paying all those taxes. Now he is being asked to pay 9% on everything he buys with his after tax nest egg in order to reduce the taxes on the income of everyone else. He no longer has an income from a job. how is this fair?
This used goods things has me frustrated. What kind of used goods is he talking about?? I CAN'T buy many things as used - what about food, paper products, feminine hygeine products, medicine, vitamins, sterile medical equipment, shoes, pet food and meds, seeds for gardening, water filters... need I go on?
Can you please get a guest on who's used to talking about these things in complete sentences? I felt like I was running out of oxygen just trying to follow his "you knows" and "ums" and pauses and commas...
Actually Cains plan does not tax anyone on the three 9's if they live below the poverty level. SSI and medicine is not taxed. Remember your children wont live with you forever, you can only claim them so long under current tax system.
Also if you make 15 dollars a hour you will bring home a extra 456.00 a month in your pocket and overtime will not go directly to the government but into your pocket. many families have 2 workers so much more money will be in your pocket. Prices on goods will also come down
Buyer Beware - rumor has it that Cain is another production brought to us by the Koch Bros. and not just another uninformed unqualified clown offered up by the New and Notorious Mean Spirited GOP-cum TPotty that pledges allegiance to Grover Norquist instead of to" the United States of America".
Not to be confused with a once respected and respectable Republican Party of ages ago. RIP.
It would be entertaining if so much were not at stake.
oops, make that the Automated Payment Transaction Tax plan, please, and here's a better link:
http://www.apttax.com/
It has in common with Cain's 9-9-9 that it abolishes all other taxes, but it's progressive...
peace, - A.
Let me preface this by saying that I am a lifelong liberal.
1. Agree with above commenters that the guest was terrible and didn't explain anything. I came out of the report feeling more confused.
2. Agree with the previous commenter that I make (much) less than 45k most years and I always pay plenty of taxes, at least 25% generally. Wouldn't 9% benefit me? And most other low income workers who make more than the poverty level (~11k) and therefore don't qualify for public assistance? Most of us who are in this bracket actually spend very little, as little as possible. I buy mostly used goods anyway. It seems the thing to focus on is not taxing essentials: food, rent, utilities. If we do that this is actually a HUGE tax break for the poor/low middle class.
If my interpretation is incorrect the news segment did nothing to correct me.
Xtina, I would venture to guess that the location field is at the bottom because -- unlike the other fields -- it is not required. This makes perfect sense to me. I'm with you on being annoyed by the extra clicks to reach "It's a Free Country" comment pages.
999 is a backdoor method to eliminate Social Security and Medicare. The payroll taxes that Cain's plan purports to replace include the deductions which fund those programs. People wake up! 999 is a simple-minded plan. Any short fall in tax revenue must by default result in an increase state and local taxes.
Regarding 999 - no mention of Social Security Tax........does the 999 eliminate the SS tax........how is the program sustained without that tax?
I don't know whether Brian's ever covered the transaction tax plan:
http://progressivepolicy.org/the-real-reason-to-support-a-financial-transaction-tax
If not, i'd love to hear a show on it (and if so, maybe even another...?) Check it out, if you haven't already... It seems to me to make a lot of sense a lot of levels.
peace, - A.
no 'payroll taxes'... Wouldn't that be the first step to elimination of social security, unemployment insurance, etc?
That would certainly please the right.
That was a terrible segment. I learned nothing. The guest was awful.
BTW, why is the location box below the comment box instead of together with the other two identification boxes? Does anyone think about things before making design decisions?
Typical example of American mediocrity at work. (in addition to the stupid many extra clicks you have to inexplicably make to get to the comment page)
If this is shifting taxes toward consumption (vs. income), won't this have a negative effect on consumption and therefore the economy?
I earn less than $45,000 a year and I pay taxes. I've always earned less than $45,000 a year and I've always paid income taxes. Why did you report otherwise of people in my income bracket?
Question for Herman Cain: How much will this plan reduce the price of a slice of Godfather's Pizza? If he can't answer that, then how can he discuss the effect on the cost of anything else?
are stock purchases taxed?
1st, used goods have no sales tax? This is going to be a boon to antique stores.
2nd, this ties in with the last segment where there was a discussion of the influence of Wall Street on political decisions. Deductions and exemptions already are a road map of who is friends with whom, and I don't see that changing any time soon.
RACIST WHITE LIBERALS attacking Cain relentlessly here and in the Lamestream media....and showing the lie to their "tolerance". What phonies.
What else is new besides the ugly underbelly of the Left?
We can also look at his overall motivation...according to Huff po, he is closely tied to the Koch groupl
Please put your guest analyst out his you know misery umm he's you know not really ready to umm you know explain a a um thing.
With the existence of supercomputers that can simulate complex meteorological patterns, can't someone feed his plan and the data into a computer program which could figure this out for us? There are too many variables for talking heads to juggle. It has to be put into a computer simulation that would give us the statistical odds of his plan being viable.
(cont, I guessed) That was HS where I took Economics. I never took it in college because I figured if I ignored it, it would go away. But I hasn't gone away... yet!
I told you I was dumb.
I am skeptical but I love the idea of a blank tax on all the stuff we buy. I do think it will put a damper on the excessive consumerism in our country. We need to find an economy built on firmer ground.
Every election cycle a Republican from the more Liberatarian wing of the party repackages a consumption tax as tax reform. Herman Cain has a catchier tune but this is a nostalgic Regan era attempt to errode the government infrastructure and produce an even more elited handed economy.
Cain is an extremist lunatic, but, he's offered a specific plan up for debate - now it's time for the other candidates to propose their solutions and why they would be better.
i think the important part of this which attracts people is the transparency. 9-9-9 can fluctuate in the future to 7-8-9 or 11-8-6 but when people know who is paying what, everyone has a better idea of how much we are being taxed and how much we choose to be taxed and how that affects government services and the private sector.
Who buys used food? With an income of hundreds of thousands of dollars, the amount of the tax seems not to impair their life style.
I dread someone as ignorant as Herman Cain becoming President.
What he describes as a 'built-in' tax that will disappear is exactly opposite of the reality. He describes a VAT tax! We do not have that currently, fortunately, but this is what he is proposing.
And that's just the tip of the iceberg that this fool is proposing.
I admit I am really dumb when it comes to Economics. I only passed the course in HS because my uncle was giving me Cuban Cigars to bring to my Economics teacher back in the early 60s. But I have to say I do not get what this man is talking about (Cain that is). It sounds like smoke and mirrors to me.
I'd like to know where state taxes fit into this. Doesn't this mean that when state and city taxes are included, taxes for the working majority will be quite a bit higher?
Generally speaking, I like the idea of a flat tax. My question is how will goods purchased outside of this country be taxed at 9%? It seems those with means may buy outside of this country and then bring those goods in.
The 9-9-9 plan was written by Americans for Prosperity which is largely funded by the Koch brothers.
I like Cain's style but can't wrap my brain around 9-9-9. I'm all ears hoping he can make sense of it for me.
Cains plain seems to be a fairly typical republican gift to the .999%.
Republicans and the Tea Party are glad to get behind a plan that asks less from the rich and takes more from the poor.
Yet another example of the right choosing jingoism over reality.
9,9,9 does not raise the revenue required for the government Americans want and need. So, once again following the lead of the EU, I propose 999.9, where .9 is a financial transactions tax on stock, or 999.99, where .09 is a financial transactions tax on derivatives. Let's get in line with much of the rest of the world on these policies to raise revenue and calm volatility.
At first I dismissed it like any regressive flat tax but then Grover Norquist came out against it which means there must be something in it that advantages the middle class. Not sure what that might be exactly but maybe we'll find out during the segment.
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