Explainer: Herman Cain's 999 Tax Plan - Is it Really That Simple?

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

Graphic by Alana Casanova-Burgess

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: