Nine-nine-nine nonsense

Presidential candidate Herman Cain has made quite a splash with his “999” plan, but the catchiness of the proposal’s branding belies a subtle attack on low- and middle-income working families (and a not-so-subtle windfall for financiers and businesses).

Along with efficiency, the core principal behind a progressive tax code is one of equity—that the distribution of the nation’s tax liability should take into account one’s ability to pay. In other words, Americans with higher income should pay a higher share of their income in taxes than those with lower income. Mr. Cain’s plan would radically jettison this principle of equity along with the rest of the code.

Mr. Cain advocates a 9 percent tax on each of earned income, corporate income, and consumption. This would entail two changes: (1) a drastic cut in corporate and individual income taxes for high-earners, and (2) an increase in income and consumption (sales) taxes for low- and some middle-income households. Additionally, the proposal would eliminate all taxes on capital gains, dividends, foreign profits, and large estates and gifts (objectively the most progressive federal tax)—again a boon to the highest-income and/or wealthiest Americans. In a second bait-and-switch, the diminished taxes on earned income and corporate income would eventually be swapped for even higher taxes on consumption (the so-called “fair tax”).

Indeed Mr. Cain’s plan is just about diametrically opposed to Warren Buffett’s plea to stop coddling multi-millionaires and billionaires, many of whom pay lower effective tax rates than middle-class households because of the preferential tax treatment of investment income. It is hard to fathom a hedge fund manager paying a higher effective tax rate than a secretary under Mr. Cain’s plan; financiers would be able to receive all of their compensation as tax-free investment income and taxable consumption presumably accounts for a smaller share of income (certainly a smaller share than that of Mr. Buffett’s secretary). The windfall from eliminating investment income taxes would accrue to the top 1 percent of earners, who will pay over 70 percent of all capital gains and dividends taxes in 2011.

In recent congressional testimony, Syracuse University professor and tax expert Len Burman stated that “the biggest loophole is the lower rate on capital gains” and that “tax breaks on capital gains undermine the progressivity of the tax system.” Rebuilding an equitable tax code necessitates curtailing, rather than exacerbating, the preferential tax treatment of investment income over work income. That does not mean equalizing taxes on investment and work income at zero rates while amplifying a flat consumption tax, which would be even more regressive.

Mr. Cain’s tax proposal only makes sense if you believe that the problem with the current tax code is that low- and middle-income households have it way too good, and they should give more of their income to those poor Americans making more than half a million dollars a year.


  • michael redbourn

    “Americans with higher income should pay a higher share of their income in taxes than those with lower income”.

    I stopped reading at that point, because it’s simply a leftist axiom which most people gave up after age 25, but it’s presented as if it’s a fact.

    • Guest

      All due respect, I think your reading comprehension needs some work.

      “the core principal behind a progressive tax code is one of equity—that
      the distribution of the nation’s tax liability should take into account
      one’s ability to pay. In other words, Americans with higher income
      should pay a higher share of their income in taxes than those with lower
      income.”

      The sentence you are referring to is a description of the “core principal behind a progressive tax code.” The author in no way claims its a fact.

  • http://twitter.com/wabbitoid Erik Hare

    I was horrified when I saw on klout.com that Herman Cain had the 5th highest “+K” for the topic Economics – so I asked for a little help and then quickly beat him out.  My little part to bury this nonsense (not that anyone really cares about klout).

    But his people are out there touting his “experience” in economics.  We need to watch for this nonsense, and thanks for calling it like it is.  

  • http://twitter.com/gettscene Bridgett Hollowell

    It seems to me that if you believe in any tax plan where everyone large and small pays the exact same rate, no matter the income, shouldn’t everybody make the exact same wages to make the system fair? Right! Since that is impossible, then it is only fair and equitable that the tax code be tiered. Why is this even a point of contention. We should be on to more important matters by now.

  • Chuck Queen

    How about just adding another 9 to include capital gains?

  • S. Ann Robinson

    An analysis that takes into account all taxes paid—shows that everyone has “tax skin in the game.”  About two-thirds pay payroll taxes, and most pay state and local sales taxes as well as excise taxes on gasoline. 
    According to the nonpartisan Tax Policy Center, of those with zero tax due:  13 percent are a mix of mostly higher-income individuals with enough itemized deductions for items like mortgage interest, health payments, or charitable contributions, education tax credits, or tax exempt interest to zero out their income taxes.  22 percent are senior citizens who can exclude some or all of their Social Security income (which was taxed previously at the outset) and may have tax-exempt interest from mutual funds and municipal bonds. For those who itemize, charitable contributions and medical expense deductions also subtract from their tax liability.   15 percent are working families, many of them extremely low-income, who qualify for one or all of the Earned Income tax credit, the Child tax credit, the Child and Dependent Care tax credit.  For the other half of those that don’t pay federal income taxes, standard deductions and personal exemptions are enough to counteract their taxable earnings. A couple with two children earning less than $26,400, for example,  will pay no federal income tax in 2011 because their $11,600 standard deduction and four exemptions of $3,700 cuts their taxable income to nil.     The larger question, really, is this:  How is it that a working couple doing a responsible job for anybody anywhere earns only $26,400 per year? About 25 years ago, our society decided that cheap consumer goods and services were more important than the right of workers to engage in collective bargaining which would have provided a counter-balance to the “race to the bottom” that a focus on stockholder value only naturally produces.  So now we all have cheap consumer goods (relatively) and 50 million households have stock portfolios.  The extra social cost of this cheap labor has been placed onto us in other ways — for health, education and safety.  If businesses won’t pay a worker enough to cover these items, then who picks up the cost?  The answer is we all do, in one form or another…if not through social programs, then through social decay and property devaluation.  What is the likely lifestyle of a Loudoun County family of 4 that makes $26,400 per year?  Best case scenario:  $12.69 per hour for breadwinner(s) that then has $.72 cents withheld for payroll withholdings (more if the temporary reduction is lifted).  So, (s)he is paying $1,497.60 in taxes.  If (s)he is self-employed, (s)he pays almost twice that.  Housing in Loudoun costs at least $1,000/month for a two bedroom apartment, plus utilities.  That’s $12,000 plus $1200 minimum.  Food for 4 even eating rice, beans, oatmeal and macaroni would cost at least $500 a month, buying detergent, toothpaste, soap and toilet paper, too.  That’s another $6,000.  Clothing at thrift stores can be had for $1000 a year for all four if carefully done (including sales taxes). Transportation is a huge expense, because the public bus service doesn’t run on weekends or evenings, so to make his/her job as a waiter, (s)he has to have a car.  A 10-year old Honda would be hard to maintain and insure on the money remaining (includes excise taxes on gasoline).  There is nothing left for dental or eyeglasses, even if you assume the family goes to the emergency room and takes care of other health issues with home remedies.  This scenario deteriorates drastically for the two-wage families who together earn less than $26,400 per year while shouldering child care expenses.   ,Now, if you earn more than $250,000 at work, have a large mortgage deduction, and a stock portfolio that benefits from cheap labor… you might convince yourself that this cheap labor force should pay more tax so you can pay less.  That somehow their contribution to society is not yet sufficient.  Really?   What would you like for them to give up in order for you to pay less tax?  Socially we appear to have decided they can’t move in with other families in order to have cheaper housing.  Overcrowding!  The political will to improve public transporation isn’t yet firm.  So, what exactly would you have them do?  We are all part of a system that takes advantage of cheap labor.  First agree to pay a living wage with medical benefits to anyone who works and then let’s talk about tax “equality.”  I could surely be persuaded to lower the social security premium payments on the self-employed (they pay both the employee and employer share). But if that’s not enough, then think about this:  It’s going to hurt the economy more if you raise taxes on the poor than the rich, because the poor spend every penny they’ve got; if you take a dollar away from them in taxes, that’s a dollar they don’t spend. The billions of dollars the very rich are holding have not resulted in more jobs because there is low consumer demand.  They won’t hire until we start spending.  And we won’t spend more until jobs feel more secure.  It’s quite a delimma.  But raising taxes on the poor is not the solution.

  • Steve

    I entirely agree. I was shocked when I first heard of the plan during the Republican candidates debate at the Reagan library for exactly the reasons you articulate here.
    Research from Piketty and Saez provides more than ample evidence for the fact that the US tax system changes over the decade have enabled benefits to disproportionately accrue to the top 1% of income earners. The country needs to move in the opposite direction, as explained recently by Warren Buffet. A recent Bloomberg poll stated that 63% of very wealthy tax payers agreed.  While a majority of Europeans agreed, only 40% of Americans agreed.
    BTW. The second link in this post (many of whom pay lower taxes) is broken.

    • http://pulse.yahoo.com/_G2MKR75JMMUGDUVM2PLMK4RPVM slr_merc_man

      That is because many Americans are duped by Rush & Hannity, the two biggest liars in America.

  • Anonymous

    AMAZING THE 9 9 9 IS NOT TORN APART EASILY
    9% WILL GET YOU A REVENUE OF 1080 BILLION
    BUDGET 3800 SO WE BORROW 2720 AS A DEFICIT

    NUMBERS ARE SIMPLE 

    TOTAL NATIONAL INCOME IS 12.000 BILLION
    9% IS 1080.

    INDIVIDUAL INCOME IS 8400 BILLION.
    9% IS 750 BILLION
    clarence swinney politicl historian lifeaholics of america
    prove me wrong with numbers +  facts not opinons  i change
    cswinney2@triad.rr.com

  • DougDeWitt

    Well, clarence, the good news is that your numbers are totally accurate!  The deception does not lie in your math, but in the fact that I will reiterate:  the $1.08 Trillion in revenue comes from the Total National Income, calculated as the total of wages and salaries… the way MIDDLE- and LOWER-CLASS wager earners get paid.

    It does not account for Investment Income, which is how the top 1%, the WEALTHIEST AMERICANS receive their income.

    Your math accurately predicts how the 9-9-9 Plan will gouge every wage and salary earner in America, letting the wealthiest 1% of America completely off the hook!

    In addition, the Corporate tax-rate of 35% will be reduced to 9%, letting Exxon-Mobile, and the big-$$ super-PAC contributors completely off the hook as well!

    As for a national sales-tax of 9%, on top of local, county and state sales-tax rates, all households must purchase those things for their families that every family needs, even rich households… food, clothing, transportation, fuel, etc.  The lower the family’s income-level, the higher the percentage of money spent on those things.  The “fair” tax becomes the highest percentage of total income, for the lowest income-levels!  Hardly fair, at all…

    No, Clarence, I’m sorry that you, and the rest of older, white America is being deceived by Big$$ special interest groups once again.

    http://www.americanprogressive.org