Plutocrats win big with ‘999,’ while 84 percent of households get hosed
The Tax Policy Center’s verdict on Herman Cain’s ‘999’ plan is in, and it’s not pretty for the vast majority. Last Sunday, Cain claimed on Meet the Press that his plan would lower taxes on most Americans. Analysis of the plan proves otherwise. The average household would see an $836 tax increase, with 84 percent of households paying more, relative to current tax policies. In this case, that’s what ‘broadening the base’ entails: more households paying much more in taxes.
Mr. Cain said the elderly wouldn’t be made worse off, because the elimination of capital gains taxes would offset the new taxes levied on their consumption, again a wildly unfounded claim. It turns out that 86 percent of elderly households would see a tax hike, which is unsurprising because fewer than 10 percent of households will even pay capital gains taxes this year, again according to TPC. If the vast majority is getting hosed, who’s reaping the benefit?
I recently characterized the ‘999’ plan as the inverse of the so-called ‘Buffett Rule’ that millionaires and billionaires shouldn’t be paying a lower effective tax rate than middle-class households. TPC’s distributional analysis demonstrates just this. The chart below depicts effective tax rates under current policy (blue) and the ‘999’ plan (red) across various cash income ranges.
Under a progressive tax code, effective tax rates should rise with income. TPC treats the ‘999’ plan effectively as a 23.6 percent flat sales tax, which is in fact the final phase of Mr. Cain’s tax plan (TPC’s wonky explanation here and Howard Gleckman offers a more accessible explanation here). Upper-income households consume less of their income than middle-class families, hence lower effective tax rates and a regressive tax code. (Note: the tax code is less progressive than the blue bars suggest because the federal tax code is layered on top of regressive state and local taxes, as Citizens for Tax Justice notes in this report.)
Under ‘999,’ average tax rates would begin to fall for households with income exceeding $200,000. Households with income exceeding $1 million would see their effective tax rate roughly halved from 32.9 percent to 17.9 percent, for an average tax break of $455,000, relative to current tax policies. The top 0.1 percent of filers—those with incomes of roughly $2.7 million and above—would get an average tax cut of $1.4 million, as Jared Bernstein depicts nicely. This is where the benefit of eliminating wealth taxes (i.e., capital gains, dividends, and estate taxes) really kicks in; the highest-income 0.1 percent will pay 49 percent of all capital gains taxes this year.
The American consumer is in no position to lead the economy to recovery. Lower-income and middle-class Americans are burdened by mortgage debt and lost housing equity, underemployment, and a decade of falling real median income. In this context, I fail to see how jacking up taxes and slashing disposable income for 84 percent of the population constitutes responsible tax reform, much less a jobs plan. It’s more along the lines of kick ‘em when they’re down.
Mr. Cain’s ‘999’ plan amounts to highway robbery, not a jobs plan. It’s simple, all right, simply a massive redistribution of after-tax income up the earnings distribution.