Cain’s new 9-0-9 plan would still raise taxes on the poor, analysts say
Herman Cain has modified a key part of his tax plan, appearing to concede to criticism that his 9-9-9 plan would unduly punish the poorest Americans. Cain suggested today that poor families would be exempt from the individual 9 percent flat tax that in his plan. “Say amen, y’all. If you are at or below the poverty line…then you don’t pay that middle 9,” he said at a Friday speech in Detroit. “Your plan isn’t 9-9-9, it’s 9-0-9.” But both liberal critics and non-partisan policy analysts say that the changes are unlikely to eliminate the plan’s unequal treatment of rich and poor.
According to the Tax Policy Center, Cain’s “9-0-9”plan would still raise taxes on the poorest Americans—if to a lesser degree —based on his remarks today. “Poor families would see a smaller tax increase than they otherwise would see, but they will still see a tax increase,” says Roberton Williams, senior fellow at the Tax Policy Center, whose widely-cited analysis concluded that Cain’s 9-9-9 plan would raise taxes for 84 percent of Americans and lower them for the richest households. The Tax Policy Center has yet to do a quantitative analysis of Cain’s “9-0-9” adjustment, but policy analysts like Williams come to firm conclusions about its impact. Currently the bottom 20 percent of Americans actually pay a negative tax rate, receiving credits from the federal government, says Williams. So even if poor Americans were to pay zero federal income taxes, they would still experience what is in effect a tax hike.
What’s more, Williams adds, “those folks are still going to be left with a sales tax” under Cain’s plan, which would disproportionately affect the poor who often having to consume most of their income instead of saving it. So even with the “9-0-9” tweaks, “you still have the fact that poor people will bear a higher tax liability, and rich people will bear a much, much lower one,” he concludes.
Cain also said he would provide an additional tax carve-outs for businesses operating in newly created “Economic Opportunity Zones” in areas where there is high unemployment and poverty. But he didn’t go into detail about what benefits those living and working in those zones would receive, as my colleague Perry Bacon, Jr. reports.
Cain’s “9-0-9” adjustment also creates a new revenue problem that he has yet to address. The GOP contender had originally boasted that his 9-9-9 plan was revenue-neutral—a claim Tax Policy Center says is true, depending on some of the starting parameters. But now Cain will have to find some way to pay for the new exemption that he’s created for the poor, as well as the business tax exemption for the Economic Opportunity Zones. “It solves one problem while creating another. In order for the plan to be revenue neutral, that means we need to raise more revenue elsewhere—someone else is going to have to pay more,” says Jared Bernstein, former adviser to Vice-President Biden. “Either you change ‘9’ to a higher number, or you take some form of income currently exempted and tax it.” Alternatively, Cain could leave the other tax rates in his plan alone, but then he would have to explain how he’d fund it from the outside.
Altogether, Cain’s new concessions—and the complications that they create—show just how difficult it is to devise a “simple” tax plan, Williams and Bernstein explain. “We have a very complicated tax code into which we’ve built lots of preferences to which people have become accustomed,” says Williams. In other words, eliminating all those preferences at once suddenly takes away tax advantages from a very wide spectrum of people and interest groups, ranging from families with children who receive a child-tax credit to poor Americans.
“What you’re seeing happening is Mr. Cain is losing part of his simplicity mantra—that’s what happen when flat taxes collide with the real world. You almost always have to start carving out different income groups and different kinds of goods,” Bernstein concludes. “Let the fun begin, and get ready for a lot more complexity.”