REPUBLICAN PRESIDENTIAL candidate Herman Cain’s 9-9-9 tax plan was the centerpiece of Tuesday’s Post-Bloomberg debate. Mr. Cain claims his proposal is a “bold plan to grow this economy” while getting the debt under control. His opponents warned variously that the plan would never pass (former Pennsylvania senator Rick Santorum) or that it would (Minnesota Rep. Michele Bachmann), giving Congress the “pipeline of a new revenue stream” that would inevitably be cranked higher.
Mr. Cain’s plan is problematic, but not for the reasons his fellow presidential contenders claim. Rather than putting the country on a sustainable fiscal path, it risks not producing enough revenue to fund the government’s needs. It would turn the current progressivity of the tax code upside-down, giving a windfall to the wealthy and hiking the tax burden for the least well-off.
Mr. Cain would junk the existing, Byzantine structure of rates and deductions in the individual income tax code. He would end the estate tax, the payroll tax to fund Social Security and Medicare, and the capital gains tax. Instead, individuals would pay a flat tax rate of 9 percent; the only deduction that would remain would be for charitable giving. Businesses would pay corporate taxes at the same 9 percent, instead of the current 35 percent. And there would be a new national sales tax set at, you guessed it, 9 percent.
Would this produce enough revenue? Mr. Cain, without providing details, insists that it would produce as much as the existing tax code. “We have had an outside firm, independent firm dynamically score it,” he said at the debate. Leave aside the point that the current tax code does not generate adequate revenue to meet the needs of an aging society. Mr. Cain’s argument of revenue-neutrality rests on the sleight of hand of dynamic scoring — taking into account the economic growth to be generated by lower tax rates. This kind of faith-based tax analysis is too dubious a basis on which to rest an economic program. Bloomberg News, analyzing Mr. Cain’s plan, found that it would have generated $200 billion less in 2010 than the government’s $2.2 trillion in collections that year.
Even if it generated adequate revenue, Mr. Cain’s plan would do it on the backs of the least well-off — and to the benefit of the wealthiest taxpayers. The 47 percent of households that do not pay federal income tax because their earnings are too low would be subject to a new 9 percent tax on their income — plus the impact of the 9 percent sales tax, with no exceptions for spending on basic needs such as food, clothing and shelter. Getting rid of the payroll tax won’t help them because Mr. Cain would also eliminate the earned-income tax credit and other benefits targeted at lower-income taxpayers. In an new paper, University of Southern California law professor Edward D. Kleinbardexplains that the plan operates by “drastically increasing taxes on the working poor and middle class and reducing income taxes going forward on the rich.” The appealing simplicity of Mr. Cain’s plan is deceptive. Rather, it is simplistic — not to mention fiscally irresponsible and fundamentally unfair.