Why Herman Cain’s 9-9-9 Plan Is a Disaster for the Middle Class
If you were trying to formulate a tax proposal to enrage and energize the Occupy Wall Street movement, it would be hard to improve on Herman Cain’s 9-9-9 plan.
The Republican frontrunner is proposing a 9 percent tax on wages, a 9 percent tax on business income and a new 9 percent federal sales tax. This cleverly marketed flat-tax plan would “drastically increase taxes on the working poor and middle class, and reduce taxes going forward on the rich, ” Edward Kleinbard, a professor of tax law at USC, writes for Tax Notes.
Kleinbard estimates that 90 percent of tax payers would end up with a “vastly increased tax bill,” under the 9-9-9 plan. That’s because the “business flat tax” is effectively structured as a payroll tax, so with each 9 in Cain’s plan, workers take the hit. “The combination of the three actually operates as the economic equivalent of a 27 percent uncapped payroll tax,” writes Kleinbard. A middle class family of four with an income of $50,000, he tells Rolling Stone, would see its tax burden soar by nearly $5,000 a year to $13,500. “Its staggering!” For a family just to break even under Cain’s scheme, it would need to take home in excess of $120,000 a year.
If Cain were being honest, he would sell his tax scheme as the 9-0-9-0-9 plan. That’s because two taxes vital to the fairness of the current tax code simply disappear: Taxes on capital gains and inheritance. That is to say, taxes on the rich.
Who earns capital gains? The top 0.3 percent of tax payers take home more than 60 percent of America’s investment income. Perversely, the Cain plan would liberate more than 23,000 millionaires from federal income taxes altogether. Those who make money soley from investing wouldn’t pay nine percent – they’d pay a zero percent. That’s an average annual tax cut of nearly half a million dollars for some of the fattest cats in the land.
Repealing the estate tax, currently up to 35 percent for estates in excess of $5 million, would create another trillion-dollar windfall for the richest of the rich. The two tax breaks dovetail nicely. Under Cain’s plan, a billionaire hedge fund manager could pay nothing in income tax and then pass that wealth on to his heirs completely tax free.
The net effect of the Cain plan, says Kleinbard, would be to shift the tax burden from capital to labor, and — within labor income — to shift the burden of taxes down the ladder from the CEO class to workers struggling to make ends meet.
Worse, Cain’s plan would not raise any more revenue than the current system. Cain would destroy the fairness of the tax code and still leave America’s fiscal house, Kleinbard says, “in exactly the same mess we’re in now.”