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The Cain 9-9-9 Plan

Flat Tax. Is it good or bad? Are we ready for it? Is it even possible that such a radical change in the current structure can be voted through?

When Steve Forbes ran for office he was an advocate of a flat tax. A 17% flat tax if I recall correctly. Now, Mr. Cain’s 9-9-9 plan takes the flat tax a step further, a very low 9% income tax along with a 9% sales tax.

At first blush, it looks like most of those who currently pay no federal tax at all will see an increase, but Cain points out that this covers the payroll tax as well, so even if you have no federal tax, you are paying 7.65% for social security and medicare. I think the idea of a tax like this might be appealing, after all, the simplicity alone is elegant, but the transition would be a tough hurdle.

What becomes of those who converted their IRAs to Roth IRAs to avoid higher future taxes? They paid 15,25, even 33%, and now would find that their rate is now 9%. Obama and others are currently on a “tax the rich” crusade, looking to bump their marginal rates further and remove their favorable cap gains rates. Cain’s plan has no cap gain at all.  I can only wonder what the reaction would be from Main Street if the fat cats managed to keep their income treated at capital gains and reduced their tax burden even further. I know, this can be legislated, and treated as ordinary income. Still, it goes counter to the concept of the Buffet plan, that the fairest tax system is a progressive one and higher earners should pay a higher rate.

The interesting thing to me is that Cain has calculated that compliance, enforcement, and collection of taxes cost the US $430 billion per year more than his plan would. Sounds like the IRS would have to plan a large downsizing if this plan goes through. On the other hand it would sure make planning easier, removing all the variables that change every year, that patches, fixes, extensions, et cetera. Unintended consequences aside (and you know there will be some big ones) I’d like to see if Cain’s plan gains any traction.

What do you think? Would a 9% flat tax appeal to you? No itemizing, no deductions at all?

  • Augustine October 27, 2011, 10:22 am

    I think that a flat tax is the way to go. Other countries have gone this way, e.g. Russia, and saw the revenue go up while the tax burden on households went down.

    I’m against a federal sales tax though. Historically, governments found it much easier to raise this form of tax than others.

    Moreover, some say that a federal sales tax is not constitutional (not that the constitution is a credible threat to our form of government). I don’t know if this is truly the case, but if so it might require an amendment to become reality, which makes its chances pretty dim, methinks.

  • Mike October 28, 2011, 11:38 am

    As far as I can tell Cain’s plan is different from Forbes’ plan (as outlined in a book he wrote in 2005 or 2006). Forbes included personal deductions for yourself/spouse and dependents. Cain’s website indicates that there are no deductions: “Ends nearly all deductions and special interest favors”. There may still be some room for personal deductions to allow individuals and families some amount of tax exemption of the first portion of their incomes.

    Forbes, however, had the luxury of a few hundred pages to explain his plan in detail and provide real-world examples. Cain is limited to the 15-30 second sound bites the media uses and a few hundred words on a website.

    I suggest anyone read his official site before making up their mind either way: http://www.hermancain.com/999plan

  • Ruth October 28, 2011, 12:21 pm

    I was watching Rachel Maddow recently, she did a report on Cain and his tax plan. It turns out he’s basically an employee of the Koch brothers and his tax plan is rumored to be based on a video game (SimCity, I actually have an old version of it and when you start a new game the default settings for the tax rates are 9%).

    The GOP presidential candidates are scary people nowadays…..Post-WWII taxes on the highest tax bracket were, if I remember right, a whopping 70%. Historically speaking we were doing pretty well back then. It’s since the Republicans cut taxes on the wealthy that the economic downslide started and income disparity in this country went from a small crack to a yawning chasm. Maddow had a chart about it on her show the other day, up til the mid-80s all income brackets were having relatively steady and equal gains, after that the lower brackets flatten out and the rich skyrocket.

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