Cain’s 9-9-9 Plan

Everyone else seems to be talking about it so I suppose I should too. For those who don’t know what 9-9-9 stands for, it’s a proposal to replace the current federal tax code with a 9% flat income tax, a 9% corporate tax and a 9% federal sales tax. I’m not sure where Social Security taxes fit but I believe they would still be separate under the plan.

I’m going to grade it based upon three qualities. First, Simplicity, I don’t think you should need four accountants to pay your taxes. Second, Revenue Adequacy, you have to take in enough revenue to keep the federal government operating. One can argue its gotten bloated over the years but it still performs a wide range of functions that we’re going to need. Lastly, Fairness, while a tax code doesn’t necessarily have to be fair, I think most people, including me, believe it should be.

As for quality importance, to my mind Revenue Adequacy and Fairness are 5 credit factors and Simplicity is a 3 credit factor. Simplicity is nice but it’s not essential and the other two are.

I wholeheartedly agree that something needs to be done about the federal tax code. It’s too complicated. Cain’s plan is simple and straight forward so, for Simplicity, it gets an “A.”

On the question of Revenue Adequacy I have two concerns. The first is I find it highly unlikely it’s going to bring in anywhere near as much revenue as the current code and, secondly, it’s unclear to me that we’re going to accrue any significant benefit from slicing the corporate tax rate so significantly other than enrich the CEOs, the major stockholders and the corporations themselves. More money means more power and influence and the big corporations have too much of those already. I give Cain’s plan a “D” here and that’s being generous.

Now we come to fairness. The plan clearly favors the rich. A 9% flat tax on income would cut my taxes dramatically and I’m not anywhere near the top income bracket. Pure Flat taxes, where everyone is taxed at the same rate, are regressive and further encourage greed. I believe the tax rate should increase with income and would much prefer a graduated flat tax that started at 0% and worked its way up by marginal income.

In other words, for example, for the first $X no one would pay any taxes. Then from $X+1 to $Y one would pay say 5%; then from $Y+1 to $Z dollars one would pay 10% and so on. For incomes in the millions I would have the marginal tax rate in the 75% range. There would be no deductions, no tax shelters, but the flat rate would increase with income.

A sales tax is also regressive. In fact it’s probably the most regressive type of tax because the poor pay a much larger proportion of their income than the rich. A sales tax is also too easy to get around by buying goods and services outside the country. I can see “duty free” zones springing up on dozens of Caribbean Islands selling foreign goods to rich Americans just to get around the 9% federal tax.

For Fairness, the plan gets a big whopping “F.” I’d give it an F- if there was such a grade.

So let’s do the old college index calculation. ( (3x4)+(1x5)+(0x5))/(3+5+5) = 17/13 = 1.3. That’s a D+ folks so Cain’s plan flunks out.

It’s an interesting idea but I think it needs work. Going with a graduated flat tax on income while reducing the sales tax might be enough to make it a plan I could support, but I can’t support it the way it is.