Herman Cain's 9-9-9 Plan

Oct 12, 2011 | Budgets & Projections| Taxes

Republican presidential candidate Herman Cain's economic plan received a lot of attention at Tuesday night's debate. Regardless of what one thinks about the plan itself, the fact that it generated so much discussion is a positive development. With so many voters justifiably concerned about the economy and yearning for their leaders to adopt sound policies that will spur growth in the short and long-run, the focus on Cain's plan underscores the dearth of concrete ideas from policymakers and the public's desire for action. The debate in this campaign season over fiscal policies that will ensure a brighter economic future is truly welcome and essential. CRFB hopes to see more plans from candidates, particularly from those who would criticize the ideas of their opponents without offering their own proposals. Jon Huntsman also has a tax plan that we briefly examined here.

That said, and as others have noted, the plan lacks the full detail that would enable a thorough analysis of its ultimate impact on taxpayers and the federal budget. A few experts have made an attempt to describe the impact of the plan (see Bruce Bartlett’s column and former Joint Committee on Taxation Staff Director Ed Kleinbard’s attempt at a fuller analysis of the plan).

In the first phase of a three phase proposal, the so-called 9-9-9 plan would make a number of fairly big changes to the current tax code. The 9-9-9 part of the plan refers to new rates on corporate and personal income, and a new national sales tax:

9% Business Flat Tax: Taxes gross income minus all investments, purchases from other businesses and dividends to shareholders. Creates empowerment zones that will offer deductions for payrolls of people employed in the zone.

9% Individual Flat Tax: Taxes gross income minus charitable deductions. People who live or work in empowerment zones will receive additional deductions.

9% National Sales Tax: This would be in addition to state and local sales taxes.

The 9-9-9 plan would also:

  • Eliminate the payroll tax.
  • Eliminate the capital gains tax.
  • End the so called “death tax” (the estate tax).
  • And eliminate the double taxation of dividends.

In the second phase of the plan, Cain proposes implementing a “Fair Tax”, which is assumed to resemble this proposal from Americans for Fair Taxation. It appears that the Fair Tax is intended to replace the individual and business taxation pieces of the 9-9-9 plan and to supersede the national sales tax.  Again, the devil is in the details and many of those are missing.

The 9-9-9 plan has faced quite a bit of criticism, with even some conservatives conceding that one obvious consequence would be to significantly lower taxes on the wealthy, while imposing a new tax on those who currently do not make enough to pay income tax (although everyone who works currently pays payroll taxes, which would be eliminated under the plan). Additionally, those who have attempted to estimate the impacts of 9-9-9 don’t believe it would be revenue neutral compared to current law levels, as Cain contends.

We look forward to learning more details of the 9-9-9 plan so that we can better assess it's impact on the budget.  Yet we commend Mr. Cain for offering some specifics of his economic plan and contributing to a desperately needed discussion on economic and fiscal policy.