Tuesday, September 27, 2011

Herman Cain's 9-9-9 Plan

On the face of it, Heman Cain's 9-9-9 tax plan to reorganize federal finances on a three-legged stool, with 9 percent personal income tax, 9 percent corporate income tax, and 9 percent national sales tax sounds like a winner.  Remove all the complicated exemptions and deductions and let's get real!

But the obvious question is: who benefits?  On the face of it, the rich.  Surely they will benefit if high income tax rates and corporate income tax rates come down.

But the 9-9-9 plan also replaces the FICA tax on wages.  Right now (forgetting the temporary cut in FICA) the total FICA bite is 15.3 percent.  So a moderate income worker is going to get a cut on that (assuming that the worker gets the employer share of FICA).

The 9 percent sales tax will obviously hit the poor hardest.  Sales and excise taxes on consumer goods have always been understood to hurt the poor.  But maybe the poor will suffer more from elimination of the Earned Income Tax Credit, which can be $2,000 per family per year.

The wild card is the corporate income tax.  If you eliminate FICA and reduce and simplify the corporate income tax it is going to have a substantial effect on corporations.  That will raise stock prices, but it will also enable employers to bid more for employees.  What really is the net effect for ordinary people when you lower corporate taxes?

The problem with a huge change like the 9-9-9 plan is that a ton of people are going to get a windfall gain and a ton of people are going to get a windfall loss.  The people experiencing a windfall loss are going to be really upset.

Herman Cain may find that out the hard way in the months ahead.

No comments:

Post a Comment