The title of this post is a quote from the overview section of Edward Kleinbard’s (a former chief of staff of the nonpartisan Joint Committee on Taxation) 17-page analysis of Mr. Cain’s tax plan. As summarized in the following abstract from his paper, Kleinbard’s conclusions are essentially the same as those of Bruce Bartlett’s:
Presidential candidate Herman Cain has proposed replacing current law’s income, payroll and estate taxes with his “9-9-9 Plan”– a 9 percent “individual flat tax,” a 9 percent “business flat tax,” and a 9 percent sales tax. This essay analyzes the components of the 9-9-9 Plan. Contrary to casual impressions, the Plan could be expected to raise substantial amounts of revenue, but does so largely by skewing downwards the distribution of tax burdens when compared to current law.
The 9-9-9 Plan functions as an effective 27 percent payroll tax on wage income. By imposing an effective 27 percent flat tax on wage income, the 9-9-9 Plan would materially raise the tax burden on many low- and middle-income taxpayers, who today face little or no tax under the income tax, and a 15.3 percent effective payroll tax burden. The Plan apparently offers lower tax rates (17.2 percent) for labor income attributable to owner-employees of firms, because they can extract their labor earnings as returns to capital.
The Plan operates as an ersatz variant on standard consumption taxes with respect to capital income, exempting normal returns on equity from tax and imposing tax at an effective 17.2 percent rate on economic rents. Finally, the Plan’s sales tax acts as a one-time tax on existing wealth. The relative undesirability of that consequence depends on what one chooses as the current-law comparable.
Here’s Kleinbard’s paper:
While Republicans oppose raising taxes on the wealthy, they don’t favor raising taxes on the less-than-wealthy. During their next debate, it will be interesting to see which — if any — of Mr. Cain’s adversaries take him to task for proposing a tax plan that would penalize the middle class and whether his popularity among Republican voters will drop as rapidly as it has recently risen.
Where did the 9-9-9 plan come from? Click here to find out.
I don’t know whether it’s surprising or not, but House Budget Committee chairman Paul Ryan “loves” 9-9-9.
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