Tax Analysts Blog

Cain's 9-9-9 in 90 Seconds

Posted on Oct 17, 2011
Cain gets rid of the entire current system—income, corporate, payroll, and estate taxes. In its place he would institute three new taxes. His “9% business flat tax” is simply a value-added tax dressed up to look like a corporate tax. His “9% individual flat tax” is a payroll tax where wages are subject to tax and dividends, interest, and capital gains are exempt. The “9% national sales tax” is self explanatory. As broad-based taxes on consumption, the VAT and the sales tax are nearly identical in their economic effects.

This plan could raise as much revenue as current law if tax bases are kept very broad. That means no exemptions for food, housing, and medical for the VAT and the sales tax. That also means no personal exemptions or standard deductions for the wage tax.

The plan would exchange the loophole-laden income tax and the economically poisonous corporate tax with two highly efficient consumption taxes and a labor tax, which is close variant of a consumption tax. It is as pro-growth as a tax system can get.

However, these taxes are extremely regressive. The investor class would pay far, far less. The poor would pay far, far more.

Why is Cain proposing to implement side-by-side two consumption taxes and a quasi-consumption tax in the form of a wage tax? There is no good reason except political window dressing. A single consumption tax with a 25-plus rate makes the plan’s political vulnerabilities too obvious.

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