The Breakdown

Explaining Southern California's economy

What's wrong with Herman Cain's 9-9-9 plan?

He repeats it in his distinctive stentorian cadence at every opportunity: "nine…nine…nine." Herman Cain has proposed a radical overhaul of the federal tax code and he's not afraid to stand behind it. The shocker was when voters in a recent Florida straw poll got behind it, too, handing 2012 GOP presidential candidate Cain an attention-getting win.

So, is 9-9-9 a plan that now needs to be taken seriously? 

No. It sounds good, but in practice it would basically shift much of the burden of providing federal revenue to the people who can least afford it right now. 

The plan would replace the current tax system with a 9 percent flat-rate personal income tax, a 9 percent national sales tax, and 9 percent corporate tax. It's estimated that, taken as a whole, it would reduce federal revenue to $1.8 billion from $2.16 trillion.

Before you panic, there's an obvious method to Cain's apparent madness here, which is to make government smaller by starving it of resources. On the flipside, those resources would be redeployed to the more productive parts of the economy, such as entrepreneurship.

Regardless of how you feel about that issue, the 9-9-9 plan math is simple — although if Cain had called it the 10-10-10 plan it would be easier! If you make $20,000 per year, you pay $1,800. If you make $100,00, you pay $9,000. (Determining marginal tax rates and adding in deductions and so on can be tricky business, but 9-9-9 makes that go away!)

You can see the critical issue: The $20,000/year earner has $18,200 left over, while the $100,000/year earner has $91,000 left over. As a percentage of income, people just scraping by would pay a larger share than those doing well — on the promise that those at the top would somehow create more productive economic activity, enabled by a smaller government that wouldn't, as conservatives like to put it, "get in the way."

The 9-percent sales tax is even worse because it taxes consumption — otherwise known as "eating" — something the poor have no ability to avoid. If you follow the math from the above example, you can see that a person who spends a third of his income on consumption at $18,200 will be taxed $540 for the pleasure. The person who's taxed on the same percentage of $91,000 will give up $2702. 

Again, the $100K person continues to have much more money left over.

In Cain's thinking, the sales tax is supposed to make up what would be lost by giving wealthier Americans a huge tax cut. But really it just gives them more income to shelter from the consumption tax, by saving it. Meanwhile, folks making a lot less would suddenly find themselves taxed at the national level, beyond what they were already taxed at the state level. In California, this would mean a basic rate above 16 percent. 

You might not be making enough to pay much income tax. But you'll be crushed by buying milk every few days.

The wildcard in Cain's plan is the 9 percent corporate tax. I think corporations would welcome it with open arms, given that it would drop their average rate, now just under 30 percent, by more than two-thirds. In fact, it would take so much revenue from the treasury that I don't think it can really be discussed alongside the other "9s". In this sense, the plan should really be called "9-9 plus a boatload of free money for corporations."

Follow Matthew DeBord and the DeBord Report on Twitter.

Photo: Spencer Platt/Getty Images

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