Why Herman Cain’s “9-9-9” Tax Scheme Fails

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As we approach primary season, only one Republican contender looks truly invigorated and that man is Herman Cain.

Cain, the pizza magnate known for his staunch conservatism, has pandered to and enthralled Tea Party voters from day one. Despite the early bump they gave him, he had wallowed in near-obscurity for much of the race.

That was then. This past week Cain has come roaring back in the polls—an NBC/Wall St. Journal survey puts him a full two points over Romney—leaving the chattering classes scratching their heads.

I’ll admit that I was among those perplexed by the sudden surge. Was it simply a testament to how deeply Republicans despise Romney that, once Perry started faltering, they frantically jumped ship clamoring to support anyone but him?
For now, most are crediting the recent boost to Cain’s performance in the most recent GOP debate that centered on economic policy. During in the roundtable discussion, Cain almost obsessively plugged what he calls his ‘9-9-9’ plan, a tax reform proposal that would overhaul the way our nation collects federal taxes.

What do the nines all stand for? Basically, each one refers to a separate tax that would replace our current income tax system with a consumption tax, a form of collection supported by some conservative tax analysts. The plan would institute a 9% “business tax”, or a tax on the money business’ allocate for payroll expenses, a 9% personal payroll flat tax and a flat 9% national sales tax.

Edward Kleinbard, a tax law professor at the University of Southern California, released a comprehensive study of the plan, concluding that it nearly doubles the tax rate of the average middle class citizen while drastically lowering it for those in the upper class. Specifically, it jacks up the existing 15% federal payroll tax to 27% while slashing it for top earners that currently pay a top marginal rate of 35%.

In Kleinbard’s study, the new 27% rate comes from a combination of each 9% rate. Each tax is treated like a payroll tax because each one, though nominally distinct, will effectively tax wages. The personal tax for obvious reasons; the business tax because the employee would be taking home more if a business’s profits allotted for payroll were left untaxed. As for the national sales tax, the only difference between the consumption tax and the payroll taxes are that the payroll taxes will be collected immediately while the rest will be collected over time. Thus, writes Kleinbard, “The 9-9-9 Plan functions as an effective 27 % payroll tax on wage income.”

So in what universe could such an onerous tax scheme endow a candidate with electoral currency? In a Republican one, of course. As Slate magazine’s Dave Weigel, noted, “It’s attractive because it tells conservative voters what they already believe: Tax the free-loaders, simplify the forms, and the rest of the problems take care of themselves.”

Nevertheless, it’s surely only a matter of time before average voters catch on, rejecting the plan like they’ve done with every other flat tax proposal. To find favor among a large enough bloc of voters, a flat tax would need to disregard the mathematical reality that such a leveling would require: To make up the revenues lost by cutting upper class tax rates, you would either need to increase taxes on the lower classes or drastically cut public programs that disproportionately help them.

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