Herman Cain's 9-9-9 Tax Plan for Dummies

Can thousands of pages of tax
code be replaced with 9-9-9?

Like most Americans, I am seriously frustrated and concerned by the lack of forward progress in our nation's economy. Like the 53% of Americans who voted for the Democratic candidate in the 2008 presidential election, I believed Barack Obama might have the ideas to lead the economic charge. So far, not so much.

Regardless of where you stand on the Obama presidency, you have to admit that the economy blows. The stock market is a volatile mess, home prices are stagnant at best, unemployment remains high, foreclosures continue, and overall growth is slow. Reasonable people, of which I like to think I am one, have to be open to new ideas, because business as usual has turned out to be bad business.

Enter Herman Cain and his 9-9-9 Plan.

I have done my homework and have reached a conclusion about the plan. But let's not put the cart before the horse. First, four basic facts about the plan, presented as simply as I can.

1. Cain proposes that we completely abolish the current tax code, which is universally detested, overly complex, and potentially "unfair." (Cheap applause because everyone hates the tax code.)
2. Cain proposes that we replace the tax code with the very simple 9-9-9 Plan: this means corporations pay a 9% tax rate, individuals pay a 9% income tax rate, and we implement a 9% national sales tax on things we purchase (like groceries and other consumer goods).
3. Cain proposes the elimination of payroll deductions (Social Security, Medicare) from our paychecks and the elimination of the capital gains tax, the estate/death tax, and virtually all other personal taxes.
4. Cain claims that if we implement the 9-9-9 Plan, the total revenue trade off for our government is neutral. Intake from the old tax code would be essentially the same as intake from the 9-9-9 plan. (That's how they arrived at 9% as the magic the number.)

Now, for a little analysis. Let's think about the most fundamental implications of putting this plan into place.

Cain's plan definitely simplifies the tax code, and it would ultimately result in the dissolution of the IRS. 

These are widely agreed upon wins that almost everyone wants.

But how would the 9-9-9 Plan affect us?

For wealthy American individuals, the plan is a big win. Overall income and personal taxes paid are dramatically reduced, but the national sales tax means the cost of goods goes up marginally (how much sales tax you pay is dependent on how much "stuff" you choose to buy). 

• With only a 9% income tax rate, rich Americans could keep 26% more of their income (their current tax rate is approximately 35%).
• Elimination of other personal taxes (like capital gains and estate/death) would be an enormous perk for the rich. NOTE: This is not a real benefit to middle class or lower income folks because they don't make significant capital investments anyway (so they already pay no capital gains tax) and they don't have large estates to leave loved ones upon their deaths (so they already pay no estate/death tax).
• The national sales tax element of the plan could actually cost the rich more than anyone else (they are the ones who buy the most expensive homes, cars, and toys which would now all be taxed an extra 9%), but it would not hurt them as much as it would hurt lower income folks who would now pay 9% more for basic consumer goods (like bread and milk and diapers).

For lower income Americans, the plan is a big loss. Income and personal taxes paid are essentially a wash, but the national sales tax increases how much you have to spend.

• 47% of Americans currently pay no income tax, so for these folks, the income tax rate would increase by 9%. This "added" tax would be offset by the elimination of other payroll taxes (Social Security, Medicare) which is currently 7.65% of income, so there would be a modest 1.35% decrease in "take home" pay.
• With  9% national sales tax added to the cost of everything and slightly less real income, lower income folks are likely left with a little less than the little they have now.

Note: If you are among the most impoverished (and unemployed) Americans, you get screwed the most. Income and personal tax changes would be irrelevant, but the national sales tax makes everything cost more.


For middle class Americans, the impact of the plan is difficult to assess and murky at best. The term "middle class" covers a wide range of incomes and circumstances; the general conclusion is that tax savings for most middle class Americans would be outweighed by increases in costs related to the national sales tax.

• Most middle class Americans currently pay income tax in the 10-25% range (so 9% would be lower), but they also currently leverage many deductions that significantly reduce their actual tax burden. These deductions, like the standard deduction, personal exemption, and child tax credit would be eliminated under Cain's plan.
• Most middle class Americans seldom pay capital gains or death/estate taxes, which Cain would eliminate. So, no real benefit for most folks.
• Middle class Americans are the backbone of the consumer economy. Cain has mentioned no exempt items from the 9% national sales tax, so that would increase the cost of living across the board.

If you're a glutton for this stuff, economist Bruce Bartlett has explained this in more excruciating detail. He includes more information about the impact on businesses than I did, but ultimately draws the same conclusion. It should also be noted that what I describe is essentially only Cain's first step in tax reform. Longer term, he would replace ALL of these simplified taxes with a national sales tax of 23-30% on all good and services. As far as I can tell, the overriding philosophy is to reward the big moneymakers with no tax on income, at the expense of every consumer with ridiculous taxes on goods and services.

Herman Cain's short-term goal in all this is to present a tax overhaul plan that would help jump start the economy, and catapult him solidly to the top of the Republican presidential contender heap. The ironic bottom line of Cain's 9-9-9 plan is that it represents the exact idea Republicans hate the most - redistribution of wealth - only it's more palatable to the right wing this time, because in this instance the money is funneled to the top of the pyramid.

Cain's attempt to sell this plan is one more baffling example of that most successful of Republican strategies: rich people convincing middle class people to vote for something against their own current best interest, because after all, they might some day be rich too.