Herman Cain’s policies escaped close scrutiny while his presidential campaign lingered on the margins, but the businessman/radio personality’s recent burst into the frontrunner’s box targets him as a candidate to be taken seriously. He’s armed with what he calls his 999 Plan, and he’s dangerous. Cain’s plan is ultimately to phase in the Fair Tax in lieu of the current individual and corporate tax system, and that tax is anything but fair to middle class Americans, particularly retirees.
Cain’s 999 Plan eliminates the estate, capital gains, and payroll taxes. It replaces the 35% corporate income tax with a 9% Business Flat Tax (gross income less all investments, purchases from other businesses, and dividends paid to shareholders, i.e., it’s a 9% payroll tax, since wages are the primary expenses paid to individuals). It replaces the progressive personal income tax with a 9% Individual Flat Tax (gross income less charitable deductions). Finally, it adds a 9% National Sales Tax as the first step toward implementing the Fair Tax.
Cain’s 999 Plan is by his own assertion revenue neutral, i.e., the total amount of tax raised will be the same as under the current tax system. Assuming that to be true, a simple example, without serious number crunching, demonstrates how his plan MUST result in a massive redistribution of the tax burden away from the wealthiest Americans.
The wealthy will have their marginal income tax rate cut from 35% to 9% and capital gains escape taxation entirely. Even if they spent their entire income every year (unlikely), subjecting it to the 9% sales tax, their marginal tax rate would only be 18%. Take this sizable reduction in marginal tax rates, add the zero tax on capital gains, and you get an historic tax cut for the wealthy. If the 999 Plan is revenue neutral, and taxes are cut for businesses and the wealthy, then some other class of citizens must be paying a lot more taxes.
Numbers crunchers will surely have a field day turning Cain’s 999 Plan upside down to identify the losers. (Some wise guy will no doubt label it the 666 Plan and pronounce that the devil is in the details.) But even at the intuitive level, one class will clearly bear a disproportionate and unfair burden.
Middle class RETIREES will be devastated by this “fair” tax plan. For those who consume more than they earn–think retirees living off savings–the national sales tax will create a huge tax burden where none existed before. Their savings have already been taxed when originally earned under the income tax, and now the sales tax would tax the same earnings again when consumed! Those retirees who scrimped and saved during their careers to fund retirement rather than buying expensive cars and vacations will find themselves forced back into the work force to fund the shortfall.
Even the national sales tax manifesto, “Emancipating America from the Income Tax: How a National Sales Tax Would Work” by David R. Burton and Dan R. Mastromarco, warns that transition relief to avoid this horrible inequity is essential. Yet somehow Cain left this out of his plan. He’s got a giant personality made for radio and the campaign trail, but it seems Herman Cain is just another conservative more interested in massive tax cuts for the rich than a truly fair tax system.