Cain Still Unable: The 4-1-1 On 9-9-9

By Zandar/Angry Black Lady Chronicles 

Just how awful would Herman Cain’s 9-9-9 plan be for your average American?  Try doubling your overall tax burden while reducing taxes for the wealthiest Americans by over half.

Cain’s tax plan consists of three different 9 percent taxes — one on wage income (investment income is exempt), one on sales of goods and services (including food, housing, and medicine), and one on business income (investments and purchases from other businesses are deductible; wages, however, are not). But most Americans will end up paying all three of those taxes, for a combined tax rate of 27 percent of their income.

That’s because middle and low-income Americans get all, or nearly all, of their income from ordinary wages — all of which would be subject to Cain’s 9 percent wage tax — and then they spend all of their income, which means it would be taxed again by the 9 percent sales tax. Finally, the burden of the 9 percent business income tax would be passed on to them as well, either in the form of lower wages — since wages are not deductible — or in the form of higher prices for goods and services.

The bottom line is that most Americans will pay all three of Cain’s taxes, making their real federal tax rate 27 percent. Compare that to the current tax code, under which someone in the bottom quintile pays two percent of their income in federal taxes and someone in the middle quintile pays 15 percent.The fact is that pretty much everyone making up to around $100,000 a year would pay more under Cain’s plan than they do now.

So it will be a substantial tax increase for middle class Americans and a massive tax increase for the poorest Americans.  And how will the rich fare?  Guess.

Because the 999 plan will operate, in practice, as a 9 percent tax on wages, and an 18 percent tax on goods and services, only a fraction of a wealthy household’s income will end up subject to these taxes. That’s because wealthy people get a lot of their income from capital gains — which are exempt from the wage tax — and they don’t spend all of their income, so anything they save won’t be subject to taxes either.

Today, someone in the richest 1 percent typically pays about 30 percent of his or her income in federal taxes. Since people at the top of the income ladder make about half of their income from capital gains, and only spend about half of their income in a given year, their tax rate would drop all the way down to 13.5 percent.That’s even lower than what middle-income people pay today.

It gets worse too:  even under the massive spending cuts that Paul Ryan and other House Republicans wanted, under Cain’s plan we’d only have 14% of GDP as revenue each year, meaning we’d be running trillion dollar deficits for years even with major spending cuts.

In other words, 9-9-9 would destroy America’s economy and the middle class overnight if it was ever enacted.  Shocking, I know.