13 Pages Posted: 10 Oct 2011 Last revised: 12 Nov 2013
Date Written: October 24, 2011
Presidential candidate Herman Cain has proposed replacing current law’s income, payroll and estate taxes with his “9-9-9 Plan” - a 9 percent “individual flat tax,” a 9 percent “business flat tax,” and a 9 percent sales tax. This essay analyzes the components of the 9-9-9 Plan. Contrary to casual impressions, the Plan could be expected to raise substantial amounts of revenue, but does so largely by skewing downwards the distribution of tax burdens when compared to current law.
The 9-9-9 Plan functions as an effective 27 percent payroll tax on wage income. By imposing an effective 27 percent flat tax on wage income, the 9-9-9 Plan would materially raise the tax burden on many low- and middle-income taxpayers, who today face little or no tax under the income tax, and a 15.3 percent effective payroll tax burden. The Plan apparently offers lower tax rates (17.2 percent) for labor income attributable to owner-employees of firms, because they can extract their labor earnings as returns to capital.
The Plan operates as an ersatz variant on standard consumption taxes with respect to capital income, exempting normal returns on equity from tax and imposing tax at an effective 17.2 percent rate on economic rents. Finally, the Plan’s sales tax acts as a one-time tax on existing wealth. The relative undesirability of that consequence depends on what one chooses as the current-law comparable.
Suggested Citation: Suggested Citation
Kleinbard, Edward D., Herman Cain's 9-9-9 Tax Plan (October 24, 2011). Tax Notes, October 24, 2011; USC CLEO Research Paper No. C11-17; USC Law Legal Studies Paper No. 11-24. Available at SSRN: https://ssrn.com/abstract=1941800 or http://dx.doi.org/10.2139/ssrn.1941800