Cain’s 9 Responses to His 9-9-9 Tax

Even before last night’s debate Herman Cain replied to his critics. Much of what he says here notes where his tax proposal would replace other taxes. For example, he objects to the regressivity charge by noting he would repeal the payroll tax adding:

Some critics have argued that the poor still come out behind because employers pay much of the payroll tax. That demonstrates a basic misunderstanding about how compensation works in the business world. An employer decides to accept a certain cost-of-employment for each employee, and the employer’s share of the payroll tax is part of that cost. It comes out of your compensation whether you realize it or not.

He also replies to Paul Krugman’s observation on his “business tax” thusly:

Paul Krugman of the New York Times makes this claim because we do not allow businesses to deduct the cost of labor from their taxable revenue. But the claim is bogus for several reasons. First, we are reducing the corporate tax rate from 35 percent to 9 percent, so the tradeoff is a much lower rate paid on more of a company’s income. Second, we treat capital and labor the same, both with the corporate tax and with the income tax. That is fair and neutral. What’s more, the current system taxes both capital investment by business and capital gains by individuals. That’s a double tax, and the 9-9-9 plan eliminates it.

Actually – his plan does eliminate profits taxes replacing them with a value added tax which he simply admits in his discussion of claim 7:

The 9-9-9 plan is a really an 18 percent value-added tax plus a 9 percent income tax.

In other words, the plan represents a major shift away from income taxation to value added taxation. As such his plan would indeed tend to shift the tax burden away from high income individuals towards the rest of us even as Mr. Cain protests against claim 3.

Hat tip to Paul Krugman for pointing us to the Tax Policy Center analysis of who gains and who loses from this proposed overall of the tax system. Howard Gleckman provides a nice summary:

A middle income household making between about $64,000 and $110,000 would get hit with an average tax increase of about $4,300, lowering its after-tax income by more than 6 percent and increasing its average federal tax rate (including income, payroll, estate and its share of the corporate income tax) from 18.8 percent to 23.7 percent. By contrast, a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly$1.4 million, increasing his after-tax income by nearly 27 percent. His average effective tax rate would be cut almost in half to 17.9 percent. In Cain’s world, a typical household making more than $2.7 million would pay a smaller share of its income in federal taxes than one making less than $18,000. This would give Warren Buffet severe heartburn.

If I’m reading the TPC analysis correctly, on average taxes would go up by almost $800 per tax unit. It is laughable listening to the critiques offered by the other GOP candidates for President because they almost sound like Democrats. Yes they are correct when they say this represents a tax increase on the middle class. But don’t most of the Republican proposals for tax reform offer large tax cuts for the very well to do, while this party tries to pretend it also wants to reduce the deficit? OK – Paul Ryan thinks we can slash Federal spending by magic asterisk and the elimination of Medicare. But we know this is not going to happen. So at the end of the day – the Republican agenda has always been to shift the tax burden away from the rich and toward the middle class and the poor. While I in no way support 9-9-9, you have to give credit to Mr. Cain for at least trying to be honest about tax policy. Which is why he has zero chance of ever being nominated for President by the Republican Party.