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Could Cain’s 9-9-9 tax plan really work?
■ No, says a former Treasury official, calling the proposal “a distributional monstrosity.”T RIBUNE W ASHINGTON BUREAU WASHINGTON — Herman Cain’s 9-9-9 tax plan sounds sim­ple enough: Eliminate the exist­ing tax code and replace it with a 9 percent tax on personal income, a 9 percent business tax and a 9 percent national sales tax.But could it work?That question has been posed to tax policy experts since Cain unveiled the plan last month. It was a topic that dominated Tues­day’s debate in New Hampshire.Cain insists that the plan would immediately jump-start the econ­omy by putting more money into people’s pockets.But Bruce Bartlett, a Trea­sury Department official under President George H.W. Bush who studied Cain’s plan and wrote an analysis Tuesday for the New York Times, said Cain “offers no evidence for this assertion; it is simply put forward as self-evi­dent.” Bartlett called the plan “a distributional monstrosity.”He wrote: “The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and a good reason to believe that the budget deficit will increase.”That’s because two of Cain’s three 9s — the income tax and a national sales tax — would dis­proportionately affect the 47 per­cent of tax filers who don’t pay any federal income tax under the current system — many of whom are elderly or poor.The extra money paid by those people would in effect subsidize the huge tax cut for wealthier Americans who currently pay as much as 35 percent in federal in­come tax.As for the middle class, the 9 percent sales tax might dis­courage purchases on nonessen­tial items. Or, as Cain has sug­gested, it might encourage them to buy used goods instead, which he would exempt from the tax.There would be no exemption proposed for necessities like gro­ceries. That means poor people who can afford to spend only on basic needs would see their cost of living increase 9 percent.Cain has argued that wage earners would save considerably because his plan would abolish the payroll taxes that pay for So­cial Security and Medicare.“You have to start with the big­gest tax cut a lot of Americans pay, which is the payroll tax, 15.3 percent,” the former Godfa­ther’s Pizza CEO said, defending his plan at the Tuesday debate. “That goes to 9 percent. That is a 6-percentage-point difference.“And the prices will not go up. So they have got a 6 percentage point difference to apply to the national sales tax piece of that.”But what Cain did not mention is that employers currently pay half the payroll tax. Under Cain’s plan, employers would save their half of payroll taxes while work­ers would pay a higher percent­age in the form of income tax.The plan could also discourage hiring and wage increases. Com­panies would be allowed to deduct purchases they made from other businesses before calculating how much of the company’s rev­enue would be subject to the tax. But Cain’s plan would provide no such deduction for wages.“If you’re the shareholder, you’re going to get a huge in­crease in your dividends,” Bart­lett said Wednesday in an inter­view. “But if you’re a worker, sounds to me like he’s saying I get a deduction for buying a machine to replace a worker, but I get no deduction for hiring a worker.”Plus, he said, it would encour­age employers to find new, tax­free ways to pay employees.“What’s to stop a company from paying its employees by leasing their cars and homes for them and even buying their food and clothing?” Bartlett wrote. “That would reduce (the employ­er’s) taxable revenue.”The plan also faces political challenges. At a time when the Republican Party is especially negative toward any expansion of the government’s reach, Cain’s proposal would create a whole new category of federal tax.The U.S. Treasury took in about $2.2 trillion last year, most of it from four main categories of federal taxes: income taxes paid by individuals and corporations; taxes on wages; taxes on inheri­tances; and excise taxes on goods such as alcohol and tobacco.A Bloomberg News analysis estimated that Cain’s plan would have been $200 billion short had it been in place in 2010. The plan would have raised $922.1 bil­lion from the national sales tax, $912.7 billion from the individual income tax and $127.7 billion from the business tax, according to the Bloomberg analysis.Cain’s campaign on Wednes­day provided Bloomberg’s Ste­ven Sloan with an analysis done by Fiscal Associates Inc. It sug­gested that the plan would col­lect as much money as is raised under the current system.