What’s Not To Like? Cain’s 9-9-9 Plan Hits Poor, Blows Up Deficit, Threatens Entitlements

Herman Cain’s flagship 9-9-9 policy is perhaps the most memorable slogan of GOP primary season. Cain proposes to wipe out the existing tax code and replace it with a 9 percent individual income tax, a 9 percent corporate tax rate, and a 9 percent national sales tax. No more loopholes, no more deductions, no more exclusions, no more capital gains taxes, no more payroll taxes no more…Social Security or Medicare?

The 9-9-9 plan actually says nothing about Medicare. But numerous analyses conclude swapping out the current tax code for 9-9-9 would leave the Treasury significantly short of the insufficient revenues it currently collects. Cain has no interest in raising those rates. And that means barring unfathomable economic growth, 9-9-9 would yield enormous budget shortfalls and eventually require the government to offload popular programs like Medicare, Medicaid, and Social Security.Writers for both the conservative Washington Times and National Review conclude that under today’s conditions, the 9-9-9 plan would have generated about $1.7 trillion — well short of the just-under $2.2 trillion in revenues the IRS collected in fiscal year 2010. So ignoring the economic effects of the 9-9-9 plan, it would have increased the already significant deficit by $500 billion.

“If Mr. Cain’s team is building in some growth assumptions into the fiscal forecasts, they must be sunny indeed,” wrote National Review‘s Kevin Williamson.

Bloomberg concluded that the plan would raise $2 trillion — but that’s if he successfully eliminates all special perks in the tax code. “Either Herman Cain is the tax messiah or is proposing a system that has no correspondence to real-world tax systems,” Edward Kleinbard, a former chief of staff to the congressional Joint Committee on Taxation told Bloomberg. “In practice, it will have the same economic effect as a 27 percent uncapped payroll tax.”

The liberal Center for American Progress calculated that, under pre-recession conditions, the plan would have yielded $1.3 trillion in revenues. But CAP calculated this figure based on 2007 Adjusted Gross Income figures, and Cain’s plan would, he claims, wipe out the adjustments, and thus yield higher revenue.

The deficit view ignores the fact that 9-9-9 would have a sizable impact on the economy itself. Cain claims that it would be such a boon to growth that swapping it in for the current code would be revenue neutral.

“All of these measures would free up capital, spur production, and incentivize risk-taking, thereby fueling the economy and creating jobs,” he wrote in a recent Wall Street Journal op-ed.

But as Diane Lim Rogers of the fiscally hawkish Concord Coalition notes, Cain’s plan is exactly what you don’t want to do in a weak economy. After all, if your a middle class worker, you’d pay 9 percent on all your income and 9 percent on your purchases which in lower and middle brackets constitute a significant percentage of your earnings. And even that doesn’t count state sales tax.

“It’s a cute little gimmick, but it’s not an overall 9 percent effective rate,” she said. “This kind of proposal would be bad for coming out of a recession. If you’re trying to stimulate demand, you should encourage folks to buy goods and services. This proposal increases burdens on low income households and lessens demand.”

By eliminating payroll taxes — which create dedicated revenue streams for Social Security and Medicare — those programs would be forced to operate out of general revenue. And if general revenue tanks under 9-9-9, and President Cain refuses to increase it, as he insists he will (indeed, as he’ll ask Congress to write into the law) then those programs will be on the chopping block.