Businessman Herman Cain’s popularity has been surging recently in the Republican field. While the former pizza chain CEO remains an underdog, it’s worthwhile to consider what the effects of his bold “9-9-9” tax reform plan would be for an average American, and see why it’s so appealing to people.
Herman Cain handily won the Florida Republican straw poll two weeks ago, trouncing both Mitt Romney and Rick Perry, making him seem like an actual contender for the Republican nomination.
Many people credit his 9-9-9 flat-tax plan with boosting his popularity. The idea is as simple and marketable as you’d expect from someone who ran a chain of pizza parlors, almost comically so. It even has this San Francisco liberal considering the benefits of such a plan, which is quite troubling.
Cain’s proposal is that the entire U.S. tax code be scrapped for this: a 9% income tax with few deductions and exemptions, a 9% national sales tax, and a 9% corporate tax.
Cain claims that the plan will not affect the amount of revenue that the federal government brings in, but two different estimates beg to differ. Bloomberg estimates that the 9-9-9 plan would bring in $200 billion less than our current tax system brings in; the arch-conservative Washington Times estimates that Cain would come $400 billion short.
Either way, this plan — which, dollars to donuts, I’d bet will never see the light of day — will have some serious implications for your monthly expenses, primarily through that national sales tax, which would be levied on top of state and local ones. If you live in a big city that already has its own special taxes, or in a state with a high sales tax, this can add up quickly.
What Would Its Effects Be?
New York City, where MyBankTracker is based, and which has a combined state and local sales tax of 8.875% on all non-grocery and non-pharmaceutical items, would have a sales tax burden of 17.875% on all non-exempt purchases under Cain’s plan. That’s insane!
Like that $100 pair of jeans? Yeah? Be prepared to pony up nearly $120 for it, should Cain’s flat-tax fantasy become reality. Going out to eat? Now you get to add 20% to your bill twice — first for your waiter, then for the government. Thinking about buying a computer? Better head down to Delaware.
Of course the trade-off would come by way of the massive savings in lowered income tax burden. Currently, median income (about $39,000 a year) earners pay about 9% in income tax to New York, between city and state rates (assuming the standard deduction), and 29% to the federal government between income taxes and FICA. Overall, assuming no deductions but the New York standard deduction, their effective tax rate is roughly 38%.
Under 9-9-9, this person’s total tax burden would only be about 18%. Earning $39,000 a year, their tax bill would go from $15,000 down to a mere $7000.
That $8000 in their pocket would not go quite so far with the 9% federal sales tax, but it would still put an extra $666 dollars in their bank account a month. Man, imagine that.
What Sort of Company Do We Want to Keep?
Perhaps it’s appropriate that my rough calculations brought me to the number $666, because not only is it the flip side of 9-9-9 but it’s also, as any Iron Maiden fan could tell you, the Number of the Beast — perhaps a reminder that the flat-tax’s appeal is to our most selfish interests.
As awesome as it would be to have that money, the above-cited estimates from two right-leaning publications point out that there is no way this tax plan could get our finances in order, as a nation. Or, if it did, it would come at the expense of the poor (flat taxes are inherently regressive, especially when coupled with a federal sales tax), and our next generation. It would shred the meager social safety net that we have in this country. But you’d have some extra cash in your pocket at the end of every month.
Herman Cain’s 9-9-9 deal purports to speak to our better selves — the self that wants common sense government, and a better future for America. But consider this list of nations that have also imposed flat taxes, courtesy of Wikipedia: Albania, Bosnia and Herzegovina, Bulgaria, Czech Republic, Estonia, Georgia, Guernsey, Hungary, Kazakhstan, Iraq, Jersey, Kyrgyzstan, Latvia, Lithuania, Macedonia, Mongolia, Montenegro, Mauritius, Romania, Russia, Serbia, Slovakia, and Ukraine. They fall into three categories: former communist states, tiny island nations you have never heard of, and Iraq.
Is this the pack we want to run with? I’m not so sure.