Wednesday, October 19, 2011

HERMAN CAIN’S 9-9-9 TAX PLAN IS REALLY JUST A FANCY 25.38% NATIONAL SALES TAX

According to the Tax Policy Center, presidential candidate Herman Cain’s 9-9-9 tax plan is essentially three sales taxes.

Obviously, the 9% national sales tax component is just that – a retail sales tax.

The business tax component is effectively a subtraction method value-added tax, or a business transfer tax. It is a 9% tax on all sales minus purchases from other businesses. It is the same as a retail sales tax, but it is collected in pieces on the value added at each stage of production. In the aggregate, all retail sales are then taxed under this component.

The 9% individual flat tax is also a subtraction method value-added tax, except that businesses may deduct wages and workers are taxed on their wages. A charitable contribution deduction may be allowed.

The plan has the merits of a certain level of simplicity, the removal of various tax regimes (such as estate and gift taxes) and the spreading of the tax burden. It has the detriments of a lack of progressivity (if you consider that a detriment based on your political beliefs, although persons below the poverty line are exempted from the taxes), being a disincentive to consumer purchasing, and the introduction of a tax regime (the VAT) that many blame for the anemic economies of Europe.

Whatever its pros and cons, this is the first I have seen it characterized as being effectively a combined 25.38% national sales tax (which would be in additional to state and local sales taxes).

TAX POLICY CENTER ANALYSIS

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