Today, Rick Perry tries to start his Presidential campaign anew by proposing a flat tax. But the most attention-getting plan so far has been Herman Cain’s — let’s say it together — 9-9-9 plan.
One of our readers, Michael Dean, is a CPA in Draper, Utah. He took Cain’s plan and applied it to five of his real life clients to see how the plan would play out in actual people’s lives… not just the debate stage. Here are his fascinating results:
Cain has talked a lot about how his 9-9-9 plan is revenue neutral and wouldn’t shift the tax burden to lower and middle income taxpayers. Recent macro studies suggest otherwise but just for fun I took four of my clients, one in an upper income bracket, two middle income clients, and one in the lower income bracket and compared them using the current tax law in affect for 2010 against Cain’s 9-9-9 plan. (See attached file). These are real life taxpayers. I made some assumptions for purposes of the analysis, namely that the charitable deduction would still be allowed under 9-9-9 and that the remaining income after tax would be subject to the 9% national sales tax. The results were not surprising but none the less, very disturbing. I highlighted the greater amount of tax being paid under each plan.
The upper income client would have paid less income tax under Cain’s plan than he did pay under the current code and I mean considerably less, like $41,210 less. Even if you assume that he would have spent 100% of his remaining income on items subject to Cain’s 9% National sales tax (which obviously he would never do) he still comes out paying less than under the current code. Even if you removed his considerable charitable contribution as an itemized deduction, he still would have paid less. Conversely, the middle income and lower income clients wound up paying more under Cain’s plan. Interestingly, the lower the adjusted gross income, the higher percentage of tax those clients paid under 9-9-9.
Cain tries to partially address the issue of the poor paying more tax by establishing what he calls “Opportunity Zones” which would eliminate the national sales tax for certain individuals living in inner cities. It still doesn’t address the inequity that poor people would face who don’t live in the inner cities and it still doesn’t address the disparity of income tax that they would still have to pay anyway under 9-9-9. While Cain’s plan is well intentioned, it doesn’t appear to be well thought out. Per Herman Cain’s website, he is proposing to eventually eliminate the income tax and repeal the 16th amendment. It doesn’t take an accountant, an economist, or even someone very intelligent to realize that these far-reaching proposals will never pass muster with Congress or the electorate at large. If Cain becomes the Republican nominee based on these proposals, Obama will have a lock on the next 4 years in my opinion.
As usual, Governor Romney has it right by proposing simple, doable changes to the existing code instead of trying to eat the elephant all at once.