Wednesday, October 19, 2011 6:04:39 AM
How Herman Cain's 9-9-9 Plan Would Change Your Taxes
Derek Thompson
Oct 18 2011, 6:01 PM ET
Hours before tonight's Republican debate in Las Vegas, the Tax Policy Center has just released their first complete analysis [ http://www.taxpolicycenter.org/taxtopics/Cain-9-9-9-plan.cfm ] of Herman Cain 9-9-9 tax plan. It doesn't change the federal government's tax diet much. In fact, it raises about the same revenue as current policy (i.e.: Bush tax cuts minus the payroll tax break). But it does dramatically change tax burden on a family-by-family basis. Under his plan, 84 percent of the country will pay higher taxes, and 91 percent of the top percentile will pay lower taxes.
Here's another TV-ready statistic for tonight's moderators: For a family making between $40,000 and $50,000, Cain's plan would raise their tax bill by $4,000. For the group of Americans earning more than $1 million a year, it would lower their tax bill by an average of $580,000. Note: there are a few billionaires in this group throwing off the average (hey, I said it was TV-ready!).
I've got two graphs to show you, both based on TPC analysis. The first shows how much more income (or how much less) the typical family would keep under the 9-9-9 plan. The Y-axis is in percent and the X-axis is in "thousands of dollars." What's being measured is percent change in income. Most families under $50,000 are getting a 10 percent "haircut" with Cain's proposal, and the tax burden is shifting downward.
For a typical family making less than $200,000, Cain's tax plan makes you poorer after taxes. For a typical family making more than $200,00, it makes you richer.
Another way to look at this picture is to focus on effective tax rates. For a typical family making less than $50,000, their taxes will increase by 10 percentage points or more. For a typical family making more than $500,000, their taxes will fall by 10 percentage points or more. Again, the Y-axis is in percent and the X-axis is in "thousands of dollars."
Update: Kevin Drum posts [ http://motherjones.com/kevin-drum/2011/10/chart-day-cost-9-9-9 ] a graph comparing current rates across income level to the 9-9-9 plan. Whether or not TPC's analysis has holes, if you create a flat tax and exempt a major source of income for rich people (like capital gains), what you've done is create a regressive tax system that punishes the poor. Cain can pick quibbles with this and that, but he can't get around the fact that his tax scheme isn't flat -- it slopes down. And it's meant to.
Copyright © 2011 by The Atlantic Monthly Group (emphasis in original)
http://www.theatlantic.com/business/archive/2011/10/how-herman-cains-9-9-9-plan-would-change-your-taxes/246941/ [with comments]
===
Cain’s 9-9-9 plan doesn’t add up
Video
Herman Cain's views on abortion
[ http://www.washingtonpost.com/opinions/herman-cain-no-abortions-ever/2011/10/16/gIQAHJyypL_video.html ]
By Ruth Marcus, Published: October 18, 2011
Does Herman Cain understand his 9-9-9 tax plan? Evidence suggests the answer is no-no-no.
At the Bloomberg-Washington Post debate [ http://www.washingtonpost.com/politics/econdebate ], Cain argued that economic growth spurred by the reduced rates would more than make up for any lost revenue. “We have had an outside firm, independent firm, dynamically score it [ http://www.washingtonpost.com/politics/republican-debate-transcript/2011/10/11/gIQATu8vdL_story.html ],” he said. “And so our numbers will make it revenue-neutral.”
Beware when you hear the phrase “dynamic scoring.” It translates to: “This tax cut might bust the budget, but let’s cross our fingers and hope for growth.”
And it turns out — at least according to his chief economic adviser — that Cain didn’t mean to be relying on dynamic scoring at all.
Cain adviser Richard Lowrie said the candidate mistakenly invoked dynamic scoring. But even under a more traditional analysis, Lowrie said, the plan would be revenue-neutral, meaning it would not lose money.
“On occasion he might transpose the terms,” Lowrie told me. “When asked if it is revenue-neutral, he might say it’s dynamically scored. He might misspeak.”
This is not reassuring. Sure, anyone can jumble up terminology, especially in the unaccustomed glare of a presidential debate. But a few days earlier, Cain said the same thing.
“The people who are saying it will not be revenue-neutral? They are absolutely wrong because they did a static analysis,” Cain told CNN’s Candy Crowley [ http://politicalticker.blogs.cnn.com/2011/10/09/cain-poor-wont-pay-more-under-9-9-9/ ]. “We had this done with the dynamic analysis with an outside independent firm, so they are making an erroneous assumption.”
The 9-9-9 plan is the main plank — the only plank — of Cain’s campaign platform. As it turns out, according to new calculations by the nonpartisan Tax Policy Center, his plan would probably raise more revenue [ http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3222&DocTypeID=2 ] in 2013 than would the current tax code. But his muffed explanation is pretty unsettling.
Cain is even more muddled on the undeniably regressive impact of his plan. “Some people will pay more, but most people would pay less,” Cain told NBC’s David Gregory [ http://www.washingtonpost.com/blogs/election-2012/post/herman-cain-some-people-will-pay-more-under-9-9-9-tax-plan/2011/10/16/gIQAZIHmoL_blog.html ].
The Tax Policy Center analysis shows that Cain has it exactly backward. Compared with current tax rates, 84 percent of taxpayers would pay more under 9-9-9 if it were fully implemented in 2013. Just 14 percent — the wealthiest — would see their tax bills drop.
By a lot. The top 1 percent, earning $600,000 and up, would pay almost 20 percent less, for an average tax break of $238,000. The middle 20 percent, those with incomes between $37,000 and $65,000, would see their taxes rise 10 percent — an average increase of $4,330.
Why? As University of Southern California law professor Edward Kleinbard, former chief of staff to the congressional Joint Committee on Taxation, has shown, the 9 percent business tax, 9 percent retail sales tax and 9 percent wage tax is effectively a 27 percent tax on wages [ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941800 ].
Cain’s business tax is not like the existing corporate income tax, which applies to profits. Instead, it’s basically a value-added tax in which businesses do not deduct the cost of wages. That means, in effect, another 9 percent tax on income — just as standard economic theory now treats the employer’s share of payroll taxes as reducing workers’ wages.
Cain ignores any impact of the business tax on wages. Meanwhile, he asserts that the 9 percent retail sales tax would not raise the final cost of goods; rather, it would replace existing taxes “embedded” in the current price. If anything, he asserts, prices will drop.
Simultaneously, however, Cain claims the tax isn’t a problem for lower-income people because they can simply buy used goods, on which the tax would not apply. Slight problem: There’s no such thing as used milk.
Assume Cain is right. Prices won’t go up. Wages won’t fall. Cain simplistically argues that the existing payroll tax adds up to 15 percent and asserts that people will be six percentage points better off under his 9 percent plan.
This is wrong, as explained above. But consider the impact of only the personal income tax on two taxpayers earning $25,000 and $250,000, both married with two children. According to the Tax Foundation’s nifty calculator [ http://interactive.taxfoundation.org/taxgraph/ ], the $25,000 earner owes $1,413 in payroll taxes. Thanks to the Earned Income Tax Credit and the Child Tax Credit, his income tax liability is negative. He receives a $5,002 check. Under the Cain plan, he owes $2,250.
Assuming a standard deduction, the $250,000 earner owes combined income and payroll taxes of $60,765. His Cain tax is $22,500. Explain again, Mr. Cain, who wins under your plan?
ruthmarcus@washpost.com
© 2011 The Washington Post
http://www.washingtonpost.com/opinions/cains-9-9-9-plan-doesnt-add-up/2011/10/18/gIQArk0gvL_story.html [with comments]
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Derek Thompson
Oct 18 2011, 6:01 PM ET
Hours before tonight's Republican debate in Las Vegas, the Tax Policy Center has just released their first complete analysis [ http://www.taxpolicycenter.org/taxtopics/Cain-9-9-9-plan.cfm ] of Herman Cain 9-9-9 tax plan. It doesn't change the federal government's tax diet much. In fact, it raises about the same revenue as current policy (i.e.: Bush tax cuts minus the payroll tax break). But it does dramatically change tax burden on a family-by-family basis. Under his plan, 84 percent of the country will pay higher taxes, and 91 percent of the top percentile will pay lower taxes.
Here's another TV-ready statistic for tonight's moderators: For a family making between $40,000 and $50,000, Cain's plan would raise their tax bill by $4,000. For the group of Americans earning more than $1 million a year, it would lower their tax bill by an average of $580,000. Note: there are a few billionaires in this group throwing off the average (hey, I said it was TV-ready!).
I've got two graphs to show you, both based on TPC analysis. The first shows how much more income (or how much less) the typical family would keep under the 9-9-9 plan. The Y-axis is in percent and the X-axis is in "thousands of dollars." What's being measured is percent change in income. Most families under $50,000 are getting a 10 percent "haircut" with Cain's proposal, and the tax burden is shifting downward.
For a typical family making less than $200,000, Cain's tax plan makes you poorer after taxes. For a typical family making more than $200,00, it makes you richer.
Another way to look at this picture is to focus on effective tax rates. For a typical family making less than $50,000, their taxes will increase by 10 percentage points or more. For a typical family making more than $500,000, their taxes will fall by 10 percentage points or more. Again, the Y-axis is in percent and the X-axis is in "thousands of dollars."
Update: Kevin Drum posts [ http://motherjones.com/kevin-drum/2011/10/chart-day-cost-9-9-9 ] a graph comparing current rates across income level to the 9-9-9 plan. Whether or not TPC's analysis has holes, if you create a flat tax and exempt a major source of income for rich people (like capital gains), what you've done is create a regressive tax system that punishes the poor. Cain can pick quibbles with this and that, but he can't get around the fact that his tax scheme isn't flat -- it slopes down. And it's meant to.
Copyright © 2011 by The Atlantic Monthly Group (emphasis in original)
http://www.theatlantic.com/business/archive/2011/10/how-herman-cains-9-9-9-plan-would-change-your-taxes/246941/ [with comments]
===
Cain’s 9-9-9 plan doesn’t add up
Video
Herman Cain's views on abortion
[ http://www.washingtonpost.com/opinions/herman-cain-no-abortions-ever/2011/10/16/gIQAHJyypL_video.html ]
By Ruth Marcus, Published: October 18, 2011
Does Herman Cain understand his 9-9-9 tax plan? Evidence suggests the answer is no-no-no.
At the Bloomberg-Washington Post debate [ http://www.washingtonpost.com/politics/econdebate ], Cain argued that economic growth spurred by the reduced rates would more than make up for any lost revenue. “We have had an outside firm, independent firm, dynamically score it [ http://www.washingtonpost.com/politics/republican-debate-transcript/2011/10/11/gIQATu8vdL_story.html ],” he said. “And so our numbers will make it revenue-neutral.”
Beware when you hear the phrase “dynamic scoring.” It translates to: “This tax cut might bust the budget, but let’s cross our fingers and hope for growth.”
And it turns out — at least according to his chief economic adviser — that Cain didn’t mean to be relying on dynamic scoring at all.
Cain adviser Richard Lowrie said the candidate mistakenly invoked dynamic scoring. But even under a more traditional analysis, Lowrie said, the plan would be revenue-neutral, meaning it would not lose money.
“On occasion he might transpose the terms,” Lowrie told me. “When asked if it is revenue-neutral, he might say it’s dynamically scored. He might misspeak.”
This is not reassuring. Sure, anyone can jumble up terminology, especially in the unaccustomed glare of a presidential debate. But a few days earlier, Cain said the same thing.
“The people who are saying it will not be revenue-neutral? They are absolutely wrong because they did a static analysis,” Cain told CNN’s Candy Crowley [ http://politicalticker.blogs.cnn.com/2011/10/09/cain-poor-wont-pay-more-under-9-9-9/ ]. “We had this done with the dynamic analysis with an outside independent firm, so they are making an erroneous assumption.”
The 9-9-9 plan is the main plank — the only plank — of Cain’s campaign platform. As it turns out, according to new calculations by the nonpartisan Tax Policy Center, his plan would probably raise more revenue [ http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3222&DocTypeID=2 ] in 2013 than would the current tax code. But his muffed explanation is pretty unsettling.
Cain is even more muddled on the undeniably regressive impact of his plan. “Some people will pay more, but most people would pay less,” Cain told NBC’s David Gregory [ http://www.washingtonpost.com/blogs/election-2012/post/herman-cain-some-people-will-pay-more-under-9-9-9-tax-plan/2011/10/16/gIQAZIHmoL_blog.html ].
The Tax Policy Center analysis shows that Cain has it exactly backward. Compared with current tax rates, 84 percent of taxpayers would pay more under 9-9-9 if it were fully implemented in 2013. Just 14 percent — the wealthiest — would see their tax bills drop.
By a lot. The top 1 percent, earning $600,000 and up, would pay almost 20 percent less, for an average tax break of $238,000. The middle 20 percent, those with incomes between $37,000 and $65,000, would see their taxes rise 10 percent — an average increase of $4,330.
Why? As University of Southern California law professor Edward Kleinbard, former chief of staff to the congressional Joint Committee on Taxation, has shown, the 9 percent business tax, 9 percent retail sales tax and 9 percent wage tax is effectively a 27 percent tax on wages [ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941800 ].
Cain’s business tax is not like the existing corporate income tax, which applies to profits. Instead, it’s basically a value-added tax in which businesses do not deduct the cost of wages. That means, in effect, another 9 percent tax on income — just as standard economic theory now treats the employer’s share of payroll taxes as reducing workers’ wages.
Cain ignores any impact of the business tax on wages. Meanwhile, he asserts that the 9 percent retail sales tax would not raise the final cost of goods; rather, it would replace existing taxes “embedded” in the current price. If anything, he asserts, prices will drop.
Simultaneously, however, Cain claims the tax isn’t a problem for lower-income people because they can simply buy used goods, on which the tax would not apply. Slight problem: There’s no such thing as used milk.
Assume Cain is right. Prices won’t go up. Wages won’t fall. Cain simplistically argues that the existing payroll tax adds up to 15 percent and asserts that people will be six percentage points better off under his 9 percent plan.
This is wrong, as explained above. But consider the impact of only the personal income tax on two taxpayers earning $25,000 and $250,000, both married with two children. According to the Tax Foundation’s nifty calculator [ http://interactive.taxfoundation.org/taxgraph/ ], the $25,000 earner owes $1,413 in payroll taxes. Thanks to the Earned Income Tax Credit and the Child Tax Credit, his income tax liability is negative. He receives a $5,002 check. Under the Cain plan, he owes $2,250.
Assuming a standard deduction, the $250,000 earner owes combined income and payroll taxes of $60,765. His Cain tax is $22,500. Explain again, Mr. Cain, who wins under your plan?
ruthmarcus@washpost.com
© 2011 The Washington Post
http://www.washingtonpost.com/opinions/cains-9-9-9-plan-doesnt-add-up/2011/10/18/gIQArk0gvL_story.html [with comments]
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