Herman Cain's 9-9-9 Tax Plan
I was never very good at economics. It was one of those college subjects that I thought I understood while the professor lectured in class, but when it came test-time, I never received much better than a "C" grade. The only thing I know from taking both Macro and Micro Economics is that I'm a supply-side guy.
That's probably why I am intrigued by Herman Cain's 9-9-9 plan. The Republican presidential candidate has created a buzz about his tax reform idea.
In a nutshell, the 9-9-9 plan calls for a nine percent corporate flat tax; a nine percent national sales tax; and a nine percent personal flat tax. Businesses would deduct purchases from other domestic companies and eliminate payroll taxes. Individuals would still deduct charitable contributions and capital gains would be excluded. The national sales tax would only apply for the consumption of new goods.
Most economists agree that the 9-9-9 plan would likely help the wealthy and could hurt those who are most in need. In addition, it's estimated that Cain's tax plan would raise about two trillion dollars in its first year - $200 billion less than the current tax code produces. Since the United States government is spending $3.7 trillion now, Cain would have to find a way to slice $1.7 trillion from the federal budget.
Despite the negative rhetoric, there is something enlightening about Cain's bold proposal. First, if there was a way to make the plan less regressive and not negatively impact low-income taxpayers, then the perceived immediate boost to the economy is more realistic. Second, the idea that estate taxes and the taxation on dividends could be eliminated would be a move in the right direction so that individuals are not taxed twice.
Lastly, the fact that a candidate outside the Washington,D.C. beltway is proposing something so bold is positive. I don't think the 9-9-9 plan would ever be seriously debated by professional politicians, but it's refreshing to hear someone think "outside the box" and propose something radical in an effort to clean up the current tax code.
Herman Cain's 9-9-9 tax plan is not a completely new idea. Ronald Reagan proposed a 10-10-10 plan in 1980. It was his intention to lower taxes by 10 percent for three successive years to help get the country out of a recession. That idea never became reality, but President Reagan's policies did lower taxes and broaden the tax base so that investment and production became accelerated. A similar supply-side concept may be a good place to start in 2012.