Herman Cain, as is his wont, defended his 9-9-9 plan during Tuesday night's Republican primary debate by saying that everyone who's analyzed it -- and that includes economic minds from the left and the right (see Bruce Bartlett) -- is just "wrong" because they've started from the wrong set of assumptions. Those same economists struggle to analyze the plan because Cain refuses to show his work. Per ABC News:
“The first thing I think is show me the money,” said Joel Slemrod, an economics professor at the University of Michigan. “I want to know whether it adds up and I suspect it doesn’t.”
The 9-9-9 plan eliminates the payroll tax and estate tax, which brought in a combined $883 billion in 2010, or about 41 percent of the $2.16 trillion collected by the federal government last year. Cain’s proposal also wipes out taxes on capital gains and repatriated corporate profits.
The Tax Policy Center estimates that cutting capital gains taxes alone would allow 23,000 millionaires to pay no income taxes, a move that would add $11 billion to the deficit each year. Cain’s fellow GOP presidential candidates Michele Bachmann, Newt Gingrich and Jon Huntsman also support eliminating the capital gains tax.
Cain’s plan to end taxes on corporate profits that are earned overseas and then brought back into America would drop federal revenues by about $80 billion over the next decade, according to the tax center.
“Everything he’s talking about is if you just provide tax cuts to rich people we will all fare well,” Mishel said. “But hasn’t that been the theme for 30 years and doesn’t everybody agree that the middle class does not fare well? This is a triumph of amnesia.”
And per the Christian Science Monitor:
But probably the largest economic impact would be shifting the tax burden. “It's a huge tax reduction on the very top and a huge tax increase for moderate and low income people," says Michael Graetz, a professor at Columbia University who has testified before Congress on taxes.
For example, economists have a measure called marginal propensity to consume. Low income people tend to spend about 98 percent of their income, middle income people spend 97 percent and high income people spend 90 percent.
Thus, Cain’s proposal would result in an individual who makes $20,000 per year, paying $1,800 in income taxes, plus another $1,605 in sales taxes, assuming they spend 98 percent of their income. The combined income and sales taxes would amount to 17 percent of income.
By way of comparison, using today’s tax rates, that individual – married filing separately – would pay $2,575 in combined taxes or 12.8 percent of their income, according to the website moneychimp.com.
Michele Bachmann blew up Twitter with her ensuing quip, "When you take the 9-9-9 plan, and turn it upside down, the devil's in the details." Michele Bachmann is correct!