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Herman Cain’s 9-9-9 Tax Plan

The Tax Policy Center has estimated the distributional effects of a fully-phased-in version of Herman Cain’s 9-9-9 tax plan. Summary tables are available here   View this page as a PDF

Herman Cain’s plan would eliminate the current individual income tax, corporate income tax, payroll tax, and estate and gift tax and substitute three taxes imposed at a 9 percent rate: 1) a 9 percent “national sales tax” 2) a 9 percent “business flat tax”, and 3) a 9 percent “individual flat tax.” Based on descriptions from the Cain campaign website and Fiscal Associates, the firm that analyzed the proposal for the Cain campaign, we conclude that all three taxes are versions of well-known forms of consumption taxes, although collected in different ways and with a few modifications.1 The bases of all three taxes are essentially the same as the base of a national sales tax. The basic structures of the three taxes are:

1. National Sales Tax: This is a retail sales tax, collected on sales to final consumers. It is imposed on all sales to households, non-profit institutions and governments, as well as sales by the business activities of government and non-profits (for example, revenues of non-profit hospitals.) The tax is modeled on the Fair Tax proposal that has been proposed by Americans for Fair Taxation and was first introduced in Congress by Representative John Linder (R-GA) in 1999. The tax rate is 9 percent of the total price (including tax) charged by businesses to consumers.2

2. Business Tax: This is a subtraction method value-added tax, sometimes called a business transfer tax (BTT). All businesses would pay a 9 percent tax on all sales minus purchases from other businesses (including purchases of investment goods). This is essentially the same as a retail sales tax, except that it is collected in pieces on the value added at each stage of production. In the aggregate, those pieces add up to retail sales.

3. Individual Flat Tax: As described by Fiscal Associates, this is a version of the Flat Tax originally developed by Professors Robert Hall and Alvin Rabushka and endorsed in the past by former House Majority Leader Dick Armey, Senator Richard Shelby of Alabama, and former Presidential candidate Steve Forbes. The flat tax is a subtraction method value-added tax, similar to the BTT, with the exception that businesses may deduct wages paid and workers must report and pay taxes on their wages. With a single rate, however, it makes no difference whether the worker or the business remits the tax. (The original flat tax proposal would have allowed workers to claim exemptions for themselves and dependents, but the Cain proposal has no such adjustment.)

via TPC Tax Topics | Herman Cain’s 9-9-9 Tax Plan.

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