Replies

Is there an independent analysis of the 999 plan? It should, theoretically, generate revenue that is in range of ~18% of GDP.

That is about the level of taxation Americans are willing to put up with, and a serious effort needs to take place to bring the government spending to that level.

This type of taxation, where tried, was very successful in speeding up economic growth.

A variation of Cain’s 999 has been adopted in most of the Eastern Europe in recent years:
http://en.wikipedia.org/wiki/Flat_tax#Eastern_Europe

The 9-9-9 plan was arrived at by performing a regression analysis-by taking total tax revenues the government now derives, and working backwards to see how much revenue 9%personal tax would render, how much 9% corporate tax would provide, and then how much would be needed in sales tax to make up the difference. It just happens to come out at 9%.

Cain has explained this in detail in recent interviews. The plan simultaneously eliminates the payroll taxes for both employer and employee (12 1/2 %), and capital gains taxes of 15%.

The bad news of course, is that everyone would be paying 9% federal sales taxes, which in my view would be offset somewhat by some unknown and unquantifiable reduction in the cost of goods and services purchased-by virtue of the reduction in income taxes on all the producers of these goods and services. The elimination of payroll taxes would also put downward pressure on prices. Free lunch? Not quite, but close.

Many of the benefits of a national sales tax would accrue to our exporters under the 9-9-9 plan, meaning that our manufacturing sector would be juiced by the fact that today’s 35% corporate tax is a component of overseas pricing of exported goods. Conversely, foreigners who came here to manufacture, sell, or just visit on vacation would be making contributions to the US treasury they aren’t currently making.

The problems with the plan occur with low wage earners and retirees.

Low-wage earners who “pay no tax” actually do have taxes witheld, it’s just that the withholding is returned to them along with transfer payments at the end of the year. Would these programs still be in place? Would they have to be enhanced to compensate for a net tax increase, considering the 9% sales tax?

For retirees, the elimination of cap gains would be a plus, but being on fixed income they would have to pay more sales taxes. With some this would be a wash, with others, not so much.

With these problems, the plan still eliminates an awful lot of excess baggage, and economic activity would certainly be enhanced, in particular with manufacturing and real estate.

I’m just trying to get my head around this plan, feel free to shoot holes in my analysis. I’m an employer with 18 employees, not an economist or tax expert.