Sunday, October 16, 2011

Bruce Bartlett On Cain's "9-9-9" Plan: Poor Pay More, Rich Get Tax Cut

Bruce Bartlett (left), former Reagan senior policy analyst, analyzed Herman Cain’s “9-9-9” tax plan (9 percent tax on business, personal income and national sales tax). Surprise, surprise: under the Republican presidential candidate’s proposal, the poor pay more and the wealthy get a tax cut. With capital gains taxes abolished and a 9 percent sales tax on private purchases, Cain's plan would be a dream come true for those who yearn for a regressive tax structure. From "Inside the Cain Tax Plan":

...everyone would now pay a 9 percent sales tax on all purchases. No mention is made of any exemptions from this tax, so we may assume that it will apply to food, medical care, rent, home and auto purchases and a wide variety of other expenditures now exempt from state sales taxes. This would increase their cost of living by 9 percent while, at the same time, the poor would pay income taxes.

...Phase 1 would represent a huge tax cut for the wealthy at a time when federal revenues are at a historical low as a share of the gross domestic product and the economy’s fundamental problem is a lack of aggregate demand.

Thus the Cain plan would increase the budget deficit without doing anything to stimulate demand, because rich people can already spend as much as they want and are unlikely to spend more even if their taxes are abolished.

The poor and the middle class might increase their spending if they could keep more of their earnings, but they will unquestionably pay more under Phase 2 of the Cain plan. With no tax on capital gains, the rich would pay almost nothing, while elimination of all deductions and credits, as well as imposition of a national sales tax, must necessarily raise taxes on everyone else, especially those not now paying income taxes.

At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase.

Bartlett also discussed Cain's plan in an interview with Lawrence O'Donnell.

No comments: