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Herman Cain’s 9-9-9 plan would probably be seen as just another cockamamie tax scheme were it not for his surprising ascendance to front-runner ranks in the Republican Party primary.
Yet one of the more interesting questions raised by the plan hasn’t gotten much attention: What accounts for the enduring popularity of such tax nostrums, when they never pencil out?
Cain’s proposal, which purportedly would replace today’s federal tax code with a flat 9 percent personal income tax, a flat 9 percent corporate tax and a flat 9 percent national sales tax, has the surface appeal of an advertising slogan. He maintains it would be “fair” and “simple,” get the government “out of our pockets,” allow for the abolition of the IRS and create a huge surge in economic growth.
There’s reason to be skeptical about these claims, because every tax scheme mooted during a political campaign makes the same promises, and none ever seems to be rooted in political or economic realities here on planet Earth. One feature they all share, as it happens, is their murkiness, and 9-9-9 is no exception.
In the 1930s, Louisiana’s Democratic Sen. Huey Long tried to make himself a presidential contender on the strength of his “Share Our Wealth” program, which would tax out of existence all income over $1 million and wealth over $3 million.
The revenue thus raised would be spent on what the historian Arthur Schlesinger Jr. dismissed uncharitably as “a hillbilly’s paradise” — guaranteeing every family $2,000 in annual income and a $5,000 “homestead” grant, along with old-age pensions and free college educations. Long finessed questions about his plan’s shaky economic foundation mostly by refusing to answer them.
During the same era, in California the Socialist author Upton Sinclair ran for governor by proposing to “end poverty in California” by replacing the sales tax and most property taxes with an income tax pitched at the wealthy and a sharp increase in the inheritance tax. The revenue raised by the new taxes would be a fraction of the old. Sinclair almost won.
In the 1990s, the Big Idea was the Flat Tax, promoted by the presidential campaigns of magazine executive Steve Forbes. The Forbes plan derived from a program cooked up by two Hoover Institution fellows, Robert E. Hall and Alvin Rabushka. Their idea was to replace the multiple brackets and deductions of the tax code with a straight 19 percent levy.
As Bankman observed in 1995, even as Hall and Rabushka were claiming that their tax was “the fairest tax of all” because it treated all income earners pretty much the same, they acknowledged that it would be “a tremendous boon to the economic elite from the start.”
Cain says his plan replaces the payroll tax and eliminates the inheritance tax, provides few incentives for evasion, and is fair, neutral and transparent. According to a cogent analysis by Edward D. Kleinbard, a University of Southern California law professor who was chief of staff to Congress’ joint committee on taxation from 2007 to 2009, none of these claims holds water.
Kleinbard estimates that 9-9-9 would cut the after-tax disposable income of a family with gross wage income of $120,000 by $541 compared with current law; a family with $50,000 in wages would be poorer by $4,848. On the other hand, entrepreneurs and other business owners would have a convenient option to cut their own tax bill, simply by paying themselves not in wages but in dividends, which would be tax-exempt.
The best that can be said about the Cain plan is that it sits securely in the historical continuum of tax-related snake oil and parlor tricks. In olden days, the targets of such scams were rubes and children. Is that what Cain takes us for?