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Herman Cain's '999 plan': long overdue tax reform or job killer?

Herman Cain's political star is lately on the rise, thanks in no small part to the persistent marketing of his '9-9-9 plan' to reform the tax code. Independent economists say the plan takes us into uncharted territory.

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And, a high income earner who makes $300,000 per year would pay $49,113 in taxes, which would amount to 16.3 percent of their income. But, today, that individual would pay $83,897 or 27.97 percent of their income in taxes.

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Along the way, Cain would jettison the payroll tax (think Social Security and Medicare taxes), the Estate Tax and all deductions such as the mortgage interest deduction. And, finally, if Cain were president, he would use his 9-9-9 plan as a way to move the nation towards the so-called “Fair Tax,” a 30 percent national sales tax that would ultimately replace the income tax and the corporate tax.

Gault, at IHS Global, thinks shifting policies would be especially difficult for people who had saved for retirement but just as they were set to retire, the income tax was virtually eliminated and a sizable sales tax was implemented. “This rewards future savings but punishes you if you have been saving” all along, he says.

Another major issue for the Cain plan is the effect on the budget deficit. Zandi thinks the 9 percent numbers seem low. Based on FY 2010 numbers, he calculates the 9-9-9 plan would generate about $2.2 trillion in revenue which is close to 15 percent of Gross Domestic Product—about what the US collects now.

However, the US is currently spending 23 percent of GDP.

“That would suggest some pretty draconian spending cuts,” says Zandi.

Lowrie, Cain's economic adviser, doesn’t disagree, but says, “That’s a spending problem.” He maintains that the Cain plan, as scored by Gary Robbins of the Conservative Heritage Foundation, would increase revenues by 15 percent.

In the near future, Lowrie says Cain will release his plan for low income areas which he terms “empowerment zones.” People living, working, and employing people in those areas would receive tax deductions.

In addition, Cain would eliminate Payroll taxes, which now go to fund Social Security and Medicare. That would mean both entitlement programs would be funded out of general revenue.

“This is one of the few taxes that works well,” says Bruce Bartlett, a former advisor to President Ronald Reagan and a Treasury official in the George W. Bush administration. “It becomes very dangerous once you break the line of contributions.”

But the money isn't in the Social Security trust fund for long before it gets used for other purposes, says Lowrie. So "why continue with the charade?"

Under the plan, state and local governments would also have to pay the 9 percent tax. In effect, the government would pay the tax to itself, notes Mr. Bartlett.

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