Herman Cain's 999 Plan Needs Some Rethinking

As Texas Gov. Rick Perry flounders, businessman Herman Cain has taken the anti-Romney vote and surged in the polls.

Cain's resurgence is due to his good humor and clear, simple, and oft-repeated message: the 9-9-9 tax plan. Tuesday night, Cain did his best Beatles impression, mentioning his signature plan 15 times during the two-hour debate, winning laughs from his opponents and the audience along the way.

Cain touts his plan as, “simple, transparent, fair, and neutral” contrasting it favorably to Mitt Romney’s 59-point, 160-page plan. As an outsider until recently, the genial businessman has generally escaped scrutiny over his “bold” plan, but several questions must be answered before he can be considered a serious candidate.

How will it pay for entitlements?

Cain proposes eliminating the payroll tax, cutting off the current source of funding for Social Security and Medicare. Although Cain has never said that he would cut the programs with the payroll tax, he has never said that he would fund them through other sources. How will the programs be funded?

What counts as capital gains?

Along with the payroll tax, Cain’s plan would eliminate capital gains taxes. Currently, capital gains are separated into long- and short-term, with long-term gains taxed at a lower rate. Cain has not explained whether only long-term gains or both short and long-term capital gains would be exempted. If short-term gains are treated the same as long-term gains, day-traders and those who make a living predicting the ups and downs of the market would have to pay little or no income tax.

How much will the Phase II Fair Tax rate be?

Most shocking, Cain intends to enact a full tax revolution. His 9-9-9 plan is only “Phase 1” of a wholesale elimination of almost all taxes. Cain promises that after the Phase 1 Enhanced Plan, he  “will begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax,” with some sources reporting the Fair Tax rate as high as 30%.

State sales taxes vary from 0-8% (all but three states are above 4%) with some counties and cities tacking on additional taxes, so the majority of consumers already face 6-11% sales taxes. A 9% federal sales tax on top of local regulations would leave consumers paying between 10% and 20% on every purchase. In the next phase, consumers could face up to 40-50% in sales taxes.

What about the poor and middle class who will pay a higher percentage of their income in taxes?

Many reports have indicated the regressive nature of the 9% sales tax. Simply put, lower income earners spend a higher percentage of their money, meaning a larger percentage of their income is taxed. How does he explain that to the poor and middle class?

A recent study by the non-partisan Congressional Research Service found that a quarter of millionaires pay a lower tax rate, due in large part to lower rates for capital gains. With no capital gains tax, investors like Warren Buffet who do not make traditional “income” would pay only a sales tax while their secretaries would pay a 9% income tax in addition to the sales tax. How does Cain respond to that? Would he consider changing his simple plan?

In an interview with the Washington Post’s Jennifer Rubin, Cain’s co-designer of the plan, Cleveland accountant Rich Lowrie, initially dismissed progressivity as “Washington thinking,” but ultimately conceded that Cain may have to add some complexity to his plan in order to compensate the undue burden placed on the poor and middle class. But can he get rid of his bedrock theme of 9-9-9 without alienating voters?

Cain is taking his turn rising in the polls on the monthly anti-Romney carousel. Without answers to serious questions about his signature policy, he will ride that carousel back out of the spotlight.

Photo Credit: Gage Skidmore