Further Thoughts on Herman Cain’s 999 Plan
By Randall Holcombe • Saturday October 15, 2011 11:34 AM PDT • 9 Comments
Yesterday I passed along some thoughts on Herman Cain’s 999 plan, and on thinking about it some more, I probably underestimated the amount that would be paid through the Business Flat Tax. I estimated it assuming the tax base would be corporate profits, but it appears the tax base, which is gross revenues minus purchases from other companies, capital investment, and net exports, includes wages paid to the firm’s employees. That adds up to about one-third of GDP, so a 9% tax on it would add another 3% to my earlier estimate that the 999 plan would raise revenues of about 13.5% of GDP. I’ll revise that to 16.5%.
This is a rough “back-of-the-envelope” estimate, and I conjecture it overstates what the plan would really raise because I assumed all labor income would be taxed and all consumption purchases would be taxed. No income tax in the real world, and no consumption tax in the real world, comes close to taxing all of its tax base.
If I had my way, federal spending would be far less than 16.5% of GDP—or 13.5% of GDP for that matter—and the 999 plan would raise more than enough revenue for the federal government. President Reagan’s experience shows it is easier to cut taxes than it is to cut federal spending. So even with this higher estimate of revenues under the 999 plan, it wouldn’t balance the budget.
One commenter on my earlier post said that economic growth would increase under the 999 plan, increasing GDP and government revenues, and I think that is true. High marginal tax rates impede economic growth, and Cain’s plan proposes to keep the marginal rate on all federal taxes below 10%. But as I stated yesterday, I do fear that with a national sales tax in place, we would see rising tax rates in all those taxes without a constitutional amendment preventing it. Deficit spending could easily turn the 999 plan into the 15-15-15 plan, or worse.
I like Herman Cain’s bold thinking, the 999 plan has much to recommend it, and I don’t mean to criticize Cain’s plan with my comments yesterday and today. Taking a realistic look at the likely implications of the plan isn’t a criticism. Should Cain win the presidency, we know that the president’s plans are rarely implemented without modification. It does appear that Cain is pushing in the right direction here.
Tags: Budget and Tax Policy, Economics, Elections, Politics, Taxation, The State 
While not perfect, it’s refreshing to see thinking to replace the outdated, corrupt system we have now!! If they could figure out a fair , easy tax system & cut government waste the country may not go bankrupt! Also collect on the debts from the world wars might help. We should also learn from Viet Nam the kind of tax draining wars to avoid!!
Chet Kennedy | Oct 15, 2011 | Reply
I don’t have a problem with 9-9-9 becoming 12-12-12 because there would be full transparency concerning the tax hike. Under the current system, taxes are all too frequently hidden.
Besides, if taxes were raised to the point that the deficit was eliminated, people would be paying full fare and when faced with this bill, would support spending cuts. Raise the price of govt by raising taxes if you want the quantity of govt supplied to go down.
Brian Dell | Oct 17, 2011 | Reply
HATE TO BURST THE BALLOON OF A GREAT ORGANIZATION
9-9-9 IS 18-18-18
IF I AM WRONG GIVE THE NUMBERS
Total National Income-12,000B rounded
individual and corporate incomes
Total National Consumer Spending-10,000B
Total Cain Taxable-22,000
9% of 22,000 is 1,980B
One Half of our budget. 18-18-18 is correct
clarence swinney lifeaholic of america political historian
old(87 tomorrow) ugly mean honest
plese let me know if I am incorect. I old I good Your excuse?
clarence swinney | Oct 18, 2011 | Reply
Dr. Ron Paul just made Cain’s plan superfluous with a real plan to cut the government and revitalize America. Somewhere “The Gipper” is smiling due to Dr. Paul’s ambitious plan that would accomplish what he, Reagan tried to do but was thwarted! It so good that even uber establishment republican Rush Limbaugh has endorsed it and lamented, why can’t other republicans come up with a plan this good! Don’t underestimate the exposure that this will generate and the endorsement will generate.
Bob D | Oct 18, 2011 | Reply
Anything to get rid of IRS would be an improvement. While we pay 30 – 36% to federal income tax, in my mind, we would be ahead with Cain’s 9-9-9. It costs me quite a bit to have my taxes figured every year and I’m a retired person. Then there is always the chance of being audited. It amazes me that while someone like Warren Buffet can state that the wealthy should be paying more, he’s got lawyers working on keeping him from paying the billion in back taxes that he owes. AND how many politicians have they caught simply cheating on their taxes?
Give it a chance. Anything is better than what we’ve got. We’ll never catch up from Obama’s wild spending spree anyway. The government sees how much money comes in from all the taxes we pay, and think it’s their personal expense sheet.
Loral Orow | Oct 18, 2011 | Reply
All i hear and see about this is “the people like new and radical ideas and herman cains 9-9-9 plan does that.” Dr. Ron Paul has been running on the same “new and Radical” ideas for the last 30+ years. There are several things that Dr. Paul puts forward that would shake the landscape. Its not about having some catchy phrase that is hidden in the darkness. Who helps Herman Cain think of these things? We May Never Know but it sure isnt something he has come up with. Herman cain is another controled machine molded to fit in right when they need him. Do not be decieved by the swag. He was the FED chairman, not the guy fighting for the little man. If you think he is out watching the little guys back. Consider where he comes from. there is a lot of material out there just a few clicks away. Dont just listen to the debates and tune into FoxNews and think they REALLL are FAIR and BALANCED. thats a joke. They are owned by one of the biggest companies in the world. and have been in league with the KOCH family from day one. Please people lets do some independent research and understand who all these people are.
Tony B | Oct 18, 2011 | Reply
Ron Paul has been trying to win so he can cut waste loopholes. His sole mission is to end the corruption. Dont let his voice be blacked out by the system who needs the corruption to survive.
blackthisout.com
Tony B | Oct 18, 2011 | Reply
The main appeal of the 9-9-9 plan is getting rid of all the deductions and exemptions, and moving to a flat rate. The exact rate of taxation is secondary.
I support a shift in tax revenue toward consumption, away from income.
However, I am learning that Cain’s plan has several types of exemptions for certain people. The pretty much ruins it for me.
Paul Hoffmann | Oct 19, 2011 | Reply