Tag Archives: Arthur Laffer

Is Herman Cain’s 9-9-9 plan revenue neutral? Does it tax the poor more?

Presidential candidate Herman Cain
Presidential candidate Herman Cain

Consider this article by rock-star economist Arthur Laffer.


In the recent past, federal tax revenues from the personal and business income taxes, all payroll taxes, and the capital gains, gift and estate taxes have averaged $2.3 trillion, while gross domestic product has averaged about $14.5 trillion. The total revenue from these taxes as a share of gross domestic product averages around 16%. Sometimes it’s a good deal higher, as in the boom of the late 1990s, and sometimes its lower, as in today’s “Great Recession.” But a number in the 16%-19% range is as good as you’ll get under our current tax code.

By contrast, the three tax bases for Mr. Cain’s 9-9-9 plan add up to about $33 trillion. But the plan exempts from any tax people below the poverty line. Using poverty tables, this exemption reduces each tax base by roughly $2.5 trillion. Thus, Mr. Cain’s 9-9-9 tax base for his business tax is $9.5 trillion, for his income tax $7.7 trillion, and for his sales tax $8.3 trillion. And there you have it! Three federal taxes at 9% that would raise roughly $2.3 trillion and replace the current income tax, corporate tax, payroll tax (employer and employee), capital gains tax and estate tax.

The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased.

By making the tax codes a lot simpler, we’d allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year (“The 30-Cent Tax Premium,” April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It’s a win-win.

I have heard precious few conservative commentators reporting the facts on Herman Cain’s plan, so it’s nice to see Art Laffer looking at the details.

Here are three facts about Cain’s plan:

  • Fact #1: People below the poverty line are exempt from ALL the taxes.
  • Fact #2: It is a stupid objection to say that the tax rate can be raised. ALL taxes can be raised, and Cain has already said that his plan would require a 2/3rds majority to raise the tax rates.
  • Fact #3: This plan has nothing to do with state income taxes or state sales taxes or state corporate taxes – his plan only reforms federal taxes. State tax laws are outside of the jurisdiction of the President.

I was really disappointed to hear some of the people in Tuesday night’s debate disparaging Herman Cain’s plan, especially Michele Bachmann, who ought to know better because this is her strength. When people say that a tax is regressive, that means that it is not progressive. And a progressive tax is communist. It punishes success. What we want to have is a flat tax rate that doesn’t punish success and broadens the tax base so that everyone pays something. What Cain’s plan does is lower the punishment on job creators and workers, and raises the tax on consumers who spend money. And isn’t that a good thing? Aren’t we in this whole mess because we spend too much money? Maybe we should incentivize job creation and work instead of spending. Cain’s plan would be the greatest boon to job creation that this company has ever seen – it’s brilliant precisely because it eliminates the cost of having to comply with an onerous, complicated tax code. We are getting this wealth for free, and the only losers will be the IRS and the Washington lobbyists.