9 Questions for Herman Cain's 9-9-9 Plan

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Tonight's Republican debate in Las Vegas will focus on Herman Cain, who has vaulted from nowhere to lead all GOP hopefuls with 27 percent of the vote nationwide, according to a recent Wall Street Journal poll. More specifically, the moderators will focus on Cain's tax proposal, the 9-9-9 plan, which reduces personal income and corporate income taxes to 9 percent and adds a national sales tax, also at 9 percent. Here are nine questions the moderators should ask:

1) Tax experts have said that, by enacting a 9 percent tax on three levels of income -- on corporate income, personal income, and spending --  you are essentially levying a 27 percent payroll tax without exemptions. Are they wrong?

2) If they're wrong, explain how a family being paid $40,000 out of a corporation's income and spending all $40,000 that year would not ultimately forfeit 27 percent of their income to the government. If they're right, why shouldn't somebody call the tax a 27 percent tax instead of a 9-9-9 tax?

3) When you look at the average effective tax rate (ETR) for each income range, you see that only households making above $500,000 pay an average ETR above 27 percent. Only households making under $100,000 pay an average ETR of 18 percent (which might be a more accurate measure for this graph, because it looks at income after the incidence of corporate taxes). Either way, the vast majority of families will pay more under the 9-9-9 plan. Is raising most households' taxes a goal of your tax plan, or a side-effect of simplifying taxes?
effective tax rates by income group 2009.png4) According to analysis by Edward Kleinbard, a tax law professor at the University of Southern California, your plan would reduce taxes on somebody making $1,000,000 in earned income by more than $40,000. (On the other hand, it would raise taxes on a household making $45,000 by about the same amount. $4,000.) Is lowering taxes on the top 1 percent of earners a goal of your tax plan, or a side-effect of simplifying taxes?

5) New home sales are still the weakest on record, and the real estate industry's long recession is holding down the the economy in key states like Florida, Arizona, and right here in Nevada. Would you carve a short-term exception for home purchases into your proposed sales tax to increase home sales?

6) Some economists believe that one reason why mortgage defaults climbed and home sales fell in 2007 is that the price of gas increased dramatically. In states like Nevada, thriving suburbs depend in part on cheap energy to get to and from the city and to light their homes in the dessert. Would you consider treating oil and gas companies differently during commodity price hikes to prevent average families from suffering at the hands of expensive energy?

7) After becoming president, you said you would pass a measure to require a two-thirds vote to amend your 9-9-9 tax code. You also said that the 9-9-9 code was designed to be an intermediate step toward a Fair Tax. Wouldn't your two-thirds requirement make it almost impossible to move toward a Fair Tax, just as it would make it nearly impossible to raise rates above 9 percent?

8) What do you see as the advantages of a federal consumption tax, which is a levy that does not exist in the United States, but is widely used throughout higher-tax countries and especially in Europe?

9) You have publicly supported the Fair Tax, which would replace the current tax code with  national sales tax. A federal consumption tax without exceptions will be regressive, because the lower-income spend a greater share of their money than the high-income. Therefore if the U.S. government moves to a consumption-tax only system without exceptions, effective tax rates will be higher for middle class families than for millionaires. Is that not your intention?

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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