ELECTION seasons have a way of delivering surprises, but I do not know of anyone who was expecting the ascension of a pizza magnate to the national limelight. According to a number of polls, the businessman Herman Cain has surged in popularity to the point where he is within striking distance of establishment favorite Mitt Romney. Some of this is almost certainly thanks to Cain's intriguing "9-9-9" tax proposal, which has received a fair amount of praise among conservatives. Though it has quite a ring to it, this economic plan has serious problems and stands to do real damage to the lower and lower-middle classes of the country at a time when they just cannot afford it.
The plan proposes to replace the current U.S. tax code with a simplified three-point tax system: The corporate tax rate is reduced from 35 percent to 9 percent, all personal income is taxed at 9 percent and a new 9 percent sales tax is introduced. As per most Republican tax proposals, this means the wealthy will receive a large tax break. Their income tax brackets will be replaced by the same flat 9 percent which will apply to everyone else. Most people in the middle class are currently paying an income tax rate greater than 9 percent, so it also seems like the plan of choice for the middle class. If only a plan that seemed so catchy and hip was not also so potentially destructive to the less financially stable lower and lower-middle classes.
According to The Washington Post, almost half of Americans do not currently pay income taxes. Most still contribute payroll taxes, which are 7.65 percent of their wages - a bit lower than 9 percent. Based on the first "9," those with the least money to spare will be contributing a larger proportion of their money as the richest get to keep more of theirs.
Bear in mind that the regressive flat tax is only one-third of the equation: The increased sales tax also will take its toll on those lower-income families which spend a greater proportion of their income every month to meet basic needs. Some analyses have found that people paying no taxes right now might be faced with what is basically a 27 percent tax on income. That is a higher rate than anyone making $80,000 or less has to pay this year in our current system.
If it is not obvious enough, this is a system designed to increase the tax burden for the poor. The nation's upper class already pays some of the lowest rates among industrialized nations, and nothing near what they paid in the mythical Reagan years. In spite of this, members of the upper class have been lobbying both parties to keep their rates down.
Republican politicians have proven most pliant to their will. They work the hardest to perpetuate the fiction that only the wealthy have the superpower to be "job creators." This power apparently will be zapped away if they are put in contact with their one weakness - taxation.
Does this hold true in reality? Look at Bank of America. In 2010, it did not pay any federal corporate income taxes. In 2011, it is in the process of laying off as many as 30,000 employees. Even if Cain's simplified plan eliminated the loopholes that let this happen, the burden would remain on the poorest of citizens, almost certainly generating more of the income inequality that has contributed to the anger fueling the widespread Occupy protests. Massive tax breaks for corporations and the mega-rich have failed, and will continue to fail to generate recovery by boosting aggregate demand. Though Cain's supporters call "9-9-9" innovative, it is merely the latest example of a harmful regressive tax scheme. Put in the language of election season soundbites: "Herman Cain, more of the same."
Fortunately, the plan has plenty of critics on the left and right, and the University's own Politics Prof. Larry Sabato says the chances of Cain's plan happening are "0-0-0." To give credit where it is due, "9-9-9" is one clever marketing ploy. Like most good ploys, it is catchy, easy to remember and holds cross-demographic appeal. Cain has said, "If ten percent is good enough for God, then nine percent should be just fine... for the Federal Government." Not only is he wooing fiscal conservatives, but also the devoutly religious who are more likely to approve of the tithing reference. Besides, not many people are instinctively put off by something that sounds like a discounted pizza deal. A close look at the consequences, however, reveals much cause for concern. "9-9-9" runs the risk of reducing the size of the middle class and creating a permanent underclass which will be crushed beneath a large sales tax.
None of this is to say that the nation's current tax system is problem-free, only that Cain is providing a miserable solution. As we consider what must change about the way the government collects revenue, it would be wise to keep political philosopher John Rawls' difference principle in mind: Inequalities of distribution are only permissible when they benefit the worst-off members of society.
Sam Carrigan's column appears Fridays in The Cavalier Daily. He can be reached at s.carrigan@cavalierdaily.com.
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