Oct. 20 (Bloomberg) -- Republican presidential candidate Herman Cain has risen in the polls thanks, in large part, to his 9-9-9 plan, which would replace most of the U.S. federal tax system with a 9 percent personal-income tax, a 9 percent retail- sales tax and a 9 percent value-added tax.
Cain's supporters love 9-9-9's simplicity and transparency and think it would do wonders for the economy. His detractors say it's horribly regressive. As New York Times columnist Timothy Egan put it: "Cain is proposing the largest shift in tax burden from the wealthy to the poor and middle class in the nation's history."
Neither side is completely right. It's not as bad as its detractors say, but it could be a lot better. To be clear, I don't support Cain, and I find some of his remarks outrageous, particularly the disparaging ones about Occupy Wall Street. But we're not going to find common ground in this country if the left and the right distort each other's proposals.
Evaluating Cain's plan is difficult, even for a trained economist. To understand how different income groups would fare under 9-9-9, one must recognize that tax reforms affect households over people's entire remaining lives, and do so differently at different ages. To that end, I used financial- planning software to compute households' taxes for each future year and determine their sustainable living standards -- the amounts they can spend annually without running out of money.
The result: Commentators are mistaken when it comes to 9-9- 9's treatment of those with lots of wealth and little or no labor income, but they are correct in saying that it is highly regressive with respect to working Americans.
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