What's Wrong With Cain's 9 Percent Solution

October 19, 2011 at 2:36 PM

By JIM BACHMAN

Republican candidate Herman Cain recently announced “if you don’t have a job and you’re not rich, blame yourself!”

Not surprisingly, Cain's campaign theme has been a tax reform plan (“9-9-9”) that increases taxes on the lower and middle class and reduces taxes on the wealthy. Individuals and corporations would pay a 9% income tax and there would be a 9% national sales tax on all purchases. Cain's plan was developed with major input from his “economist” Rich Lowrie, who has no training or experience in economics and is actually a wealth manager for Wells Fargo Bank.

According to Cain, the current tax code would be “tossed out” and replaced with the 9-9-9 plan. This plan is bad generally but it would be particularly devastating for retirees who rely mainly on Social Security. Currently, retirees may exclude Social Security from their taxable income if their other income is limited. Since the existing tax code would be “tossed out,” this exclusion would go away under the Cain plan.

For example, a retired couple receiving $20,000 of Social Security plus $10,000 of pension income pays no federal income taxes today. Under Cain's 9-9-9 plan they would pay $2,700 of federal income tax plus an additional $2,450 of new federal sales tax (since they would likely spend 100% of their after-tax income). This is an additional tax burden of $5,150, – over 17% of their income.

As the old saying goes, with friends like this, who needs enemies.

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