Herman Cain's 9-9-9 Tax Plan...

The other day I "happened" to be listening to the Dave Ramsey Show when he had a surprise guest,  Mr. Herman Cain a Presidential hopeful.  Mr. Cain started to talk about his 9-9-9 tax proposal.  Which to simplify it: calls for abolishing the tax code and replacing it with a 9% tax on corporate profits and personal income and a 9% sales tax.  To me the "flat tax" has always seemed to be the most equitable, so this idea really perked my interest (regardless of Mr. Cain's party affiliation and ideas (which I don't know anything about) ).  So I decided to ask my father in law about it.  He is a Financial Officer for a huge non-profit, an accounting professor and has his PhD in accounting.  I figured he would be a wise source of information or at least an opinion. 

Here's his feedback on the 9-9-9 plan:

"I just read about the 3 9s this last weekend.  1-9% flat rate personal income tax with no deductions except for charity; 1-9% flat rate tax on business profit; and 1 new 9% national sales tax.

Cain's rates are simple but seductively low.  The current income tax was introduced tin 1913 with a top rate of 7% amid promises that it would never exceed 10%.  By 1918 the top rate was 77%.

European nations adopted national sales and value-added taxes on top of their income taxes in the 1960s that has coincided with the rise of the entitlement state and slower economic growth.  Here again, the rates started at less than 10% and are now nearly 20%.  A 9% sales tax rate combined with state/local levies means a tax of 17% or greater in many places. 

Cain's theory is that current prices have current taxes embedded in them and that the "bad" taxes will be ripped out of prices and the "good" sales tax be put back in.  Good luck on that theory!  It is not, as argued, a replacement tax but an add-on tax.  This type of tax is regressive since it imposes more of a burden on low-income taxpayers who must spend larger proportions of their incomes on essential purchases. 

No more payroll and estate taxes or capital gains or dividends being taxed.  So, simplicity and a sharp reduction in marginal tax rates form 35% to 9% for businesses and top-earning individuals.  Cain's plan would in effect convert the federal tax system into a de facto consumption tax.  So, in my opinion, the one's who can afford consumption is the wealthy not the poor/middle class as these rates are not progressive to income. 

In summary, you would replace a tax system that is known and should be reformed than introducing another system totally unknown.  Much would have to be known to make it fair; e.g. the amount of personal exemptions that would allow many low and middle income taxpayers to pay no tax."