RENEE MONTAGNE, HOST:
While Herman Cain's 9-9-9 tax proposal has proven effective as a marketing device, it's also inspired criticism from across the political spectrum. Here's tax attorney and Republican candidate, Michele Bachmann, attacking the plan.
MICHELE BACHMANN: One thing I would say, is when you take the 9-9-9 plan and you turn it upside down, I think the devil's in the details.
MONTAGNE: There's also been plenty of skepticism about the details from liberal quarters. That includes Cornell University economist, Robert H. Frank.
ROBERT H. FRANK: I think everybody wants to be free from the current American tax code. It's unconscionably complex. It's burdensome. What he's proposing would, in some ways, be a simplification of the tax codes, so in that sense, people will find it a welcome proposal. But I think once they begin to look at the numbers they won't be so enthusiastic about it.
The tax is on virtually every cent the family spends, so it pays nine percent on its income with no deductions. It then pays nine percent on every cent it spends, which for low and middle income families would be 100 percent of income, so we're up to 18 percent there. And then the business tax is actually, for the most part, a tax on the wages paid by business. So it's a big increase in the tax rate faced by middle income families.
MONTAGNE: You always hear about wealthy people paying little or nothing in taxes. Wouldn't this ensure that those wealthy people pay something reasonable, they pay at least nine percent?
FRANK: This would not push high income families in the direction of paying more tax. It would push them towards paying lower tax. This is not a tax levied on their income from capital gains, money they make in the stock market. It's a tax on the income you're paid in earnings; it's a tax on the income you're paid as wages, that's the business tax. It's the consumption, the dollars you spend. And on each three of those scores, high income people are off the hook compared to where they stand now.
MONTAGNE: Were 9-9-9 to go into effect, what ways would it change behavior? And I'm wondering if some people would save more, if some businesses would invest more.
FRANK: What you'd see would be a big cutback in the amount of resources available to spend by low and middle income families, so that would be a big reduction in the spending stream. You'd see a huge increase in the amount of resources available to people at the top of the income ladder. Some of that would be saved, yes, since the rich save a fairly high proportion of their income. Much of the rest would be spent on luxury consumption.
So what the main effect would be, would be a twist in what's already become a fairly skewed distribution of income.
MONTAGNE: There has been talk of a flat tax by presidential candidates, now, for several decades. What is the appeal of a flat tax?
FRANK: It sounds simple. The original pitch for the flat tax was you could take your W-2 statement, report your income, and mail your tax form in on a postcard since it would just be a flat rate. Well, if you want to eliminate all the deductions and exemptions you can calculate your taxable income on a postcard with a progressive tax too.
So it's not the progressivity of the tax that makes it complex, it the deductions and all the exemptions that people have to factor in. And we're never going to get a flat tax. I think once you do the calculations on the distributional consequences of adopting one, that's never going to pass as long as there are two parties voting in Congress on it.
MONTAGNE: Thank you very much for talking with us.
FRANK: Oh, I was pleased to have a chance to chat with you.
MONTAGNE: Robert H. Frank is an economist at Cornell University.
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