Cain’s 9-9-9 Plan, Nonpayers, and the Top 1%

The Tax Policy Center has released a distributional analysis of Herman Cain’s 9-9-9 tax reform plan showing that millions of low income people may pay more in taxes than they do today. This should shock no one. The tax system is so progressive today, with record numbers off the tax rolls and the “rich” paying a greater share of the burden, that it may be next to impossible to construct a comprehensive tax reform plan that does not “raise taxes on the poor” or “cut taxes for the rich.”

But perhaps this is a debate that American needs to have, and maybe the Cain plan can spark an honest discussion of how much each citizen should be required to contribute toward the basic cost of government.

The two charts below tell the story.

The first chart shows the number of “nonpayers” – taxpayers that have a zero or negative tax liability – from 1950 to 2009 [data here]. The latest IRS figures show that in 2009, a record 58.6 million tax filers – or 42 percent of all filers – had no income tax liability after taking their credits and deductions. [And when Congress’s Joint Committee on Taxation added to this figure people who earned some income but not enough to file a tax return, it found that 51 percent of American households paid no income taxes.]

Of course, many of these nonpayers also receive “refundable” tax credits even though they have no income tax liability. For millions of these nonpayers, the refundable credits more than exceed their payroll tax contributions as well.

The next chart compares the share of income taxes paid by the top 1 percent of taxpayers (those earning over $343,927 in 2009) to the share of income taxes paid by the bottom 90 percent of taxpayers (those earning under $112,124 in 2009). The share of income taxes paid by the top 1 percent first exceeded the share paid by the bottom 90 percent in 1999, but then dipped below them during the 2001 to 2002 recession years. Since 2003, the top 1 percent’s share of the tax burden has well exceeded that of the bottom 90 percent, even during the recent recession.

The relentless growth of tax credits aimed at the “middle-class” has contributed as much to these trends as the growth in incomes for the wealthy.