# More fuzzy math from Cain

At the CNN debate in Nevada Tuesday night, Cain repeatedly denied — although I don’t know why he would — that his business tax is a value-added tax.  “It’s not a value-added tax,” he said at one point.  “It’s a single tax.”  At another: “It is not a value-added tax. . . . Take a loaf of bread.  It does have five taxes in it right now. What the 9 percent does is that we take out those five invisible taxes and replace it with one visible 9 percent.”

Rereading the transcript and trying to give Cain the benefit of the doubt, maybe he was referring, at least in the second reference, to his 9 percent retail sales tax.

But Cain’s Republican opponents clearly were referring to — and accurately describing — his business tax.  “You have a sales tax and an income tax and . . . a value-added tax,” which is really what his corporate tax is,” said former Pennsylvania senator Rick Santorum.

Here is how the Congressional Research Service defines a value-added tax.  “A value-added tax is a tax levied at each stage of production on firms’ value added.  The value added of a firm is the difference between a firm’s sales and a firm’s purchases of inputs from other firms.” This differential can be calculated in several ways.  “Under the subtraction method,” CRS noted, “the firm calculates its value added by subtracting its cost of taxed inputs from its sales.”

Here is how Cain’s Web site describes his business tax:

“Business Flat Tax — 9 %

— Gross income less all purchases from other U.S. located businesses, all capital investment and net exports.

In other words, a subtraction-method value-added tax.  As the Tax Policy Center explained in its invaluable analysis of the Cain plan, “This is a subtraction method value-added tax, sometimes called a business transfer tax (BTT). All businesses would pay a 9 percent tax on all sales minus purchases from other businesses (including purchases of investment goods). This is essentially the same as a retail sales tax, except that it is collected in pieces on the value added at each stage of production.”

But don’t take it from the Tax Policy Center.   Take it from the analysis that the Cain campaign commissioned from Fiscal Associates — and that Cain cited at the debate.

“Each business would pay tax on gross receipts less payments to other businesses.  Allowing the subtraction of payments for intermediate goods yields the” — cue drum roll — “value added by the company.  Subtracting investment as well yields a subtraction method value-added tax.”  Italics mine.

“Once again, unfortunately, none of my distinguished colleagues who have attacked me up here tonight understand the plan,” Cain said at the debate.  “They're wrong about it being a value-added tax.”  Cain said voters should “read our analysis” before “they engage in this knee-jerk reaction.”

With all due respect, Mr. Cain should take his own advice.

Ruth Marcus is a columnist and editorial writer for The Post, specializing in American politics and domestic policy.

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