On CNBC today Herman Cain argued that his 9-9-9 tax plan would not be regressive because low-income earners would move from a 15.3 percent payroll tax to a 9 percent sales tax. But is that right?
For starters, many of these individuals now pay no income tax thanks to the Bush tax cuts and items such as the child tax credit. Under Cain’s plan, they would be paying 18 percent. (And if you buy his tax guru’s notion that corporate taxes are embedded in wages and the price of goods, they are paying 27 percent.)
Cain explicitly denied that the plan would be regressive. He should talk to his tax guru Rich Lowrie, who told me that progressivity was irrelevant, and besides, they would roll out a whole new plan on empowerment zones that would overlay the 9-9-9 plan. So which is it?
In the debate last night Rep. Michele Bachmann (R-Minn.) and Rick Santorum were the most aggressive in going after Cain’s plan. After the debate Bachmann’s camp circulated a memo entitled “ ‘9-9-9’ would wreck the economy.” She quotes, among others Dean Clancy of Freedom Works, “[A]dding a national retail sales tax on top of the federal income tax (even a flat tax) is a bad idea, because it creates the infrastructure for a federal-level, European-style VAT. . . . And if Cain’s 9% personal flat tax failed to remain flat . . . we would end up with the worst of both worlds: a confiscatory income tax and a job-crushing VAT.” She argues, “Mr. Cain’s plan has a worthwhile intention, but 9-9-9 would cause more problems for the U.S. economy and job-creation than it would solve. Sensible tax reform will lower the burden on American business, simplify the tax code for all taxpayers, and make the U.S. the most competitive engine of economic growth in the world.”
In the remainder of Clancy’s piece, he writes:
[A]dding a national retail sales tax on top of the federal income tax (even a flat tax) is a bad idea, because it creates the infrastructure for a federal-level, European-style VAT.
And if Cain’s 9% personal flat tax failed to remain flat (as happened with Ronald Reagan’s promising but ultimately failed 1986 tax reform), we would end up with the worst of both worlds: a confiscatory income tax and a job-crushing VAT.
Paradoxically, then, if you want higher taxes and permanently bigger government, one way to get there would be to support Herman Cain’s 999 plan!
Two rousing cheers, for boldness and imagination. And one bronx cheer, for a dangerous lack of foresight.
That’s an apt description of Cain himself. There is a certain make-it-up-as-he-goes-along quality to his candidacy. Asked about potential Fed chairmen, he said he had two in mind. But he’s not going to tell us. Huh? So why say he has two in mind?
There is no doubt that Cain is a charismatic and energetic figure. He could very well play a role not unlike Sarah Palin in rallying Tea Party supporters and cajoling conservative members of Congress to stick to their guns. It is also very likely that Cain never imagined he would get this far in the presidential contest. The risk for him is that as an activist he is first-rate, but as a presidential candidate he’s not ready for prime time.
Moreover, he is, according to a spokesman for Iowa Gov. Terry Branstad, making a huge error: “Herman Cain is squelching his opportunity by not campaigning here. Iowa would be a friendly state to him, and his silence is deafening.”
In short, Cain may not have the policy or political chops to win the nomination. But he should make sure he doesn’t squander his reputation and credibility along the way. He might need the goodwill of the people of Iowa in the future.