You could have seen this coming. A charming, funny businessman makes a name for himself in nationally-televised debates. Suddenly he’s rising in the polls and facing a slew of debate queries and interviewers. Even an experienced pol finds this daunting, (Ask Texas Gov. Rick Perry if you doubt that.) For businessman Herman Cain, who operates with no experienced advisors, the new attention seems a bit overwhelming.
NBC’s Chuck Todd interviewed him, revealing Cain’s lack of acumen about the 2008 financial meltdown. This part of the exchange is telling:
TODD: Well, in 2008, this is September 1st, 2008, another column you wrote about the economy, and it reads as follows. You wrote, “The supposed failure of Bush’s economic policies has been a constant theme of the Democrats since the 2006 elections. When the Democrats regained control of the House and Senate by convincing enough of the voters that the economic sky was falling, and that the war in Iraq could not be won. Based on all of their convention speeches, they plan to continue those themes right through Election Day on November 4.”
Economic sky was [not] falling, you said September 2008. Fifteen days later, of course, the Lehman Brothers collapse — we know what happened after that: a total near sky-is-falling moment. So how — I guess I would say this. How do you reassure voters that, despite all the experience you’re running on in the business community, your time on the Fed, you missed the housing bubble and you missed the economic collapse.
CAIN: Well, it’s real simple, Chuck. I have economic advisers working with me now who spend time studying these various analyses. When I wrote those papers, I was only responding to reports that I, like everybody else, was getting through the media, those kind of public reports.
It seems he’s never had first-rate advice. Politico has turned up a couple of his current thinkers, one of whom is now doubtful about the viability of 9-9-9.
A more serious problem is that the more conservatives learn about 9-9-9, the less they like it. The Fix’s Aaron Blake has a good rundown of some of the criticism being lobbed at the Cain tax plan.These are Tea Partyers, anti-tax crusaders and noteworthy conservative bloggers who are roughing him up. It’s certainly an understatement to conclude that “if a consensus grows among top conservative thinkers that Cain’s plan is not a serious one or that it could lead to trouble down the road — most likely through that sales tax — it could cause problems for the Republican contender.” In fact, 9-9-9 is his entire campaign and once discredited it is hard to see how he survives.
To make matters worse, this analysis by USC professor Edward Kleinbard is now making the rounds. Kleinbard writes:
The 9-9-9 Plan functions as an effective 27% payroll tax on wage income. By imposing an effective 27% flat tax on wage income, the 9-9-9 Plan would materially raise the tax burden on many low- and middle-income taxpayers, who today face little or no tax under the income tax, and a 15.3% effective payroll tax burden. The Plan apparently offers lower tax rates (17.2%) for labor income attributable to owner-employees of firms, because they can extract their labor earnings as returns to capital.
The Plan operates as an ersatz variant on standard consumption taxes with respect to capital income, exempting normal returns on equity from tax and imposing tax at an effective 17.2 percent rate on economic rents. Finally, the Plan’s sales tax acts as a one-time tax on existing wealth.
Dan Shiviro compiles a succinct summary of the key defects in the plan, the most telling of which is this:
The really comical thing about Cain’s 9-9-9 plan is how much it is a product of silly optics. As Kleinbard shows, it essentially amounts to a 27 percent flat tax on wages that is reduced to 18 percent for owner-employees who have enough liquidity not to need to pay themselves an explicit and observable arm’s length wage.
There often is debate about whether, if we went the national consumption tax route, a value-added tax (VAT) or retail sales tax (RST) would be better. I regard the two taxes as in principle identical except that a VAT has better enforcement potential. Cain, however, has both in his plan. The business tax, his second “9,” is in the main a VAT, apart from a few odd features such as its making dividends deductible. And Cain’s third “9” is explicitly an RST.
Why on earth would you have both a VAT and an RST? I think the reason is that 9-9 sounds better than 18. You get the illusion that the taxes are more different than they actually are. Moreover, each, considered in isolation, seems low.
Along these lines, I have a great idea to eliminate the 35 percent individual income tax rate without losing progressivity or revenue. Here’s the plan: replace the 35 percent annual income tax with a 3-3-3-3-3-3-3-3-3-3-3-3 monthly tax on annual income. After all, who’s counting if the 12 monthly taxes actually add up to 36 percent annually?
As for the shift in the tax burden I have yet to see an analysis outside of the Cain’s campaign that would dispute this from Shiviro: “Cain would impose a huge tax increase on lower-income and middle-class Americans, who would lose the benefit of lower income tax rate brackets, including the effective zero bracket that results from personal exemptions and the standard deduction. . . . So on the bottom end Cain’s plan is shockingly regressive.”
Had Cain assembled a qualified team of tax gurus and economists, he might have come up with a legitimate, conservative-friendly tax reform plan for bold change. Instead, he came up with 9-9-9, a plan he seems not to fully understand and whose weaknesses have never been explained to him (before his opponents took their turns). In this case, it turns out that Cain is an attractive messenger for a rather horrid message.