I spoke this morning to Grover Norquist, head of Americans for Tax Reform, about Herman Cain’s 9-9-9 tax plan. He told me he didn’t want to be too hard on the plan because Cain had correctly sized up the overwhelming discontent with the present, “redistributive” tax system. For campaign purposes, Norquist said it serves as a message — “I’m for radical change.”
But in the real world it’s not something he’d support. “If I thought it was going to be introduced as legislation, I’d urge members not to sign [on].” He terms it the “What if . . . John Lennon tax policy” and says it simply is not politically viable and indeed may “crowd out” discussion of attainable tax reform. By playing “Let’s imagine,” Cain is, according to Norquist, sidestepping the “pain and hard work of cleaning up the current mess.”
He identified several real problems with the plan, including the introduction of a new federal sales tax that would be added on, but would not replace, the personal income and corporate income tax systems. He told me, “The number of taxes matters.” He explained that states like New Jersey that introduced an income tax to mitigate against high property taxes now have both high income and high property taxes. Massachusetts has three types of taxes in contrast to New Hampshire, which has resisted an income tax. Sure enough, Norquist observe, New Hampshire has been able to keep its overall level of taxation lower than Massachusetts.
The transition to a consumption tax will also adversely impact older people, the very ones who vote in large numbers. Norquist explained that these people have paid higher income taxes their whole lives and now, as their income tapers off, they get whacked with taxes on consumption. He said for these voters, “It is a killer.” In effect, now that they want to use their savings (that’s already been taxed), they’ll have another tax in the form of a sales tax once they try to use those funds.
As for Cain’s business tax, Norquist told me this in essence is a VAT since it would not be assessed on exports but would be paid on sales derived from imports and domestic-manufactured goods. He debunked the idea that it would make us more competitive. Norquist told me, “[Cain] says exporters wouldn’t pay. But they don’t pay now!” He continued: “Importers would pay it, so all those icky French perfume companies would pay. But so would American perfume manufacturers. So how does this make us more competitive?”
Norquist told me that he accepts Cain’s representation that the plan is revenue neutral. He therefore said it would not run afoul of ATR’s no tax-hike pledge. He wouldn’t then go after it with hammer and tongs as a tax increase. He doesn’t think it “hurts” Cain as a campaign position. It just doesn’t provide a viable basis for reforming our tax code, he says.
The catch for Cain, however, is that in this election voters, after three years of Obama, may be loathe to vote for someone who operates on symbolism rather than a savvy assessment of the real-world challenges we face. If voters stop to think about the consequences of the 9-9-9 plan, it may become more of a liability than an asset for Cain.