You can always identify a politician; he’s the guy that talks and talks and says very little. Ask a politician for a solid plan and you’ll get oatmeal. Much like the Ross Perot candidacy in 1992 much of the electorate is seeking a non-politician to replace the dysfunctional family we call Washington.
Most of America had never heard of Herman Cain just a few months ago. Cain has made dramatic strides in both name recognition and polling based on debate performances and campaigning. A prototypical non-politician; former CEO of Godfather’s Pizza, and a host of other senior business roles, Cain did what politicians are loathe to do: he stuck his head out and produced an actual detailed plan called “9-9-9.”
When Cain announced his plan several months ago, nary a rival even mentioned it. Had Cain not made significant headway in the field of candidates you can bet it would be less than parlor chat; but in last night’s Republican debate it became a centerpiece of criticism.
Cain’s rivals attacked the plan as naïve and unworkable; easy to do when you don’t have a plan of your own. Mitt Romney has produced a plan, released just last month. Romney’s plan has received little attention, perhaps because it reads like something produced out of Congress. At 160 plus pages with 59 individual points Romney’s plan requires a translator to mean anything to the average folk.
What ‘s most appealing in Cain’s proposal is the straightforwardness of it; simply put the 9-9-9 plan replaces the current tax code with a 9 percent flat income tax, a 9 percent corporate tax and a 9 percent national sales tax. Additionally Cain’s plan eliminates capital gains taxes, estate taxes and corporate taxes on dividends as well as taxes on the profits of multinational corporations outside the U.S., and eliminates the payroll tax that funds Social Security and Medicare.
The goal of Cain’s plan was to be revenue neutral, simplify the tax code and broaden the taxpaying base. What you lose in tax deductions are more than made up for by lower tax rates; however Bloombergbelieves that Cain’s plan would actually have brought in $200 billion less in 2010 than the current tax system.
When the moderators challenged Cain with Bloomberg’s assessment, Cain responded they were simply “incorrect.” Cain argued that 9-9-9 brings in far more funds because it “expands the base” in a way the Bloomberg analysis failed to take into account.
Ask economic analysts to appraise Cain and Romney’s plans and you’ll get a multitude of opinions; the fact is that no one really knows what the effects of the plans will be because economic growth or lack thereof is a key component that cannot be predicted.
Romney was relaxed in the debate, yet while the bullets were flying at Cain Romney was emboldened and in the face of criticism from Cain on his plan responded, “simple answers are always very helpful, but oftentimes inadequate.”
The candidates were all pulling out their wisecracks, hoping to get a little air-time, and Cain was the prime target. Huntsman suggested that he thought that Cain’s plan was, “the price of a pizza.” Bachmann offered up, “you turn the 9-9-9 plan upside down, and the devil’s in the details,” a not so subtle attempt at humor suggesting that Cain’s plan was actually “6-6-6,” the biblical representation of Satan.
Where Cain was vulnerable, some valid critiques left scars. Both Bachmann and Rick Santorum wounded Cain with their judgment that once Congress had the power to levy a 9 percent national sales tax the floodgates would open to increasing taxation by Congress.
“The last thing you would do is give Congress another pipeline of a revenue stream. And this gives Congress a pipeline in a sales tax,” said Bachmann. “and once you get a new revenue stream, you are never going to get rid of it.”
Cain response was he’d prevent that from happening by mandating Congress produce a two-thirds majority in order to increase taxes; figure the odds of that ever getting past the happy spenders on Capitol Hill! If even constitutional, Congress will never relinquish control over spending and revenue.
The facts, as sad as they are, are that nothing is simple when it comes to our government. Strangely enough, Cain has been a big supporter of the FairTax that was a cornerstone of Mike Huckabee’s 2008 run. The FairTax takes much of the temptation away from Congress by eliminating all federal income and payroll taxes in favor of a national sales tax. Cain’s divergence from the FairTax is a bit puzzling. Perhaps Cain believed that a catchy slogan and an easier plan to explain was needed, however the intricacies of the FairTax aren’t all that hard to grasp.
Cain’s biggest challenge may be the perception that his 9-9-9 plan will hit the poor the hardest. While assuming the poor will be hurt by a 9 percent income tax at a time many pay nothing fails to consider the loss of the payroll taxes which are 9.1 percent. Current payroll tax reductions have brought that down to 7.1 percent, but that won’t last much longer.
Lost in the argument is that Cain’s plan, as well as the FairTax, are even inherently progressive. Is there any doubt that those making $250,000 spend a greater percent of total income on purchases than someone making $50,000? The higher the income earner, the greater the disposable income, purchases and the greater amount of national sales tax they’d paid.
With Cain’s plan, someone making $250,000 would pay $22,500 in federal taxes; even assuming they spent only $75,000 in purchases, they’d pay an additional $6,750 in national sales tax, for a grand total of $29,250. The earner making $50,000 would be hit with a $4,500 federal tax bill, and with far less disposable income, would likely only spend 5 or 6 thousand on purchases, resulting in another $540 in national sales tax for a grand total of $4,940. The Obama-rich labeled person would pay an 11.7 percent overall tax and the lower income earner in the example pays a 9.8 percent overall tax. Greater incomes, greater purchasing and the larger the overall tax burden; one might think this would appeal to liberals. Just imagine one of those demon millionaires who may be spending as much as 40 percent of their income on lavish purchases, they’d be hit with a number well in excess of Obama millionaires surtax. Logic and politics just don’t mix.
On “Face the Nation” Sunday, Cain disputed that his plan would cause poor people to pay more in taxes, pointing to the payroll tax cut. “If you work that out for various income levels, they will have extra cash from that differential to pay the sales tax,” he said.
Cain’s plan is also a boon to investing. Eliminating capital gains and taxes on interest encourages everyone at every income level to save and invest. Cain’s plan does not tax sales of used goods, helping to keep the economy cycling and providing a strong market for used items, which tends to aid lower income persons far more than upper income earners. Cain made the point that promoting used goods sales would not have a negative impact on items such as new car purchases because people will, “use up the existing used car inventory, because there’s a limited number and eventually people are going to start buying new cars.”
A surprisingly negative assessment came from former Reagan and George H.W. Bush policy adviser Bruce Bartlett, who wrote that “the Cain plan would increase the budget deficit without doing anything to stimulate demand, because rich people can already spend as much as they want and are unlikely to spend more even if their taxes are abolished. At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase. Even allowing for the poorly thought through promises routinely made on the campaign trail, Mr. Cain’s tax plan stands out as exceptionally ill conceived.”
Bartlett’s evaluation seems overtly offensive in a manner that would tend to point to unspoken support for another candidate. Bartlett makes a number of assertions that simply don’t follow a logical path. There is much to question about revenue generation in Cain’s plan, but assuming “rich people” can spend as much as they like and aren’t likely to spend sounds like words of someone who hasn’t even read Cain’s plan. Why would someone assume that a wealthy person paying $90,000 in federal taxes wouldn’t take at least a portion of the tens of thousands of dollars saved under the Cain plan and make purchases; Bartlett clearly has a horse in this race.
Given the choice between the FairTax and Herman Cain’s plan, the FairTax wins hands down. Perhaps a microscopic review of Romney’s plan, translated into common English, might expose an even better plan; but for some strange reason Romney’s plan is getting very little attention. Anyone worth their economic salt understands that we must broaden our tax base and what we know is that both the FairTax and Cain’s plan do that.
Forget what the other candidates say, or any other politicians for that matter. Ask a businessman, an employer, some rich dude who asks for your Grey Poupon, what they think; they are the ones that create jobs and we need a plan that encourages job creation and not another serving of oatmeal.