Herman Cain deserves credit for proposing a tax-reform plan that is specific, promotes economic growth, and has captured the imagination of conservatives nationwide. His 9-9-9 plan builds on the insight that one of the chief defects of the current tax code is its bias toward consumption over savings. But his plan’s peculiarities of design, substantive weaknesses, and political naïveté render it unworthy of conservative support.
Cain’s ultimate objective is a 30 percent national sales tax, but his interim plan is to replace the current income, payroll, and corporate tax codes with three new taxes. A 9 percent income tax would apply to a very different tax base: Capital income would go untaxed, but the exemptions that keep the basic cost of living from being taxed would disappear. A 9 percent value-added tax would be levied on corporations. And consumers would pay a 9 percent retail sales tax as well.
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This tripartite scheme makes for a succinct slogan but has little else to recommend it. In particular Cain’s inability to choose between a sales tax and a VAT is puzzling. The two are very similar in their economic effects. The chief advantage of the sales tax over a VAT is that the latter is considered easier for governments to raise, because it is hidden. The chief advantage of the VAT over the sales tax is that it is easier to enforce without stimulating black markets. (Another is that it reduces the risk of taxing business-to-business purchases.) Opting for both as a transitional step means courting the danger of a VAT with none of its rewards: In the first stage, the government would get a new money machine, and in the second it would supposedly destroy that machine and opt for something hard to enforce.
The two-stage scheme is self-defeating in another respect as well. The 30 percent national sales tax, whatever its other merits, would be significantly softer on the poor than the 9-9-9 transitional step, since the larger sales tax includes a “prebate” check to all Americans to exempt the basic necessities of life from being taxed, while 9-9-9 includes no similar provision. Leaving aside whether a major tax increase on people at the bottom of the income scale is a good idea, what is the point of first raising their taxes and then cutting them?
Cain envisions his presidency as featuring a quick move to the 9-9-9 plan followed by an educational campaign about the virtues of the national sales tax. He will have to move fast, since he is counting on the massive economic boom he expects his plan to create to enable him to balance the budget in his first year. None of this sounds very achievable, but let’s indulge the candidate. Even if one believes, as we do, that the mortgage-interest deduction should be set on a path to extinction, does its immediate abolition in the midst of a weak housing market seem wise?
And while the plan promotes new savings, it attacks existing wealth. In particular, it is a plan likely to arouse the ire of retirees. They have paid income taxes their whole lives and would now have to pay additional sales taxes on their savings when they try to spend them. On balance, of course, retirees would continue to receive a large net transfer of funds from the federal government. But why fight them in a bad cause?
A better way to tax consumption would be to start with an income tax and then exempt the returns to capital. This approach may have less superficial appeal than the alleged “simplicity” of 9-9-9. But it would run none of the risks of a VAT, it would leave home values unaffected, and it would give seniors no reason for concern. And it could conceivably happen, unlike 9-9-9.
Thirty-percent national sales tax ... that sounds like Fair Tax, isn't it?
My first impression of the 9-9-9 plan is much like what is reflected in this article: Mr. Cain is trying to cross the chasm (between our currently unworkable progressive income tax and a flat tax on consumption) in two jumps---and in some ways, it seems worse than Fair Tax, and Mr. Cain's answer to the question about the federal government having additional source of revenue (rather than an alternative source, as in Fair Tax) seems to me more of a wishful thinking about our political process than a concrete plan to ensure low taxes.
But then again, everyone agrees that our current tax code is unsustainable; which other candidate has proposed a comprehensive tax reform that might fix the current system?
Excellent editorial, and spot on. Too many conservatives are embracing the 9-9-9 plan because of how "bold" it is, and its simplicity. But if your tax plan rhymes, there's a pretty good chance it's unserious. To answer bkpark, Huntsman (it pains be to say) has the closest.
"The 30 percent national sales tax, whatever its other merits, would be significantly softer on the poor than the 9-9-9 transitional step, since the larger sales tax includes a 'prebate' check to all Americans to exempt the basic necessities of life from being taxed, while 9-9-9 includes no similar provision."
The "prebate" is the central problem with the Fair Tax. Conditioning the citizenry to receiving a sort of salary from the government in exchange for existing strikes me as a very bad idea. Even if the "prebate" is supposedly "paid back" when we buy groceries that are taxed, our minds do not see it that way. A "prebate" would be a big, big mistake.
Anyway, I am not sure that the "basic necessities of life" shouldn't be taxed along with everything else. All of us should be abundantly and painfully aware of what our government spends.
As for 9-9-9, it isn't perfect. But I would rather see it implemented and then correct its bad points than to continue with what we have now.
National Review is becomming unworthy of conservative support. We could just as easily say that Mitt Romney's past policies make him unworthy of conservative support.
You say that the tax will burden Poor and Retirees. How is that? Are you saying that the poor and retirees don't pay taxes today?
Just to be clear here- The 9-9-9 plan removes the payroll tax, which is a huge burden on the poor. And reduces the tax that every social security recipient or 401(k) dependent pays on their income to 9%. Even if SS recipients spend 100% of their SS checks, it amounts to something like an effective 16% total tax on their income.
But it is a burden on the retired and the poor? Please.
There was a time when the National Review argued for a simpler tax system, but the line quoted above reveals exactly what people like Ramesh want- not a simpler tax code, but the continuation of a complex tax code, merely rewarding the behavior they want. (c.f. Ramesh's bizarre insistence that the government ought to be encouraging child rearing through the tax code rather than, ya know, funding the government for its constitutionally enumerated duties.)
This trend among the NRO contributors- to reject true reform, and try to merely get their pet causes enshrined by the government- is the reason I declined to support NR during the last fundraiser.
Standing "athwart History, yelling STOP!" my derriere. More like "Standing athwart history, yelling 'Pull over, my route to the Cliffs of Insanity is MUCH BETTER!'"
I don't like his 9-9-9 plan either. I'm of the 1 vote 1 tax rate persuasion.
However I'm still voting for Cain, because Romney's not a conservative, and Perry seems to be more of the Bush mold of Republicanism than true conservatism. Gingrich and Santorum are my 2 & 3 picks because the understand and embrace true conservatism.
Like David Gregory on Meet the Press, the editorial doesn't get the concept that prices will fall for all because business taxes go down.
Yeah -- let's wait for the "better way to tax consumption" to happen. It hasn't yet -- because no one will sell the concept. Second -- people in this country still aspire to be wealthy. And in many cases (e.g. mine), the single largest barrier to gathering wealth is the progressive federal income tax.
Those who have their wealth already (e.g., St. Warren Buffett) of course favor that. Lifts the gangplank, you know.
Why would prices fall? Corporate profits are a small percent of total sales and this doesn't eliminate the tax, ie changes it to a VAT so it's not directly comparable. They expect to raise more corporate taxes with this than present which is why it is odd that people think prices would fall at all.
prices will fall because the current 35% corporate tax rate, that is passed on to consumers, will be replaced by the 9% rate. When prices go down, people will be more likely to buy things, thereby increasing corporate income and increasing tax revenue.
What is all this "passing on" nonsense, especially from readers and an ezine that purport to be economically savvy? Prices are set by "passing on" costs only in the weird world of government contracts; in the market they are set by supply and demand.
More generally, as for "retirees," I plan to retire on fully taxable 401(K) and IRA distributions. I would rather pay 9% than 35%.
Finally, this "prebate" business only arises in the Fair Tax and 9-9-9 because of fear that sales taxes have been regarded by some as "regressive." What does that even mean? Do we sell the less wealthy tax-free airline tickets, cell phone service, Nyquil and liquor?
The job of the tax system is to raise money, not redistribute wealth.
Is NRO worried? Maybe so. But if they are, it's for good reason.
Cain has found himself in 1st place in the polls among the generat electorate. But the problem is, much like Obama in 2008, no one knows much about him.
Listen, I like Cain. I think hes a good guy.
But trust me. The left would love to run against Cain. This man is a radio talk show host for gooodness sake! There are lots of things this man has said in the past that would make great fodder for Cain bashing come election time.
can you provide some examples of how Cain is like Obummer was in 2008? You think the msm is going to give Cain a pass like they did to Obummer in the 2008 elections? Besides, there are plenty of sources of information out there that will give you plenty of insight as to where Cain stands on many issues. Look up his sindicated column from the last several years, read his books. If you don't know Herman Cain you are not doing your homeowrk.
Being on the radio for several years, arguing his point of view, makes him more qualified than most of the clowns in Washington. He has a philosophical foundation that serves as the basis for his beliefs. That, in itself, gets my vote.
He's a guy who has been saying the same things for 20 years, and he's on record saying them. Point me to one career politician who hasn't flipped back and forth opportunistically over the years? Hell, Romney is the ultimate example, and HE'S THE GUY TO BEAT???
Stop being a defeatest and start listening. Cain may surprise you.
Glad I gave $50 to Cain's campaign instead of the NRO Fall Fundraiser. The criticism of 9-9-9 is fair, not sure I follow the "9% cit is a value added tax" logic, since the current rate is 35% (except for GE and most other bib businesses).
I am uneasy w/the Fair Tax's prebate, but NRO continues to factually misrepresent the Fair Tax. It is not a 30% Sales Tax, and prices for everyday items will fall under the fair tax, and they should fall under 999.
The fact that NRO cannot be intellectually honest about the FT or 999 leads me to believe they are more concerned w/losing the funding they receive as a non-profit under real tax reform than they are about advancing conservative causes.
Cain has demonstrated, so far, that he is more likely to be a leader and a reformer than the rest of the GOP field, who have demonstrated they would be merely caretakers of the rotten, crumbling behomoth that the federal government has become.
Alas, this is all conjecture until the first primaries are in the books.
