Several New Problems For 9-9-9

Last week, I wrote that Herman Cain’s 9-9-9 plan includes a “lightly-modified VAT.” Since then, his campaign has modified the plan posted on the web, and the proposal got even vattier.

Previously he proposed a 9 percent tax on the following: “Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.” But now that has changed to “Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.” That’s a straightforward value-added tax: a tax on business receipts less inputs, with the tax applied to imported goods (i.e., imported goods are not deductible) and deducted on exports.

By making this change, Cain addresses one of the criticisms of the plan: that corporations could act as tax shelters by borrowing money and then paying it out as dividends. But the change also makes it more puzzling that Cain won’t describe his proposed tax as a VAT, and that so many reporters have gone along with his terminology, calling the proposal a “business tax” or, worse a “corporate income tax,” instead of properly identifying it as a VAT.

There are other quirks in the plan that need ironing out. Cain says his personal income tax applies to “gross income less charitable deductions.” But he also says that capital gains won’t be taxed, so I suppose they will newly be excluded from the definition of gross income. Will the plan treat capital gains more favorably than dividend and interest income? If so, it will introduce new distortions to corporate finance–corporations will be encouraged to finance themselves with equity instead of debt, and to distribute earnings through share buybacks instead of dividends.

These sorts of ambiguities are the reason I said the plan “reads like it was written on the back of a napkin.” But trying to fix the tax treatment of interest in 9-9-9 is a bit like rearranging deck chairs on the Titanic. Here, from the Tax Policy Center, is a table of the distributional impacts of the plan. You can stick a fork in it: this tax plan is done.

Most Popular

Law & the Courts

Obstruction Confusions

In his Lawfare critique of one of my several columns about the purported obstruction case against President Trump, Gabriel Schoenfeld loses me — as I suspect he will lose others — when he says of himself, “I do not think I am Trump-deranged.” Gabe graciously expresses fondness for me, and the feeling is ... Read More
Politics & Policy

Students’ Anti-Gun Views

Are children innocents or are they leaders? Are teenagers fully autonomous decision-makers, or are they lumps of mental clay, still being molded by unfolding brain development? The Left seems to have a particularly hard time deciding these days. Take, for example, the high-school students from Parkland, ... Read More
PC Culture

Kill Chic

We live in a society in which gratuitous violence is the trademark of video games, movies, and popular music. Kill this, shoot that in repugnant detail becomes a race to the visual and spoken bottom. We have gone from Sam Peckinpah’s realistic portrayal of violent death to a gory ritual of metal ripping ... Read More
Elections

Romney Is a Misfit for America

Mitt’s back. The former governor of Massachusetts and occasional native son of Michigan has a new persona: Mr. Utah. He’s going to bring Utah conservatism to the whole Republican party and to the country at large. Wholesome, efficient, industrious, faithful. “Utah has a lot to teach the politicians in ... Read More
Law & the Courts

What the Second Amendment Means Today

The horrifying school massacre in Parkland, Fla., has prompted another national debate about guns. Unfortunately, it seems that these conversations are never terribly constructive — they are too often dominated by screeching extremists on both sides of the aisle and armchair pundits who offer sweeping opinions ... Read More
U.S.

Fire the FBI Chief

American government is supposed to look and sound like George Washington. What it actually looks and sounds like is Henry Hill from Goodfellas: bad suit, hand out, intoning the eternal mantra: “F*** you, pay me.” American government mostly works by interposition, standing between us, the free people at ... Read More
Film & TV

Black Panther’s Circle of Hype

The Marvel Cinematic Universe (MCU) first infantilizes its audience, then banalizes it, and, finally, controls it through marketing. This commercial strategy, geared toward adolescents of all ages, resembles the Democratic party’s political manipulation of black Americans, targeting that audience through its ... Read More