Posted on 09/29/2011 3:59:45 AM PDT by Cincinatus' Wife
Herman Cain’s 9-9-9 proposal — a 9 percent personal-income tax, a 9 percent corporate-income tax, and a 9 percent federal sales tax, to replace all current federal taxes — is attractive in many ways. It is not a flat tax, but it is a flattish tax; it eliminates some (but by no means all) of the divide-and-conquer features of the federal tax code; it simplifies taxes for most households and many businesses; it might reduce compliance costs. All to the good.
A few things should be understood about the 9-9-9 plan. The first is that 9-9-9 is not Herman Cain’s real fiscal plan. He proposes 9-9-9 as an intermediate step en route to his preferred solution, the so-called Fair Tax, about which I have some serious reservations, along the lines of those spelled out by Ramesh Ponnuru here. In fact, Mr. Cain proposes an unwieldy and unnecessarily complex multistep program on the way to the Fair Tax, 9-9-9 being Phase 1, Part 2 (“Phase 1 Enhanced,” in his words). Getting Phase 1, Part 1 would be difficult enough, and the program is marked by Mr. Cain’s most distressing hallmark: wishful thinking that borders on fantasy. How is he going to get to Phase 2, the Fair Tax, a radical restructuring of U.S. public finances that invites not only fiscal questions but constitutional ones as well? “Amidst a backdrop of the economic boom created by the Phase 1 Enhanced Plan,” Mr. Cain writes, “I will begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax.” May I propose a Williamson’s Rule of Politics? Here it is: “Any plan that includes the words ‘educating the American people’ will fail.” Mr. Cain’s proposals are always bolstered by that economic boom he sees just around the corner, but he never is able to answer the question: What if the boom fails to show up on schedule? What then? And that is one important reason Herman Cain should not be the Republican nominee. (Based on my single encounter with Mr. Cain, at a meeting with National Review’s editors, I would have hesitated to hire him to run a pizza company, much less the country.)
But let’s take a look at 9-9-9 on its own merits. Mr. Cain says the proposal would be revenue-neutral. I have my doubts. The federal government took in about $2.2 trillion last year. Based on personal-income and business-income figures from the IRS, and consumer-spending figures from the Gallup survey, my English-major math suggests that a 9 percent tax on all of the above produces about $1.7 trillion in revenue, meaning that 2010’s $1.7 trillion deficit would have been more like a $2.2 trillion deficit — from calamity to catastrophe. If Mr. Cain’s team is building in some growth assumptions into the fiscal forecasts, they must be sunny indeed.
In any event, Mr. Cain has not spelled out in any detail a spending proposal that would allow the federal government to get by on $2.2 trillion, much less on $1.7 trillion. If the Tea Party stands for anything, it stands for smaller government, meaning lower spending. And yet the allure of magical thinking on taxes is so powerful that the tea-party favorite has given a great deal more detail about his tax proposals, with actual figures and everything, than he has about his spending proposals, which remain remarkably vague: Spending must be “reviewed with a keen eye and a red pen,” he says. Well, gee willikers, why didn’t I think of that. (Other than his pie-in-the-sky growth assumptions, my least favorite thing about Herman Cain is that his response to every challenge is to appoint a committee of smart guys to do the right thing. He seems incapable of appreciating the fact that moral failing is not the only reason Washington fails to do the right thing.) As I have argued before, the real danger of tax-cuts-and-growth utopianism is that it draws attention away from spending cuts, which is where the real action is needed. Mr. Cain is nibbling at that bait.
The 9-9-9 proposal also creates some perverse incentives. With business income taxed at 9.0 percent while dividends and capital gains are taxed at 0.0 percent, there is an excellent reason to pay out something approaching 100 percent of business income as dividends, or to hide it by “reinvesting” it in the business. I like dividends and am sympathetic to the case for giving them preferential tax treatment — a company that concentrates on paying a high dividend rather than on raising its share price probably is a better-behaved company, in most cases — but it is always and everywhere true that if government creates a tax shelter it will be exploited to maximum effect.
What about that national sales tax? Though I remain hesitant about imposing a federal sales tax, on both Burkean and prudential grounds, Andrew Stuttaford and others have argued persuasively that income shouldn’t carry the entire tax burden, and that consumption has to carry a piece, too. I can live with that. But Fair Tax enthusiasts ought to be ready to deal with the emergence of a very large black market in untaxed consumer goods — a 30 percent sales tax will ensure that. You may get to abolish the IRS, but the sales-tax enforcers might prove just as expensive and intrusive.
Which is to say: There is no easy way out of this mess. Cain’s 9-9-9 program and the Fair Tax might very well constitute improvements on the status quo, but neither is a substitute for comprehensive entitlement reform and deep cuts in discretionary spending, the sine qua non of serious fiscal-reform efforts.
“I’ll take Herman Cain’s 9-9-9 plan more seriously as soon as he explains what he will cut to eliminate the $1.7 trillion to $2.2 trillion deficit that it will generate.”
Could you please explain this?
Do you assume that spending will continue at the present rate or will increase on a baseline basis as it has been doing for years?
I’m curious, not not accusatory. It’s a bald, unsubstantiated statement. Please provide details.
It’s good that you are considering potential abuses with any new tax.
But you’re ignoring where we are on income taxes. We’re almost to the point that more than half of the population will pay NO income tax.
When we get to the point that more than half of the voters pay no income tax, then they will vote for anyone who wants more spending.
Cain does need to advertise his short term spending plans better, but getting more people to participate in the pains of paying taxes (thru a flat tax or a sales tax) is the best way to reduce spending in the long term.
I think the Federal government needs to get completely out of the “income” tax game. To tempting to play the winners and losers game. The income tax needs to be repealed PERIOD. Until that happens the socialists will always have the upper hand.
ML/NJ
B I N G O!!!!!!!!!!!!!!!!!!!!!!!!
One of the keystones of taxing in general!
Never add without subtracting somewhere else.
And, as the article states, all 999 does is confuse the issue
which is... CUT SPENDING.
The 2011 federal spending is $3.82 trillion dollars. Earlier in the week the Washington Times, no liberal paper, had a op-ed that estimated that Cain's plan would bring in about $1.77 trillion in revenue at the beginning and rising to about $2.2 trillion as the economy improves. So no, I can't see how government spending can continue at the present rate under Cain's scheme, or any other tax proposal that are being floated out there. And before I take his proposal seriously I would like to know just how he plans to bring finances back into balance. As it stands now, you could eliminate every dollar of discretionary spending - which includes the entire defense budget - and you would still have close to a trillion dollar deficit in the first year or two of Cain's plan.
Basically, it's easy to toss out crap schemes that sound great so long as you aren't faced with answering any questions on the repercussions. But that isn't leadership. It isn't even smart.
Are you OK with a 20% federal income tax combined with a 20% federal sales tax combined with a 20% corporate tax (to be pushed down to the consumer as always)?
That’s where the thieves will increment all taxes to in only a few years.
And no, you can’t build a cap into those taxes in the legislation. The thieves will simply repeal that part of the law in another law.
I’m not ignoring that, I talked about it in post #10. That’s why I like replacing all other taxes with a sales tax in a single bill.
As for waiting for an amendment, that’s really an excuse for Congress to pass the buck. They pass said amendment, then it goes to the states, where 50 legislatures fight over it. Meanwhile Congress can go about business as usual, and say “Hey, it’s not our fault, we’re waiting for the States to act”. I think once it’s abolished public pressure would prevent them from passing a whole new income tax bill.
You see what one good poll result will do? Nobody said a word about Herman Cain before except that he is Black and sold pizza. Now he is a target. This brings us back to my point that who the next Republican president is (and it will be a Republican)will really not be important because the TEA party Congress will control the agenda, not the White House. Welcome to the top tier Herman.
No, we MUST have an amendment that forbids congress from enacting both. Otherwise, they’ll repeal the income tax, implement the sales tax and later they’ll say that the “crisis” is so dire they need the income tax...oh, oh, oh, just for TWO years and then it sunsets, we promise! And then two years later...well, you know the drill.
You have to think of politicians as crack addicts. And you have to limit and restrict them accordingly.
Won’t a federal sales tax increase the underground economy with people going underground to avoid the tax?
I think we need a flatter income tax, where pretty much everyone pays at least something and loopholes are closed. But any consumption tax seems to be bad for the economy.
I love a lot of things about Cain, but not 999.
The problem isn't the Fair Tax in theory, it is the fair tax in implementation. What happens as that tax creeps up?
Bingo!
[Adding a sales tax without repealing the income tax at the same time means you will never get rid of either one.]
And the only real way to do that is by Contitutional ammendment. Ain’t gonna happen
Baloney. Find a way to tax the 49% who pay no income taxes now. Broaden the tax base so that everyone feels the pain, and they'll think twice before asking for more government goodies. Once the scale tips so that 50+% pay no taxes, they will vote themselves endless goodies at the expense of the few remaining tax-paying folks forever.
Nonew taxes is a mindless mantra. Broaden the tax base - I am glad to say it.
See #28.
Please forgive my lack of knowledge on the tax issue, but it has interested me more and more of late.
In your opinions and experience, what is the possibility of the elimination of all income taxes for citizens and have all government taxes be realized through sales or usage tax?
EVERYONE, regardless of socioeconomic status, must buy products and services. This way, EVERYONE pays something, no filing of personal income taxes, and greatly reduces the size of the IRS. No one who doesn’t work should get a tax refund but that happens every year.
I firmly believe you should keep everything you earn on your paycheck and YOU should decide what comes out of it.
Agreed. Cain deserves some credit for his willingness to go out on a limb and start a real discussion. No other candidate has shown the guts to do so.
I am 100% behind Cain. I like his boldness and the fact that he has a plan. I get it but I do agree there are some questions that need to be answered.
I also understand that he needs Congress to buy in. It might not happen but it gets the conversation started and a world with drastically lower corporate taxes, no capital gains taxes and significantly lower costs of compliance is a good thing.
What we can’t afford is more of the same. The social engineering through the tax code has to go. I’m not in love with the “empowerment zones” concept but there are areas that desperately need revitalizing, particularly in a post-Zero world and they aren’t all minority areas.
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