Wednesday, October 19, 2011

Nein! - Nein! - Nein!

I must say I was disheartened by the idiotic attacks on Herman Cain’s 9-9-9 tax plan last night in Las Vegas.  It’s one thing to find legitimate issues with Cain’s plan, (and they're there) but it’s another to invent fantasy issues in a lame attempt to ding a front-runner.
As for Herman Cain’s sales skills in defending his plan:  his responses showed he is no Mitt Romney!

I like 9-9-9.  It may be just a tax plan, but it’s a darn good one and it’s not what the naysayers made it out to be last night.  It’s bad enough Herman Cain’s got Barack Obama spewing misinformation about his plan, the last thing he needs is a GOP circular firing squad aiming at him.  

Once again:
9-9-9 is not a VAT.  A retail sales tax is not a VAT.  Many states have retail sales taxes but none has a VAT.  Herman Cain needs to be able to nail this charge in as many words and then stop talking.  This is what a VAT looks like.  See update below.

9-9-9 will not give New Hampshire a state sales tax.  This is just stupid.  Herman’s “apples and oranges” explanation was adequate but he needs to slay this ridiculous charge with a sniper bullet to the forehead:  Texas has no income tax and the federal income tax doesn’t change that.  The same logic applies to sales taxes in NH or any other state.  Period. 

9-9-9 will not increase tax rates on the poor.  Cain really needs to be able to nail this and I’ve heard him almost do it.  He knows pizza, right?  All he needs to say is this: 

“I know pizza.   A $10.00 pizza has about $1.00 of embedded stealth corporate taxes built-in.  The guy who grows the wheat pays a 35% corporate income tax, as does the tomato grower, all the processors, the delivery companies, and the restaurant.  75% of that goes away with a 9% flat business tax and in it’s place is a transparent 9% retail sales tax on a now $9.25 pizza.  Total price:  still about $10.00.”    

Cain calls the stealth taxes issue “sneak-a-tax” and I like that.  In fact, I think stealth taxes are at the root of all tax evils today.

The 9-9-9 sales tax will never result in an ever increasing rate.  Why?  Because it is not a stealth tax.  Only stealth taxes go up inexorably and quietly.  Transparent taxes that hit everyone cannot go up indefinitely lest voters fall asleep.  This one is a slam dunk.  

There are legit reasons to refute Cain’s plan and I think Newt Gingrich nailed it when Anderson Cooper asked him why it was such a hard sell:  “You just watched it” said Newt after watching the Republican field throw clueless flak in Cain’s face.  Revolutions are tricky to sell.  Even good ones take time, and time is in short supply. 

There is a huge industry built around our current tax code and it includes every elected officeholder in Washington.  Cain touched on this last night and it will make changing the tax code next-to impossible.  In today’s Wall Street Journal, Art Laffer, perhaps the most respected voice on tax policy today, writes a full-throated endorsement of Cain’s 9-9-9 plan and disputes the notion that it would be next-to impossible to pass.  As proof he cites Reagan’s success in getting Kemp-Roth passed in the senate with a 97-3 vote.  What he omits is the fact that Reagan had just been shot!  I seriously doubt that vote would have looked anything like that without the “Win One for the Gipper” vibe.  

There are great reasons to like Cain’s 9-9-9 plan:  It eliminates stealth taxes and puts everything right in front of voters for them to see.  The low marginal rates of 9-9-9 will generate huge growth in revenue as per the Laffer-Curve.  The 9% sales tax will finally tax the underground economy at the federal level.   It is exponentially simpler than what we have.  (Unfortunately, when discussing it relative to today’s monstrosity, the complexity of the current system makes comparisons…complex.  A frustrating Catch-22.)

The only thing 9-9-9 needs is a master salesman and 65 votes in the senate (for insurance!).  Short of that, some miracle boost like Kemp-Roth got.  That’s not too much to ask for, is it? 

Update:  Apparently, some are claiming the 9% business tax is akin to a VAT, not the sales tax part.  (see WSJ Letters 10/25/11) That is because it applies not just to profits but to payroll as well.  This is a good point and one I missed, however it still is not a VAT but rather a combined payroll tax and business income tax.   By the logic of those claiming it is a VAT, we already have a VAT in the payroll taxes for Medicare and Social Security that total over thirteen percent of payroll currently!  This is nonsense.  

A business earning ten percent profits with a payroll running twenty percent will pay about  three percent under Cain's plan verses six percent under current tax law as a percent of gross receipts.  That is a fifty percent improvement versus current law!  Still a stealth tax, but a smaller one by half and certainly not a Value-Added-Tax.  I'd rather see all stealth taxes gone and every cent paid by voters, but no politician is currently recommending that.   


  1. Illuminating as always. When will my pizza get here?

  2. My issue with the 9 9 9 is the implementation of a NEW national taxing regime (sales tax). $$$ is cocaine to politicians. They will constantly up the tax rates after the tax has been implemented. I want LESS ways to collect taxes not MORE. Love your stuff on youtube. 1st time I clicked your site. Gunna look around.