Economics, Taxes and Spending

Nitpicking Herman Cain’s ‘9-9-9’ Plan

Tonight’s Republican presidential debate will focus on economics. And among other topics—including, hopefully, a) our banks and the EU debt crisis, and b) the continued U.S. housing depression—Herman Cain’s “9-9-9” tax plan will surely get plenty of attention.

My preference is for tax reform that makes the system simpler, flatter, and eliminates bias toward consuming over saving and investing. I’m a big fan, for instance, of the Hall-Rabushka flat consumption tax.

For his part, Cain would institute a 9 percent wage income tax, a 9 percent value-added tax for business, and a 9 percent national sales tax, aka the Fair Tax. Indeed, the end game for Cain would have the Fair Tax replacing the income and corporate VAT. This would be big, bold reform, and Cain deserves lots of credit for proposing it.

But just as big claims require big evidence, radical reforms require deep details. I would like to see conservative estimates of the 9-9-9 plan’s impact on GDP growth, government revenue, and tax distribution. Here is WaPo’s Jen Rubin on that last point:

 [Cain adviser] Rich Lowrie says it’s just “Washington thinking” to look at whether modest-income Americans will wind up shouldering much more of the tax burden. He repeatedly refused to say how much more of the tax burden would be borne by the poor and middle class than under the current system. But he implicitly acknowledged the problem by saying that the campaign would “fix this” with a new empowerment-zone plan that would be laid on top of the 9-9-9 plan and would presumably lower taxes in inner cities. But how fair is that to people living elsewhere? And aren’t we back to more complexity?

Ouch. Cain is going to have to address that issue. Indeed, I thought the way the Fair Tax dealt with the issue was like this:

All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the Fair Tax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month.

Of course, it is kind of weird for a small government advocate to push a plan that would involve cutting monthly government checks to tens of millions of Americans. Maybe that is why Lowrie didn’t mention it.

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