Herman Cain Defends The 999 Plan

Presidential candidate Herman Cain penned a feisty response to criticisms of his 999 Plan over the weekend.  As luck would have it, there are exactly nine criticisms of this plan.  What are the odds?

Cain makes a very cogent point right off the bat:

Do you know why candidates for office tend to be reluctant to propose detailed plans? Because they know the plans will be flyspecked and picked apart by just about everyone. Inviting criticism doesn’t help you to get votes.

But fear of criticism prevents you from conceiving solutions to problems. So even if avoidance of criticism helps in propelling you to an election victory, how are you supposed to effectively govern? How are you supposed to fix the problems you told everyone you were going to fix?

There’s a world of difference between describing a problem and proposing a solution.  Cain returns to this theme when he addresses “Claim 9: It won’t pass.”

Politicians propose things that can pass. Problem-solvers propose things that can work. One of the worst instincts of Washington types is to judge an idea not on its substantive merits, but on their perception of its political viability. I do not underestimate the challenge of getting any good idea through Congress, but I have said all along that if you propose a good idea, and the people understand the idea, they will pressure Congress to pass it.

I can scarcely imagine the degree of public pressure that could convince Congress to surrender the amount of social-engineering power it derives from the current tax code, with its endless recursive maze of special rates and exemptions.  Cain’s giving the best answer he possibly could, but I’d have to say Claim 9 is not quite “refuted.”

The rest of Cain’s article is somewhat disfigured by his title, which states that he is responding to “9 False Attacks On the 9-9-9 Plan.”  It is possible to refute criticism without declaring it a “false” attack.  For example, Slice Of Baloney Number 1 claims “The 9 percent sales tax, which is one third of the formula, is regressive and hurts the poor, many of whom pay no federal income taxes now.”  Cain’s response disputes this assertion without proving it transparently “false.”

This claim ignores some important aspects of the plan. One is that we eliminate the 15 percent payroll tax, which allows for no deductions at all – not even for charitable contributions. Some critics have argued that the poor still come out behind because employers pay much of the payroll tax. That demonstrates a basic misunderstanding about how compensation works in the business world. An employer decides to accept a certain cost-of-employment for each employee, and the employer’s share of the payroll tax is part of that cost. It comes out of your compensation whether you realize it or not. 

(Emphases mine.)  What he’s suggesting here is that cutting that payroll tax from 15% to 9% will produce a surge of take-home pay, largely offsetting the extra money the poor will have to pony up through the 9% national sales tax.  This assumes employers would hand their share of the reduced payroll tax over to employees.  Doubtless many of them would… but Cain has no way of guaranteeing that all of them would.

Further, the payroll tax cut doesn’t do much for people who aren’t collecting paychecks.  Whatever weight you place upon the tax liability of welfare dependents, you can’t really say that Cain has conclusively disproven the claim they would be “hurt” by the 9% sales tax.  He goes on to promise that “the best way to help the poor is by spurring economic growth, which the current tax code will never do.”  That’s a powerful and intriguing point, but it’s an argument against the level of injury that 9% sales tax will inflict on the poor, not a debunking of a “false” claim.

Likewise, Cain “shatters” False Claim Number 2, that his plan adds a new sales tax which politicians could raise through the roof later on, by saying “If you don’t want the rates raised, don’t elect politicians who will raise them.”  Excellent advice, but not exactly an ironclad guarantee that future generations won’t be living under the 18-36-12 Plan.

“By taking away the politicians’ gateway drug of loopholes and deductions,” writes Cain, “we make it much more difficult for them to mess with the tax code. Having said that, any plan could be criticized for what it would look like if someone messed it up. The plan as I’m proposing it is a huge improvement over the status quo.”  I wonder if the tax-raising fears of 999 critics might be addressed by including a provision that the three rates must always remain the same – no tacking 2% onto the income tax or jacking the sales tax up by 3%.  That would turn the transparency of the 999 Plan into a nearly irresistible weapon against tax increases.

Cain is eager to do battle with the assertion that his corporate tax is a species of VAT that would punitively tax labor, noting that “we are reducing the corporate tax rate from 35 percent to 9 percent, so the tradeoff is a much lower rate paid on more of a company’s income.”  He probably won’t have much trouble lining up some businessmen eager to take that deal, especially since he’s eliminating the “double tax” on capital investment by businesses and individuals.

He disputes the assertion that his system wouldn’t generate enough revenue to replace the current tax system, offering his own report and methodology to the contrary.  That always seemed like a strange criticism anyway, given that it usually dings the 999 Plan for generating a few hundred billion less than the current system.  If Cain’s plan generates $2 trillion in revenue, and that was more than enough to cover Bill Clinton’s spending, what’s the beef?

Although he doesn’t get into this during his latest piece, I’d suggest Cain point out the unfairness of scoring the 999 Plan’s revenue using static models.  Static analysis is basically a straitjacket for government reform, because it always under-estimates the negative economic effect of higher taxes and government spending, while drastically over-estimating the revenue lost from tax cuts.  Cain’s plan would produce a significant amount of GDP growth, which would flow through reduced tax rates to produce greater net revenue than static analysis anticipates.

One important concern Cain does not address is the fear that not only will his national sales tax give Big Government a new taxpayer vein to tap, but it will also expand the authority of the federal government in a dangerous direction.  Much of the struggle against taxing the Internet revolves around the absence of an appropriate taxing authority for long-distance sales, where the seller has no physical presence in the consumer’s state.  A national sales tax would dramatically expand the government’s legal authority to interfere in all commerce.  The restrictions against that authority were already looking pretty shaky.  It’s a detail that has quite a few devils lurking in it.

Herman Cain’s 999 Plan is a bold re-thinking of the tax structure, challenging the belief that tax rates can be raised without limit, but the pool of taxpayers can never be increased.  The process of demanding that a smaller portion of the electorate pay a rising percentage of taxes is supposed to be irreversible.  The “everyone must pay their fair share” rhetoric of the Left is a perfect inversion of what they actually believe – they want a large constituency of people who pay nothing (or, more accurately, who pay no visible taxes) while a shrinking group of taxpayers is subjected to escalating demands it can never vote down.  Increasing the percentage of the American population that lives in no-tax poverty is a feature of “progressivism,” not a bug.  Not everyone on the Left will regard the inevitable, horrific crash of that collapsing system as a bug, either.

Reversing the grim momentum of progressive history is a monumental task.  Cain is brave for taking it on, and his 999 Plan is an interesting tool for the job.  Interest in that plan has boosted his popularity, and launched a great national discussion.  He should welcome any chance to address his critics without dismissing them.