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Would Cain’s 999 Have Beeen A Good Thing?

October 16th, 2011 | Author: Michael Redbourn

Herman Cain is the only GOP presidential candidate that wants to do it, and he’s rising super fast in the opinion polls!

The 999 Plan Isn’t Perfect

But like they say,

"Good should never be the enemy of the perfect" – Voltaire

and Rep. Paul Ryan just gave the plan a thumbs-up!

Art Laffer agrees and says,

"It would be far, far better than the current system".

*Arthur Betz Laffer is an American economist who first gained prominence during the Reagan administration as a member of Reagan’s Economic Policy Advisory Board (1981–1989).

And Chris Chocola, the president of the free-market Club for Growth, calls it,

"A truly revolutionary tax reform that would amount to a massive job-creating tax cut on investments, savings and income".

What Is Cain’s 999 Plan?

A 9% income-tax rate.

A 9% value-added net sales tax rate on business.

And a 9% national sales tax overall.

The sales tax part has come under attack from both sides of the political spectrum with many conservatives worrying that it will start at 9% and gradually get raised, whilst a good number of Liberals oppose it because they say its regressivity will hurt middle- and low-income people.

* A regressive tax imposes a greater burden, relative to resources, on the poor than on the rich because there is an inverse relationship between the tax rate and the taxpayer’s ability to pay as measured by assets, consumption, or income.

Cain’s Rebuttal Of Sales Tax Criticism

Everybody below the poverty line will be exempt from the sales-tax and the sales of existing goods will be exempt.

The sales tax will pick up revenue and help to lower the rate for everybody, especially the middle class.

And Cain’s economic adviser, Rich Lowrie says that.

"The sales tax is a replacement tax, not an add-on tax like you’d find at the state level. This is a key point. All we are doing is pulling out taxes that are invisible. We’re cutting the rates. We’re putting them back in at lower rates".

Lowrie is referring to the payroll tax, which in the Cain plan will go from 15% to 9% which constitutes a net tax cut and a good deal more transparency regarding costs and prices that are embedded in the current code.

"The 9-9-9 plan will add $2 trillion to U.S. gross domestic product, create 6 million jobs, increase business investment by a third and lift wages by 10%. And if you fold all that growth together, federal revenues go up by 15%", said Lowrie,

Would It Work?

Such a gigantic drop in marginal tax rates for individuals, 35 to 9%, or to 18% including the sales tax, and for businesses also from 35 to 9% would supply an incredibly strong economy-wide growth incentive, and if you’re looking for proof, then you need go no further than the Harding-Coolidge-Mellon tax cuts of the 1920s, the John F. Kennedy tax cuts of the 1960s and the Ronald Reagan tax cuts of the 1980s.

Remember, too, that the Cain tax plan would eliminate the double-tax on saving and investment by removing capital gains, estates and dividends from the tax code.

Given the current economic malaise, which in large part can be traced to the weakened balance sheets and net worths of families suffering from the multi-year slump in stock prices and home values, increasing returns to saving and investment through a much lower marginal tax rate should boost asset values, and might be just what the doctor ordered.

As for businesses, not only would they get a globally super-competitive 9% tax rate, but they’d receive 100% expenses for new purchases of capital equipment.

Gary and Aldona Robbins who once worked at the treasury priced out the Cain plan on a static basis and discovered it to be revenue neutral.

And the models suggests a $26 trillion tax base yielding $2.3 trillion in revenue for a 9.1% overall rate.

No Federal Or State Tax But Just A Sales Tax

I’ve personally yet to have anybody to explain to me why simply having a sales tax instead of ALL the other taxes wouldn’t be fairer.

The rich would spend more than the poor and therefore pay more tax, and what could be simpler than that?!

Tax preparers understandably hate the idea of course because simply having just a sales tax would put around 100,000 out of work.