Where I have a problem with Mr. Cain is his naiveté regarding his 9-9-9 plan. Now, please don’t misconstrue my attitude because my day job is as a CPA: I have always been a strong advocate for tax reform and simplification, and I have long argued for the elimination of the Death Tax. But I do have two objections: First, I understand the tax system a lot better than Mr. Cain and a lot of his assumptions are just that – assumptions. Second, I believe that Mr. Cain does not fully appreciate what he is proposing, and his claim that we can retain the low 9% rates is just foolhardy.
There are very good points to Cain’s proposal. Taxpayers deserve to know the rates they pay, and all the gimmicks that now exist are just disgusting. A discussion about lowering our corporate rate to 9% is a lot better than a discussion to lower it to 25%. Once our Canadian neighbors reduce their corporate rate to 15%, how long do you think it will take businesses to move their operations and jobs across that border?
The tax code is immensely complicated and needs to be stripped down again (as we did in 1986). When we CPAs go to class each year to receive updates on tax changes, we typically look at each other, roll our eyes, and ask: “How do they expect us to remember all this garbage?” But even under Cain’s plan, anyone owning a business or investing in something will still have to file a complex return that shows their profit – and be subject to review by the IRS. That represents a sizeable chunk of American taxpayers; the rest already file fairly simple returns.
To me, Cain’s plan fails on two levels. First, he turns Social Security and Medicare into entitlement programs – which Democrats have been doing for years (but will not admit to). Republicans, on the other hand, want to promote more individual accountability for Social Security and Medicare recipients. Cain’s plan abandons that policy; under 9-9-9, no matter what you’ve paid in, once you reach your qualification age you receive the same payment as everyone else. No exceptions.
Second, while I prefer his plan for a (visible) national sales tax to an (invisible) value-added tax (VAT), it still stinks. Mr. Cain is delusional if he believes that, ten years after being instituted, the rate will be anywhere near 9%. In addition, I guarantee that this tax would be imposed on both services and Internet sales. Those are two areas on which most of us don’t pay state sales taxes; but, once a federal tax is imposed, the states will piggyback onto it resulting in a significant tax increase for everyone.
And if you think the IRS is evil, wait until you deal with the sales tax collectors. The new federal sales tax code may be simple today, but it will quickly blossom into a contrived hodgepodge. In California, the sales tax code and its enforcers make the IRS seem like your mother’s warm apple pie. Remember that if your business collects sales taxes, you are an agent for the state, and the burden of collection is on you and you only. You must know the law, and if you mistakenly don’t collect on something because you thought you didn’t have to, those taxes (and penalties!) come from your pocket. If you think that there’s an underground economy now, wait until we have a combined 18-20% sales tax on every one of your purchases.
Separately, I have a problem with Mr. Cain. He often compares himself to Ronald Reagan. After Reagan lost the nomination in 1976, he spent the next three years immersing himself in issues so that when he ran for President he had developed policy positions. Mr. Cain started running for President in 2000. Yet, many of his positions are ill-defined. He often cleverly acquiesces on questions he should be well–prepared to answer. He has had major stumbles of recent on issues like abortion and terrorists that are indicative of his lack of preparation. That leads one to ask what he has been doing the last 11 years.
Mr. Cain has many wonderful qualities and he will be a powerhouse for years to come in the Republican Party. He would be an excellent member of the administration, perhaps as Commerce or Treasury Secretary. But proposals like his 9-9-9 plan confirm that he is a diamond in the rough and not yet ready for the big job. He would be significantly better than the current occupant of the White House. But I think that we have better candidates and that we are best served by Mr. Cain being a leader in the next Administration.