Cain's 9-9-9 Plan Sounds Good, But Will It Work?

Byron York

10/3/2011 12:07:00 PM - Byron York

Herman Cain's supporters know their part by heart. On the campaign trail, at the point in Cain's stump speech when he begins to discuss his plan for economic growth, they're always ready to join the chorus: "Nine! Nine! Nine!"

They're referring, of course, to the Republican presidential candidate's proposal to throw out today's tax structure and replace it with a 9 percent income tax, a 9 percent business tax and a 9 percent national sales tax. Cain would eliminate capital gains taxes, the payroll tax and the estate tax.

For Cain, a Georgia businessman, 9-9-9 is a perfect platform. It's specific, but it doesn't bury people in details, like Mitt Romney's 59-point, 160-page plan. And it's not a vague promise like Rick Perry's look-what-I-did-in-Texas position. To a lot of voters, 9-9-9 is an enormously appealing proposal that is easy to grasp.

It's audacious, too.

"I had a kind of pivotal moment in this," says Rich Lowrie, the head of an investment firm in Cleveland who serves as Cain's top economic adviser. "I was with Mr. Cain and I asked him, 'How bold do you want to be?' and he leaned toward me with his big, booming voice and said, 'BOLD.'"

So bold it was. But is 9-9-9, for all its boldness, a good idea?

I talked with a number of conservative economic policy experts who don't want to take sides in the campaign and thus asked to remain anonymous. They found some important things to like in 9-9-9. They favor its low rates, and they like its elimination of various types of double taxation. Most agree it would stimulate growth and create jobs, at least in the short run.

But they have two serious objections. The first is that 9-9-9 might not raise enough money to fund the government even if it creates growth and federal spending is reduced. Over the years, the government has taken in tax revenues equal to about 18 percent of gross domestic product. "I'd be surprised if 9-9-9 raises as much money as current policy," says one expert. "I'd be really surprised if it raises 18 percent of GDP."

Cain's advisers have put together a detailed analysis, or score, to argue that 9-9-9 would be "revenue neutral," that is, it would raise the same amount as today's system. "We used 2008 as our baseline, and not accounting for any growth effect, it would have generated to the penny the same revenue," says Lowrie. So far, though, the numbers have not been crunched by many experts outside the campaign.

The second objection is that 9-9-9 would add a national sales tax on top of current income and business taxes, and would thus give Congress another tax to raise. Why couldn't 9-9-9 become 12-12-12? Or 15-15-15? The rates would still seem fairly low. "In the long run it leaves the door open for politicians with the wrong motives to push it upwards, and then we're stuck with something worse than what we had before," says a second expert.

"All taxes over time tend to rise to their highest sustainable point," says a third expert. "So one of the general things you don't want to do, if you're concerned about limiting the size of government, is to introduce a whole new type of tax on top of the current structure."

Lowrie rejects the argument. First, he points out that 9-9-9 would eliminate some major taxes, like the payroll tax. As for the sales tax, he argues that some politicians will always want to raise taxes, and "I don't think they would be any more likely to raise this." Finally, he believes that citizens' movements like the tea party will keep up the pressure against tax increases. Still, the fact remains that under 9-9-9, there would be a new tax on top of existing taxes.

Recently Cain's team came to Washington to explain the plan to conservative economic analysts at Americans for Tax Reform, Club for Growth and other institutions. Those experts are starting from scratch; they haven't really seen anything like Cain's plan before. And for all the problems they have with it -- they're also flummoxed by Cain's inclusion of "empowerment zones" for inner cities -- they still admire Cain for trying to find a new solution to today's problems.

"It's not an entirely coherent set of proposals," says a fourth expert. "I do worry about the end game. But I hate to rain on it because there's no perfect tax system in the world, and this is another person stirring the tax reform debate, and that's a good debate to have."