The Numbers of Cain

Donald Lambro

10/14/2011 1:08:00 PM - Donald Lambro

WASHINGTON - At a time when the American left is beating its war drums to raise taxes on "the rich", Herman Cain wants to slash their income tax rates to 9 percent.

Cain, who's had a successful career in business, and makes his living as a talk show host, inspirational speaker and author, is running for president of the United States on a flat tax platform that would wipe out the entire tax code and replace it with what he calls his 9-9-9 tax plan.

That plan would replace the monstrously complicated, inefficient and unfair tax code with a flat tax on Americans no matter what you earn. That would mean a flat 9 percent income tax and a flat 9 percent corporate-business tax. At present the top tax rate on the highest income earners and largest corporations is 35 percent.

For many Americans that sounds too good to be true because they're paying a much higher percentage now under our progressive tax system. And that may be part of the reason why Cain is surging ahead in the polls for the Republican presidential nomination. In one poll this week, he has moved ahead of frontrunner Mitt Romney.

But wait a minute, Cain would also add a third 9 to the federal revenue code that's never been there before: a fat nine percent national sales tax on everything you buy, from bread to milk to breakfast cereal.

That's right, a nationwide sales tax collected by the money-hungry, big government bureaucrats in Washington on top of all the state sales taxes that most of our citizens pay now. Of the 50 states, only four do not levy a sales tax: New Hampshire, Delaware, Montana and Alaska. But all the others do and they are whoppers. In California it's 8.25 percent; Illinois, 6.25; Connecticut, 6.35; Indiana, 7; Minnesota, 6.87; and Mississippi, the poorest state, 7.

These states are not going to bow down to the federal behemoth, even under President Cain, and eliminate their state sales taxes in deference to the federal government. If anything, some, if not many, may raise their sales taxes further to deal with a growing mountain of debt they now face in the Obama economy.

And if Cain's 9 percent sales tax were implemented, what's to prevent future Congresses from raising the 9 percent rate to 10, 11, 12 or higher. He says he would make sure that any tax increase would require a hard-to- muster super-majority, though that idea has been pushed before and has never gotten anywhere. Presidents have little if any influence on the legislative branches rules.

The bottom line is that Herman Cain's 9 percent sales tax would open up a new source of addictive revenue for the feds that, once enacted, would tax us forever.

Cain's overall idea of replacing the present code with a simple, fair, flat tax is an appealing idea that conservative tax reformers have long championed but with no success. It is bold, as he says, and a low flat tax rate would lead to an explosion of economic growth.

But the idea of a progressive tax system, where those in the top income brackets pay a higher tax than those in the lower brackets, is embedded in our social and fiscal DNA fabric, at least for the foreseeable future.

At the same time, there is no way that this Congress, or even one ruled by Republicans, is going to abolish some of the holy grails of exemptions, like the home mortgage interest deduction, as Cain proposes to do to presumably make his plan revenue neutral.

What is achievable, even in the dysfunctional Congress we have now, is making the tax code simpler and flatter by getting rid of other special interest tax breaks, loopholes and deductions for corporations and individual taxpayers that would allow us to lower the tax rates across-the-board.

We've done it in the past, most notably in the bipartisan reforms of 1986 under Ronald Reagan who lowered the top rate to 28 percent. He did it with the help of the former House Democratic Leader Richard Gephardt and former New Jersey Sen. Bill Bradley, both of whom championed lowering the tax rates along with the late Rep. Jack Kemp of New York.

In the Age of Obama, which is now nearing the fourth year of trillion dollar plus budget deficits, the Democrats say the only way out of this fiscal mess is to raise taxes on investors, businesses and all upper income Americans.

This week, Obama's plan to do just that couldn't attract the 60 votes needed to make it the pending business. Two Democrats voted no, while others expressed opposition to raising taxes in a recession, though voted with their party in a procedural vote but not on the merits of a plan they disliked.

Herman Cain isn't going to be the nominee of the GOP for two fundamental reasons. He doesn't have a ground organization needed to wage a campaign in the primaries. And it's hard to see anti-tax Republicans rallying around a flat tax plan that calls for a new 9 percent federal sales tax on top of all the other sales taxes we pay.

Democrats think they can win this tax battle by playing the class warfare game by making millionaires their poster boys for higher incometaxes. The Congressional Research Service put out a study this week that said one-fourth of all millionaires in this country paid as little as 24 percent on their income.

But the reason they may pay at a lower rate than many middle-income Americans is that most of their income comes from dividends and capital gains on stocks or other securities which are taxed at 15 percent. Obama wants to raise that tax, too, which would cripple capital investment.

Romney, whose economic plan would cut the business income tax and keep all the Bush tax rates in place, would eliminate the capital gain and dividend tax rate on incomes over $200,000 a year and keep it at 15 for higher earners.

In the years ahead, more middle income retirees will be living on interest, dividends and capital gains from their retirement savings and he thinks that shouldn't be taxed at all. They already paid taxes on it when they earned that money in the first place.