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9-9-9: Does the Math Work?

Prior to the Dartmouth debate in Hanover, New Hampshire, I wondered if many conservatives might develop significant skepticism about Herman Cain's signature tax plan once a clearer picture of its details began to emerge.  Those specifics have started to materialize.  Will they dampen Republican voters' enthusiasm about the party's freshly-minted frontrunner?  Let's examine some of the criticisms of 9-9-9:


First Read: The non-partisan Tax Policy Center is readying a report on Cain’s plan, though it is waiting for more details from the campaign. But it has come to some conclusions already.  Cain’s plan "cuts taxes for the rich and raises taxes on the poor,” Roberton Williams, a senior fellow at the center, tells First Read. He added that it would create a "much more regressive tax system.”  The plan would represent a “major tax cut” for the rich and raise taxes “substantially” on the poor and middle class, Williams said. "Given that a big chunk doesn’t pay any income tax, this would be a big tax increase on people at bottom end. At the top end, the opposite happens."

ABC News: A much longer list of economists say Cain’s plan would be a tax hike for the lower middle class and a tax windfall for the wealthy.  If you have a family of four with an income of just under $50,000, they could end up paying more under the Cain plan. Currently, they are taxed around $3,850 in income tax. Under Cain’s plan, they would be taxed at 9 percent or pay $4,500. That’s $650 more.  Although the family would save almost $4,000 in Social Security taxes, it would have to give up the child tax credit worth the same amount. Furthermore, it would pay an additional national sales tax of 9 percent on everything purchased, including groceries and clothes, which totals about $2,000.  That means under the Cain plan that family could end up paying $2,725 more.

AEI: Most media reports, taking the lead from Cain’s own terminology, continue to describe it as a business or corporate tax or even as a tax on corporate profits. Yet, the tax is actually a value added tax (VAT), a fact confirmed by the economic analysis circulated by Cain’s campaign.  A VAT and a retail sales tax are conceptually equivalent consumption taxes, apart from administrative and compliance issues. The plan is therefore better described as featuring a 9 percent income tax and an 18 percent consumption tax, with half of the latter collected using the VAT methodology and the other half collected using the retail sales tax methodology....[999] would also cause a massive shift in tax liabilities towards moderate-income households, a disturbing outcome and one that is likely to make the plan politically unviable.

Gary Bauer: Rick Santorum and Michele Bachmann both pointed out the most obvious concern many have with Cain’s plan: It gives the government another revenue stream. While many conservatives like the idea of a national sales tax, they want it to replace the income tax. While Cain is calling for a radically reduced tax structure, it is undeniable that he is also calling for a new tax on top of the income tax. Moreover, seniors and retirees on fixed incomes are not too keen about paying a new tax on food and medicine either.

Conservative economist Josh Barro: "The plan reads like it was written on the back of a napkin."


The Washington Post's in-house conservative blogger, Jennifer Rubin, reviews the evidence, reaches a fairly harsh conclusion, and proffers a piece of advice for Team Cain:

In either case, it’s painfully clear that Cain’s plan and the adviser who came up with it have glaring flaws. The more Cain persists in denying factual matters, the more this becomes not only a policy problem but a character problem. Is this how he would govern? Is he someone who can learn from mistakes? Will he refuse to listen to valid criticism? Does he know what he is doing?

Here’s a simple suggestion for Cain: In the next debate, explain that 9-9-9 was meant to start a robust discussion about tax reform. It’s open to review and refinement. He should announce a new team of advisers, including some of the economists who have criticized the plan.When he gets elected, he should explain, the finalized plan will not be regressive, but it will be pro-growth. And he should promise to look again at the introduction of a new revenue stream for the federal government.  Sure, that’s going to be sort of embarrassing. But the alternative is to deny reality and lose credibility with voters. We already have a president who’s made that mistake.

Perhaps more than anyone else in the GOP field, Herman Cain is a dynamic, likeable, and committed conservative.  His race to the front of the pack has been very exciting to witness.  But as I've written before, he is not above tough inquiry or criticism.  The 2012 election has sky-high stakes for this country.  We cannot afford -- fiscally, and otherwise -- four more years of this president.  Team Obama is raising mountains of cash, which will be deployed to obfuscate and deflect from the president's myriad failures, and to utterly destroy the Republican nominee.  Whomever the nominee may be, he or she must be thoroughly vetted and prepared to win an epic, dirty battle next year.  Herman Cain may end up being that guy.  If he is, he must be capable of launching a luent, airtight defense of his central domestic policy proposal.  How would he answer these questions:  How will introducing a national sales tax -- without eliminating the income tax -- lower Americans' tax burdens across the board?  How does he intend to implement or enforce his promised 2/3 majority threshold for raising any of 9-9-9's rates?  How, specifically, does he respond to multiple tax experts' conclusions that 9-9-9 is a regressive plan, which will raise taxes on the middle class and the working poor?  If the conservative standard is, "let's not raise anyone's taxes," shouldn't that principle apply to the non-rich?  How, precisely, is this plan revenue neutral?  And aside from a non-economist in Ohio, what policy experts helped craft the plan?


The appeal of 9-9-9 is pretty straightforward:  It scraps today's byzantine tax code, which is packed with loopholes, exemptions, and corporate welfare  -- and is very costly to comply with.  Cain's proposal at least makes a bold attempt at (badly needed) root-and-branch reform.  Sadly, fundamental reform is often challenged by fear-mongering and demagoguery.  To be an effective reformer, you must have courage -- which Cain has coming out of his ears -- as well as a deep understanding of the subject matter.  See: Paul Ryan  (also, check out this element of the latest NBC/WSJ poll).  This allows potential reformers to answer every challenge in an understandable and persuasive way, based on empirical data.  I don't think it's unfair to say that Herman Cain has not even come close to achieving this standard in defending and selling his tax plan.  Many conservative economists and experts remain unconvinced of its wisdom, and they're generally pre-disposed to liking and agreeing with its author's intentions and premises.  Just imagine what Team Obama and the MSM would do to 9-9-9 in a general election.  I'm not saying Cain should not, or cannot, be the Republican nominee.  I'm simply suggesting that he's way out on a limb with this plan, which he himself has placed at the heart of his campaign.  If there's a compelling, comprehensive, detailed defense of the plan, that adequately addresses the questions raised above, let's hear it.  Now.  If there is not, that reality should alarm any potential Cain voter.


UPDATE - I explored some of these questions on Fox Business Network last night:


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