Last night, at yet another Republican presidential candidate debate, Herman Cain was roundly criticised for his simplistic 9-9-9 tax plan by his fellow Republicans. I have to admit, it was a little bizarre (in a “Nixon goes to China” sort of way) to see Republicans disparaging a tax plan for being “regressive.” Ron Paul was unafraid to actually use this word, and while several other candidates avoided the term they in essence leveled the same charge: 9-9-9 would wind up increasing taxes on the poor and the middle class. Being Republicans, though, they didn’t also speak of the other side of this coin — the fact that 9-9-9 would lower taxes on the wealthy and really lower them on the ultra-wealthy. But still, it was odd enough to see candidate after candidate speak of their concern for the tax burden of the lower-class and middle-class, since this is usually a Democratic argument. Perhaps all those 99 Percenters out there demonstrating in the streets are getting through to the Republican politicians? Stranger things have happened.
Herman Cain is becoming increasingly boxed in by his 9-9-9 plan. To his credit, he’s done his best to push what is unquestionably a bold idea onto the public’s consciousness. The problem for him is that every economist who does the maths (who is not actually in Herman Cain’s employ) concludes pretty much the same thing: this plan would massively raise taxes on the lowest earners, and massively slash taxes on the highest earners.
Rick Santorum even pointed this out in the debate:
[R]eports are now out that 84 per cent of Americans would pay more taxes under his plan. That’s the analysis. And it makes sense, because when — when you don’t provide a standard deduction, when you don’t provide anything for low-income individuals, and you have a sales tax and an income tax and, as Michele said, a value-added tax, which is really what his corporate tax is, we’re talking about major increases in taxes on people.
He also doesn’t have anything that takes care of the families. I mean, you have — you have a situation where, under Herman’s plan, a single person pays as much in taxes as a — as a man and a woman raising three children. Ever since we’ve had the income tax in America, we’ve always taken advantage of the fact that we want to encourage people to — to have children and not have to pay more already to raise children, but also pay that additional taxes — we gave some breaks for families. He doesn’t do that in this bill.
And we’re going to — we’ve seen that happen in Europe. And what happened? Boom, birth rates went into — into the basement. It’s a bad tax for — again, it’s bold. I give him credit for — for starting a debate, but it’s not good for families, and it’s not good for low-income….
If you ignore the babbling about low European birth rates, Santorum makes several very good points. Cain’s response, as always, revolved around: “Don’t look at anybody else’s analysis, because they’re all wrong — look at our analysis, where every little girl gets a pony and every little boy gets a dirt bike, and everyone lives happily ever after.”
Cain’s problem is that it’s pretty easy for just about every American to see through his tax plan. Sure, 9-9-9 sounds catchy and all, but upon consideration, most folks realise that what it is going to mean is a large tax hike on them, personally. After all, if a tax plan is “revenue-neutral” (meaning that it’ll raise exactly the same amount of money that the current tax policy does), then some people are going to wind up paying more, and some paying less. With a new sales tax on everything, it’s going to hit most Americans hard in the pocketbook.
Cain’s plan is going to mean everybody who makes money paycheck-to-paycheck is going to be taxed at a rate of 27 per cent. Income and payroll taxes will either go up or down (depending on how much money you make) to 9 per cent. But businesses aren’t going to be paying any income taxes at all. Instead, they’re going to have a 9 per cent “value-added” tax on all the products they sell — meaning the consumer will be paying that tax, not the business. On top of this, there will be a new federal sales tax at the cash register of 9 per cent. When you go into a business with the 91% of your after-tax income, you will be hit with a new 18 per cent tax on everything you want to buy.
Cain is right about calling “foul” on one criticism, but it’s not going to do him any good. His fellow candidates have been pointing out that the new federal sales tax will be on top of any state sales tax. Cain tried to use the “apples and oranges” metaphor to point out the silliness of holding his new plan responsible for what each state does (Cain’s right — the federal government has nothing to do with state sales taxes, one way or another). But the charge resonates with the public, because they’re all calculating what their new total sales tax will be. In a state with no sales tax, it will be 9 per cent. In a state with a 5 per cent sales tax, it will be 14 per cent. In a state with 8 per cent sales tax, everyone will be paying 17 per cent. Most of the public hasn’t yet figured out that this number will be increased by the “hidden” value-added tax by another 9 per cent, but they will eventually.
To put it another way, the calculation will go something like this: right now, I can buy a snazzy new iProduct for $100, plus sales tax in my state of 8 per cent — total cost to me, $108. If Cain’s 9-9-9 plan were in existence, the price of the product would be $109 (with the hidden value-added tax added in). I would then have to pay an additional $8.72 in state sales tax and $9.81 in federal sales tax, making the total cost to me $127.53. That is, roughly, an 18 per cent tax hike. On every new product I buy.
Which is why 9-9-9 sounds good… right up until you start doing the maths. After a few back-of-the-envelope calculations, most Americans are going to conclude that this isn’t such a good deal after all. Which is Cain’s main problem. Add on to that the report which Santorum referenced which shows that 84 per cent of taxpayers will be paying more — a lot more in some cases — and Cain’s plan really starts to look like a bad deal to 84 per cent of the people. It’s not exactly the “99 per cent” of the protests, but it’s pretty darn close.
At the heart of any debate on a new tax policy lies the cold mathematical fact that some will pay more and some will pay less than they are now under the current system. Given the constraints of being “revenue-neutral” it is an inescapable truth. Cain’s insistence that this is not really true is much like the line about Lake Wobegon, “where all the children are above average” — it makes no sense, mathematically.
Cain is fighting hard to counter this fact, but in the end, he will fail. “I’m going to raise taxes on 84 per cent of America!” is not the best way to get elected in this country, and it is definitely not the way to win a Republican primary.
It’s hard not to feel a little sorry for Herman Cain. After all, he did come up with a plan — something not all of his fellow candidates have bothered to do (most of them just offer up straight Republican tax dogma, in one form or another). He probably never expected that his plan would receive the level of scrutiny which it is now getting, both in the media and on the campaign trail. Cain’s plan is unquestionably bold — this is one thing that cannot be argued. It would be a radical change to the way the federal government collects taxes. But its very boldness is also its biggest weakness. Because it is so simplistic, it makes it very easy for most Americans to quickly figure out that they will be paying more in taxes. And while most of the attention from the Tax Policy centre’s report has so far rested on the 84 per cent figure, just wait until people read a bit deeper into the charts and figure out that the top 0.1 per cent of earners will be getting an average tax break of over a million dollars per year.
Of course, I don’t expect the Republican candidates to start pointing this out — but then I didn’t expect them to attack Herman Cain over the regressive nature of his 9-9-9 plan, either. As I said, stranger things have happened, so we’ll just have to wait and see.
Chris Weigant blogs at:
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