Cain the Tax-Code Killer

Cain the Tax-Code Killer

Larry Kudlow
Creator Syndicate
Oct. 15, 2011

Herman Cain is the only GOP presidential candidate who wants to kill the tax code. That's right. Put a knife in it. Junk the entire system. And people are cheering as he rises in the polls in his quest for the nomination.

Cain's 9-9-9 plan is not perfect. But then again, the good should never be the enemy of the perfect.

Rep. Paul Ryan gives the plan a thumbs-up. Supply-side mentor Art Laffer tells me it would be "far, far better than the current system." And Chris Chocola, president of the free-market Club for Growth, calls it "a truly revolutionary tax reform that would amount to a massive job-creating tax cut on investments, savings and income."

As the world now knows, 9-9-9 translates to a 9 percent income-tax rate, a 9 percent value-added net sales tax rate on business and a 9 percent national sales tax overall. Like many conservatives, I am troubled by the national sales tax piece. It reminds me too much of Europe. It could start low and then build on top of the other taxes. But I totally support the first two nines on personal income and business. In my view, these are vast improvements.

For his part, Cain argues that the sales tax nine would pick up revenue and help to lower the rate for everybody, especially the middle class. His economic adviser Rich Lowrie told me in a CNBC interview that the sales tax is a replacement tax, not an add-on tax like you'd find at the state level. This is a key point. Lowrie said, "All we are doing is pulling out taxes that are invisible. We're cutting the rates. We're putting them back in at lower rates."

Lowrie is referring to the payroll tax, which in the Cain plan will go from 15 to 9 percent. That constitutes a net tax cut and a good deal more transparency regarding costs and prices that are embedded in the current code. I'm not sure I buy into this point entirely, but it's an interesting argument.

Liberals oppose the sales tax because they say its regressivity will hurt middle- and low-income people. But the Cain plan partially deals with this by exempting everybody below the poverty line. Cain also states that sales of existing goods would be exempt. I have no knowledge, however, of the treatment of services, and I am somewhat skeptical about enforcement complexity overall.

Nevertheless, a mammoth drop in marginal tax rates for individuals (35 to 9 percent, or 18 percent including the sales tax) and for businesses (also 35 to 9 percent) would supply an incredibly strong economy-wide growth incentive.

Lowrie argued further that the 9-9-9 plan will add $2 trillion to U.S. gross domestic product, create 6 million jobs, increase business investment by a third and lift wages by 10 percent. "And if you fold all that growth together," said Lowrie, "federal revenues go up by 15 percent."

I'm still a flat-tax guy, and I can't vouch for these numbers. But I can vouch for the proposition that greater marginal incentives will drive economic growth into high gear. I know there are many skeptics on this. But as always, I point to the Harding-Coolidge-Mellon tax cuts of the 1920s, the John F. Kennedy tax cuts of the 1960s and the Ronald Reagan tax cuts of the 1980s.

Remember, too, that the Cain tax plan would eliminate the double-tax on saving and investment by removing capital gains, estates and dividends from the tax code. All this would throw off strong economic incentives.

Given the current economic malaise, which in large part can be traced to the weakened balance sheets and net worths of families suffering from the multi-year slump in stock prices and home values, increasing returns to saving and investment through a much lower marginal tax rate will boost asset values. Just what the doctor ordered.

As for businesses, not only would they get a globally super-competitive 9 percent tax rate, but they'd receive 100 percent expensing for new purchases of capital equipment.

Former Treasury hands Gary and Aldona Robbins priced out the Cain plan on a static basis and discovered it to be revenue neutral. Essentially, they found a $26 trillion tax base yielding $2.3 trillion in revenue for a 9.1 percent overall rate. Hence, 9-9-9.

In essence, the Cain plan combines the flat tax (with its single marginal rate) and the fair tax (which uses the national sales tax). I don't know if this is really possible. But in terms of first principles, throwing out the tax code, lowering marginal tax rates, getting rid of the carve-outs and deductions that make the current code impossible to understand, and providing an economic-growth tonic to heal our current funk, it makes a lot of sense.

That Herman Cain is rising in the polls is no surprise.

Like the author, I too am a bit leary of the national sales tax component, but for slightly different reasons.

Unlike the author, I am not a flat tax fan. We've had relatively flat taxes before and they never last. That is why the 9-9-9 plan with an added sales tax worries me. Now, if the plan included a super-majority vote in congress to raise any of those rates, I would rest a little easier.

But ideally, this plan would merely be a transition to getting the Fair Tax (with it's repeal of the 16th amendment), as that is the very best tax plan ever devised.

Baby steps, man, baby steps.

TexasBlue wrote:Baby steps, man, baby steps.

Yeah... I suppose you're right. But I still cannot fathom how such an obvious truth can be so easily demagogued. Our government schools have really fulfilled their role in dumbing down the population.

It's sad really, our fellow citizens really do lack the basic knowledge needed to sustain a republic.

Unfortunately, history really does repeat itself thanks to human nature.

There is a concept in question here... not whether more taxes should be imposed on the wealthy, but whether less taxes should be taken from the poor. It's a worthy question, too, because those with very marginal incomes who are then taxed have less to spend on necessities which then leads to applications for public assistance that comes out of the public coffers anyway.

It's also worth mentioning that even the poor buy things like washers and dryers and microwaves, etc. which help keep the economy greased.

So, taxing the poorest at the same rate as the wealthy really does nothing but create a negative loop. To wit: Tax money paid by the financially least able essentially goes to & through government assistance programs, and back to them, that actually then also costs more to operate than if they had not been taxed to begin with.

In my opinion, 9-9-9 is best dished up by starting the plan at some point above wage earner... exactly where being another subject.


Need more coffee. \_/3
Admin: - Please don't edit the subject line -

Here's a good article on Cain in regards to the poor under the 9-9-9 plan.
http://politicalticker.blogs.cnn.com/2011/10/09/cain-poor-wont-pay-more-under-9-9-9/

It never dawned on me until I read this but anyone who buys a home that is pre-owned is not taxed on it. Goes in line with his bit about saying used goods are not taxed under his plan.

Arx Ferrum wrote:There is a concept in question here... not whether more taxes should be imposed on the wealthy, but whether less taxes should be taken from the poor. It's a worthy question, too, because those with very marginal incomes who are then taxed have less to spend on necessities which then leads to applications for public assistance that comes out of the public coffers anyway.

It's also worth mentioning that even the poor buy things like washers and dryers and microwaves, etc. which help keep the economy greased.

So, taxing the poorest at the same rate as the wealthy really does nothing but create a negative loop. To wit: Tax money paid by the financially least able essentially goes to & through government assistance programs, and back to them, that actually then also costs more to operate than if they had not been taxed to begin with.

In my opinion, 9-9-9 is best dished up by starting the plan at some point above wage earner... exactly where being another subject.


Need more coffee. \_/3
Admin: - Please don't edit the subject line -

You make some very valid points here. But let me present you with some facts you might not be aware of.

First, lets say we lower taxes to 0% on the lowest quitle of earners (we already effectively do that through tax rebates and various tax credits, but that's beside the point for now), what no one mentions and what few people realize is these people still carry a significant tax burden that is hidden in plain sight - and that is the federal (and states where applicable) corporate income tax. This amounts to a 21% tax on ALL goods and services purchased by this lowest quintile, not to mention by all end-consumers.

This is why I favor the Fair Tax. It ends the lie that corporations can actually pay taxes. Since no business can actually print money, they must then EARN it by SELLING something to consumers. THAT'S where any business gets the money to pay for anything! Labor, equipment, overhead, materials, profits AND TAXES, the money to pay for all of these things comes from consumers buying a business's product or services.

Thus the corporate income tax represents one of the most aggregiously regressive taxes we have.

The Fair Tax contains a mechanism for dealing with the natural regressiveness of a sales tax (as does Cain's 9-9-9 plan as I understand it) - the corporate income tax does not.

What are your feelings on that?

dblboggie wrote:
You make some very valid points here. But let me present you with some facts you might not be aware of.

First, lets say we lower taxes to 0% on the lowest quitle of earners (we already effectively do that through tax rebates and various tax credits, but that's beside the point for now), what no one mentions and what few people realize is these people still carry a significant tax burden that is hidden in plain sight - and that is the federal (and states where applicable) corporate income tax. This amounts to a 21% tax on ALL goods and services purchased by this lowest quintile, not to mention by all end-consumers.

This is why I favor the Fair Tax. It ends the lie that corporations can actually pay taxes. Since no business can actually print money, they must then EARN it by SELLING something to consumers. THAT'S where any business gets the money to pay for anything! Labor, equipment, overhead, materials, profits AND TAXES, the money to pay for all of these things comes from consumers buying a business's product or services.

Thus the corporate income tax represents one of the most aggregiously regressive taxes we have.

The Fair Tax contains a mechanism for dealing with the natural regressiveness of a sales tax (as does Cain's 9-9-9 plan as I understand it) - the corporate income tax does not.

What are your feelings on that?

Well, right off the bat, no tax is ever going to be popular. Taxes are, by definition, a levy on money you worked for. It's basically like child support, except paid to what is today a bloated, wallowing and fairly useless bureaucracy that exists - in most part - just to sustain itself. Merely justifying any tax paid to it at all is a full challenge and two-thirds.

So, don't misunderstand me to say that one tax plan is better than another. If I had my way, Washington DC would be about 3 or 4 square blocks of small, brick buildings where those elected to serve, would go to serve 'We the People' and not to glory and profit from the power they could throw to the highest bidder. But also one must deal with reality and that ugly thing says that dislodging the government-corporate hegemony won't be as simple as changing a few names in congress.

I guess I feel that... if we're going to have this fat, slovenly government hanging its gut over the beltway, I'd rather not see them feed from the least able to survive their excesses.

...

PS - I am not getting much out of the emoticons or text buttons (bold, italic, underlines, etc.). I use Google Chrome. Is that an issue here?

...

Arx Ferrum wrote:PS - I am not getting much out of the emoticons or text buttons (bold, italic, underlines, etc.). I use Google Chrome. Is that an issue here?

...

Hmm. I don't know. I don't have that browser installed on my computer. I think Bubblebliss uses Chrome. Maybe he can tell you. What specifically is the trouble?

TexasBlue wrote:

Arx Ferrum wrote:PS - I am not getting much out of the emoticons or text buttons (bold, italic, underlines, etc.). I use Google Chrome. Is that an issue here?

...

Hmm. I don't know. I don't have that browser installed on my computer. I think Bubblebliss uses Chrome. Maybe he can tell you. What specifically is the trouble?

I can highlight and click but nothing happens. I can click the emoticons and get nothing. I have tried to insert the BB code manually but am not quite up on all the names for the smileys.

Btw, go to your profile, then profile preferences and select
Always allow html and hit save. See if that helps.

Also, I just found out in the support realm that Chrome doesn't support HTML5. You cant use WYSWYG (what you see is what you get) with Chrome. That might be an issue.

Do you use Firefox, Opera or IE?

TexasBlue wrote:Also, I just found out in the support realm that Chrome doesn't support HTML5. You cant use WYSWYG (what you see is what you get) with Chrome. That might be an issue.

Do you use Firefox, Opera or IE?

Yeah, I got IE somewhere on this infernal machine...

Maybe I can get a third party patch to make this one work. Gonna have to go down to the docks and see what's available.

Okay. I've never heard of this problem before.

I use FF exclusively myself.

Arx Ferrum wrote:

dblboggie wrote:
You make some very valid points here. But let me present you with some facts you might not be aware of.

First, lets say we lower taxes to 0% on the lowest quitle of earners (we already effectively do that through tax rebates and various tax credits, but that's beside the point for now), what no one mentions and what few people realize is these people still carry a significant tax burden that is hidden in plain sight - and that is the federal (and states where applicable) corporate income tax. This amounts to a 21% tax on ALL goods and services purchased by this lowest quintile, not to mention by all end-consumers.

This is why I favor the Fair Tax. It ends the lie that corporations can actually pay taxes. Since no business can actually print money, they must then EARN it by SELLING something to consumers. THAT'S where any business gets the money to pay for anything! Labor, equipment, overhead, materials, profits AND TAXES, the money to pay for all of these things comes from consumers buying a business's product or services.

Thus the corporate income tax represents one of the most aggregiously regressive taxes we have.

The Fair Tax contains a mechanism for dealing with the natural regressiveness of a sales tax (as does Cain's 9-9-9 plan as I understand it) - the corporate income tax does not.

What are your feelings on that

Well, right off the bat, no tax is ever going to be popular. Taxes are, by definition, a levy on money you worked for. It's basically like child support, except paid to what is today a bloated, wallowing and fairly useless bureaucracy that exists - in most part - just to sustain itself. Merely justifying any tax paid to it at all is a full challenge and two-thirds.

So, don't misunderstand me to say that one tax plan is better than another. If I had my way, Washington DC would be about 3 or 4 square blocks of small, brick buildings where those elected to serve, would go to serve 'We the People' and not to glory and profit from the power they could throw to the highest bidder. But also one must deal with reality and that ugly thing says that dislodging the government-corporate hegemony won't be as simple as changing a few names in congress.

I guess I feel that... if we're going to have this fat, slovenly government hanging its gut over the beltway, I'd rather not see them feed from the least able to survive their excesses.

...

PS - I am not getting much out of the emoticons or text buttons (bold, italic, underlines, etc.). I use Google Chrome. Is that an issue here

...

Believe me, I am completely on your side when it comes to the size and scope of government!

And it's quite true that it will take a lot more than changing a few names on the Hill.

But remember, a minority of the colonists stood and fought the Revolutionary War against the mightiest power on earth at the time - and won.

Will it be an uphill battle to rein in a corpulant and corrupt federal government Damn skippy!

Is history set against us actually accomplishing that objective Almost certainly.

Should we just lie down now and accept the inevitable I don't believe that we should.

And if we could get the Fair Tax enacted, it would rob the congress of one of its most powerful tools for conducting crony capitalism - while helping the "least able to survive" the excesses of government by actually lowering their taxes while increasing their income.

Is it a long shot Sure it is. But I still think it is worth a try.