Rising Cain – Part II: The 9-9-9 Plan

Before we get into Cain’s general positions on policy matters, we should tackle, in detail, Cain’s primary campaign policy contribution – he remains the only Republican challenger to propose the complete and utter demolition of the current tax system in favor of something he believes is much simpler.

For those of you who may have heard the buzzphrase but don’t know exactly what his legislation implies…well apart from me not being surprised since Cain hasn’t done a terribly good job explaining the bill unless you want to paw through his website for a while, I can provide the information I’ve gathered from the frenzied debate over 9-9-9.  The three principle components (all of which would be taxed at a 9% rate) are as follows:

  1. A 9% flat income tax for everyone employee making more than the poverty line (about $17,000 when last I checked).
  2. A 9% value added tax on businesses (he uses different language on his website, calling it a revenue tax) – this applies, essentially to the net profit each company receives from the consumption of its’ customers.
  3. A 9% national sales tax – but before you imagine paying 9% more for cereal and gasoline, Cain’s website says that the sales tax would only apply to NEW goods and to services, not to existing products.  This makes the sales tax component a transitional piece of legislation, since it would filter into our society gradually.
Some additional points of clarification have come down since he announced his 9-9-9 plan.  For example, in intends to exempt the poor from the sales tax by providing them a “prebate” cost-of-living credit check each month to cover the added cost of buying food and paying rent and the like (because all of those things…rent, utilities etc…would be taxed).  He has not specified the amount, nor has he made clear how that amount would get decided – leaving his plan vulnerable to liberal arguments for ever-increasing subsidy checks for the poor unless he’s got an objective way to define those costs before any money gets spent.
As well, he claims he intends to exempt businesses from paying taxes on business to business transactions – a rather nebulous term if ever there was one.
And finally, the bill is a temporary measure.  He thinks 9-9-9 is easier to get than his planned final destination.  What he actually advocates as our long-term tax solution is what he calls the “Fair Tax”…which amounts to a national sales tax of ~31% on all goods and services.  He thinks 9-9-9 will help teach us that the sales tax, which sounds scary up front, is a good idea because we’re then empowered to choose how much taxes we pay by choosing how much we spend (this would incentivize saving instead of buying on credit, since your income, your bank dividends, your stock portfolio, and your estate would not be taxed).
Here are some of the criticisms of the 9-9-9 plan and the following fair tax:
  • The fundamental reshaping of the tax base, as compared to the current status quo, is highly regressive.  The burden shifts more to the poor, even accounting for Cain’s cost of living checks, since the wealthy will find ways to do their business outside the US and thus avoid the service and sales taxes while the rest of us will generally still need to buy our stuff at Wal-Mart.  As well, the marginal tax rate for a typical middle class family would drop from 35% to 18%…which is a huge improvement…but the marginal tax rate for the poor would go UP from 5% to 18% minus whatever the prebate check includes.  This is very troubling even to some conservatives.
  • The business of enforcing a national sales tax of any kind would be exceedingly difficult.  State sales taxes don’t have this problem primarily because they are relatively small and consumers don’t really notice their impact financially.  A 9% national sales tax, along with your state sales taxes, would be crippling in the short term when making a big purchase (like a car or a house or a big screen TV…or your rent).  This would cause a huge incentive for Americans to find ways to make transactions without being noticed by the Feds.  The loss of revenue from black market sales tax evasions could make the plan revenue-negative in a big way and hamper efforts to pay for basic services.
  • The value-added tax is invisible to most Americans…the cost of taxing corporate earnings is passed to consumers in the price of the goods and services we buy, and we don’t realize those effects since we never see what the price of something would be without such taxes.  If we implement a value-added tax (as is done in the EU, for example), it would very easy for liberals, once empowered by majorities in the House and Senate, to gradually ratchet up the VAT and get the corporations that way.  Leaving us no better off in a business sense than we started.
  • Even if you do the sunniest of calculations and assume the plan works as advertised by Cain’s camp, it is not actually revenue neutral as he claims, but falls short by about 0.7 trillion dollars from the current Federal “budget” (in quotes since no budget has actually been passed)
  • President != God…and not even God could get 9-9-9 to pass both houses of Congress…no matter how well the election goes for Conservatives.  Cain could do something like this if the country were a corporation and he was the CEO…he could wrangle his board of trustees to give his idea a chance and if it failed, he could try something different, presuming they didn’t lose enough money to cost him his job.  But this is a country, not a company and not only is the political system not set up for sweeping changes like this to occur immediately, but it SHOULDN’T be…because when national experiments go badly, people die.
That last concern is noted by both right-wingers and left wingers.  You can probably guess which of the other concerns are raised by each side, but I will tell you that there is not a lot of bipartisan sharing of problems with this plan other than a loose concern by some on the right about the regressive nature of 9-9-9 and the Fair Tax.
For my part, I am not so concerned with the “regressive” nature of the 9-9-9 plan.  I think that the cost of living burden felt by the poor will be offset by the increasing preponderance of jobs and wealth creation in a smoother-running economy, and I believe that the progressive nature of today’s tax code is a misnomer, since the extremely wealthy can abuse it more than the rest of us, and since the wealth-redistributing nature of the current code leaves most of paying for the indefinite ballot-box slavery of a substantial subset of the population.  I even think that the last concern is somewhat overstated…in a GOP-controlled Congress (which I find fairly likely), 9-9-9 could be pushed through after some much-needed modifications and layers of necessary complexity are added by the party’s more economically learned politicians.  Besides which, I don’t think there’s anything wrong with a President serving up big ideas and letting the legislative branch decide how far they want to take those ideas…that’s the way the government is SUPPOSED to work.
That said, I think concerns about liberal tinkering of a VAT and the daily evasion of a sales tax by even well-meaning citizens (some of my centrist and right-leaning friends even say they would try to cheat that sales tax if they could) are well-founded.  I believe that the 9-9-9 plan ignores human nature just as much as the progressive tax code does.
The progressive code incentivizes debt spending, begging and fiscal irresponsibility because it ignores the reality that humans produce more when they are rewarded for earning their keep.  Cain’s plan ignores the reality that humans despise costs they can see up front.  A 9% sales tax would be visible every. single. day.  When you bought your meal at a restaurant and the bill came and you saw that it WOULD have been $25.45 if not for those bastards in Washington taking 9% more from you!…when you paid your suddenly higher rent…when you got gas for your car and were charged a service fee for the privilege that was then taxed…and when you paid TurboTax to help you file your taxes…(!)…that will drive people INSANE.  The truth of the matter is…we don’t want to prioritize saving even though it’s good for us and Cain’s plan, while intending the best for us Americans who are addicted to our credit cards, will make us feel guilty for desiring the material goods that make us comfortable.  Maybe we should, but he will run aground if he tries to tell us how we should feel and his educational campaign to boost the popularity of the fair tax will die…leaving us with a partial solution (9-9-9) that is wide open for liberal tinkering and constant national frustration.
We’ll talk about some of Cain’s other policy ideas and opinions in the next installment.
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3 thoughts on “Rising Cain – Part II: The 9-9-9 Plan

  1. I too am not really concerned about the “regressive” nature of the 9-9-9 plan. That 47% of the population currently pays no federal income tax threatens the health of our democracy, I feel. We need a broader tax base (so that everyone has a stake) and lower rates. And as you observe, eliminating complications and uncertainties in the tax code may lead to greater productivity in the economy as a whole, which will consequently lead to higher wages and more jobs — a lifting of all boats.

    As for the criticism that Cain's plan would lead to less revenue for the federal government: If that turns out to be true, good! Maybe then the government will actually take a critical look at how it's spending our money and will cut the bunny inspectors and the Department of Education's SWAT team.

    And the greater visibility of the sales tax? It's valid to raise the concern that people will do everything they can to avoid it. But I think it's also valid to point out that a more visible tax will prevent increases in the tax later (and may also result in campaigns for lower state and local taxes), as people will be more aware of what such an increase will cost them personally. (Some conservative commentators have suggested that we eliminate income tax withholding for a similar reason. They feel that writing big checks to the IRS on an annual or quarterly basis will make people more conscious of what they are giving to the government, and that this will consequently render the populace less inclined to accept tax increases and wasteful spending. Personally? I think that idea has merit.)

    I don't believe that 9-9-9 is a panacea. But at least Cain has actually proposed something specific and thereby opened a substantive debate. Actually, I'm half inclined to vote for Cain just because he's turned the discussion away from all the petty crap the media likes to focus on. Thank you, Mr. Cain. As far as I'm concerned, you've performed a vital public service.

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  2. My concern with 9-9-9 is less to do with the black market and more to do with people voting it down as soon as possible. The visibility of the tax will render it just frustrating enough, IMHO, that people won't want it…even if it's better for them than the current system financially. For example, some studies have shown that if you offer someone a 100 dollar retail price with a 20% sale discount, they are more likely to buy it than if you offer them an 80 dollar retail price. The cost is identical…IDENTICAL…and it makes a difference.

    Cain's plan would be slightly cheaper for the middle class on net, I think…maybe more than slightly…but they're still going to see the non-invisible tax (rather than the invisible income tax that never lands in their bank account) as painful and unfair.

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