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Wednesday, October 19, 2011

Beldar on Herman Cain's 9-9-9 plan

I commend to you in its entirety this post by my friend Dafydd ab Hugh at Big Lizards — a discussion of Herman Cain's 9-9-9 plan that Dafydd entitled, "Nein, nein, nein." Dafydd argues that Congress would inevitably raise a national sales tax once it got that fiscal camel's nose under the tent; that the addition of a national sales tax would encourage states and municipalities to raise their own existing sales taxes; and that our more urgent national problem is spending, while more modest tax reforms could probably suffice for the near term. He concludes:

Herman Cain is a great guy, so far as I can tell; and he can do a great service by focusing debate on what really matters right now: the existential threat posed to the United States by Barack H. Obama and the demented Democrats. He might make a good vice president; one hopes he can learn to handle a bureaucracy in time to run for the big chair again in eight years. But right now, his only trick — 9, 9, 9 — is just a catchy and clever red herring.

I reprint here, too, my own critique (slightly edited) that I left as a comment on Dafydd's post at Big Lizards:

Let's just presume for a moment that as a policy matter, Mr. Cain is correct, and that we should abandon our current federal revenue-raising system in favor of his 9-9-9 plan. Let's leave aside our objections over such matters as whether sales taxes/VATs are regressive, or whether they make it too easy for the government to raise taxes in the future. Let's join in Mr. Cain's optimistic assumptions about how the economy's better performance would make up any revenue gaps between his plan and what's currently in place. Just assume with me for a moment, in other words, that we all want the kind of reform Cain proposes, where we go to a flat tax on businesses, a flat tax on individuals, and a flat national sales tax.

And assume we set out to figure out the optimum rates for each of those three kinds of flat-rate taxes, to accomplish a Goldilocks ("just right") combination of those three, so that they produce as much revenue as the federal government now takes in. Yet those numbers must redistribute the burden of that revenue-raising in a simpler, more transparent, and more equitable way, one that also better encourages business development than our current tax code (and its maze of tax breaks and complexities). Mr. Cain's plan purports to do all of these things, if we accept it at face value.

What are the odds that the optimum number for each of these three new types of federal taxation — each very different from one another — would happen to be the very same single-digit integer?

This isn't economics. It's a gimmick. This is national economic "plan" that was obviously reverse-engineered from a catchy slogan.

Mr. Cain can't tell you why 9-9-9 would be better or worse than 8.311 - 12.897 - 5.135. No one's ever run the numbers on anything except 9-9-9 because those are the numbers that had to be accepted in order for the name to be catchy.

I'm in favor of big, bold reforms. I'm very wary of either a national sales tax or a national business VAT for the same sorts of reasons Dafydd has mentioned. But I'm not going to bother taking seriously something this gimmicky; it's not serious enough to trigger a discussion on any of the policy pros and cons of these kinds of taxation in general, because this plan is tied to rates that were picked specifically and solely because they can be easily chanted by a crowd/mob.

In tonight's GOP presidential debate from Nevada (which I recorded but didn't watch live, and which I have paused as I write this), CNN's Anderson Cooper presided over a very intentional and methodical skewering of Mr. Cain's 9-9-9 plan by every other candidate on stage. One criticism that most of the other candidates voiced — and that both Rick Perry and Mitt Romney hit particularly hard — was that taxpayers/voters would rebel against being required to pay both a state sales tax and a national sales tax.

Somehow, Cain couldn't manage to quite frame the "apples versus oranges" metaphor persuasively, although it's a perfectly valid and logical response: Mr. Cain's plan, at least if you take it at face value and accept its underlying assumptions, wouldn't change taxpayers' existing state tax burdens at all, and Cain argues that the federal taxes that his 9-9-9 plan would replace wouldn't extract any additional revenue out of the tax base, but that it would instead redistribute the same overall federal tax burden more equitably and in a way that encouraged economic growth. So I thought that particular line of attack — while probably quite effective, as perceived by many in the audience — was not terribly fair, and indeed was calculated to exploit confusion and ignorance of either federalism in general or the details of Mr. Cain's plan in particular. Probably by tomorrow Mr. Cain will have figured out how to make the "apples and oranges" metaphor work more smoothly than he did tonight, despite several attempts.

But there are plenty of other concerns and criticisms that are fair to raise, and that lots of people besides Mr. Cain's opponents also find troubling. Dafydd's point is undeniable: what's urgent is that we address current spending, then the mathematically and actuarially certain on-coming train of Baby-Boomer-driven entitlement spending. For purposes of addressing our distressing and chronic unemployment, sputtering economy, and growing stagflation, the other urgent high priority is releasing business from the crush of new Obama-era federal regulations — most of which stifle economic development with inadequate or even no benefit in return — and, of course, the slaying of the worst dragon spawned by Obama, his signature infliction upon the Republic, Obamacare. Doing those things would make for an ambitious agenda for any new Congress and POTUS to undertake before the 2014 elections. And perhaps our new president could then undertake further and more radical alteration of the tax code by gathering a mandate for in that campaign season.

Posted by Beldar at 03:13 AM in 2012 Election, Budget/economics, Politics (2011) | Permalink

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Comments

(1) Dafydd the Philonumerate made the following comment | Oct 19, 2011 3:53:46 AM | Permalink

Beldar:

Say, what do you think about this: Instead of a "9,9,9" plan, how's about a "27" plan? That is, Congress passes a law setting the initial tax rates at 9%, 9%, and 9%... but the president can, at any time, change the rate of any of these three forms of taxation (income, corporate, and sales) starting two years after the date of change -- so long as all three tax rates added together do not exceed a total of 27.

In other words, the president on April 1st, 2013 can change the rates to 12% income tax, 10% corporate tax, and 5% national sales tax (NST), because that all adds up to 27. (For that matter, it could be 10, 10, and 5, because it's allowed to be below 27.) The change would become effective on April 1st, 2015.

Or he could change it to 18% income, 4.5% corporate, and 4.5% NST. (Of course, if he changed the income tax to 27% -- no loopholes -- then he would have to set the corporate tax and NST to 0 and 0, respectively.)

This would give the Executive some flexibility in how to structure the tax burden, keep it low, and give everyone a couple years advance notice so they can plan for it.

I'm sure there's some reason that's completely obvious to everyone but me why this is silly and unworkable, but darned if I can figure out why not.

(Sorry, I just love playing with numbers. And with people's minds.)

Dafydd

(2) Beldar made the following comment | Oct 19, 2011 4:51:42 AM | Permalink

Each of the different types of flat-rate taxes that comprise 9-9-9 has unique sets of policy advantages and policy disadvantages. There's no common arithmetic or logic to tether them together in any combination or proportion. There's no reason for them to be related at all, and many good reasons why they ought not be.

To take one example, the national tax on sales: Mr. Cain doesn't deny the inherently regressive nature of a sales tax; he argues, rather (if I understand him correctly), that the poor will find its disproportionate impact on them to be more than offset by their tax savings through the abolition of the employee contribution to Medicare and Social Security through FICA taxes (currently 6.2% of gross compensation up to a limit of $106,800 for Social Security, with no Social Security taxes leveled on income above that or on any unearned (i.e., investment) income, plus 1.45% on all their earnings for Medicare. In other words, his plan replaces one regressive existing tax (FICA) with a new tax that's equally, but no more, regressive (a national sales tax). Depending on your marital status and number of dependents, you might do slightly better or slightly worse if the economy remains unchanged; Mr. Cain argues that when you figure in the benefit from a better economy, everyone, net, will end up better off.

Okay, let's continue to give Mr. Cain the benefit of the doubt on that. If he's right, though, then any different rate setting for the national sales tax would necessarily either penalize or overcompensate workers. It would no longer be a wash from the abolition of the employee contribution to FICA.

Even if we untether from Mr. Cain's estimates and numbers, consider in the abstract the relative regressiveness of a 2% national sales tax and a 20% national sales tax. One would be slightly regressive, almost trivially so; and the other would be disproportionately regressive, a non-linear, accelerated disproportionality. A 2% national sales tax would mean some people eating rice & beans more often; a 20% national sales tax means sizable numbers of people at the economic margins often going hungry. I'm sure there's better terminology to express what I'm grasping for here, but the short version is that a 20% national sales tax would devastate the poor and lower middle class, seriously inconvenience the mid-middle and upper-middle class, and barely be noticed by the top 10% — although that same top 10% would be mightily benefited by a flat tax on income even in the mid-20s.

Just as the "9-9-9" numbers are arbitrary starting points, so too would be any combination of the three that added to 27. And that 27 doesn't tie to anything else -- it's not a share of government revenues as a percentage of GDP, for example (which is a statistic being suggested for many of the balanced budget amendments currently under discussion).

No, 27 is just another arbitrary integer. And compared with "9-9-9," it lacks even the value of palilogia.

(3) Phelps made the following comment | Oct 19, 2011 11:55:00 AM | Permalink

This actually touches on my biggest complaint about Cain. He has a tendency of having to "explain it tomorrow." The pattern comes up over and over:

Cain says something nonsensical or inflamatory
Cain walks it back
Cain tries to explain it away

I really don't want a president that's a measure once cut twice kind of guy.

(4) Swami made the following comment | Oct 19, 2011 3:05:14 PM | Permalink

Two thoughts.

While I don't pretend to know what numbers are perfect, I believe part of the reason for using the same percent for each tax is to prevent gaming the system by steering income into one category or another.

Second, when has a presidential candidate ever promoted his tax and budget plan in the campaign, and actually followed through and made it happen that way while in office? Cain is just speculating and wishing, and everyone knows it.

(5) Whitehall made the following comment | Oct 19, 2011 5:26:11 PM | Permalink

None of the "centralist" candidates are going to buy into a wholesale reform of the tax code that results in extreme simplification.

My reasoning is based on what one could call "a dog whistle" phrase used by almost all GOP candidates - "tax reform."

When an out-of-power party like the GOP looks to have a major opportunity to sweep both houses of Congress and the White House, calling for a major reform of the tax code is a way of telling potential contributors and supporters with economic, taxable interests that they had better be on the winning side of the elections.

The political party that takes such power will now be able to reward supporters and punish opponents through subtle and difficult-to-trace tax provisions. There are thousands of such provisions in the current tax code. Some will rise to the level of scrutiny and others will not. The winning party will have that power.

Talk of maximum tax rates and such is reasonable subject of public debate. But the parts that affect the wealthy and corporations DIRECTLY are of greater financial importance to the people who write the checks for campaign contributions.

A cynical view of our system granted, but try and refute it.

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