Herman Cain Rebuts 9 Criticisms of His 9-9-9 Tax Plan

GOP presidential candidate Herman Cain tackles nine concerns about his 9-9-9 tax plan:

Claim 1: The 9 percent sales tax, which is one third of the formula, is regressive and hurts the poor, many of whom pay no federal income taxes now.

Response: This claim ignores some important aspects of the plan. One is that we eliminate the 15 percent payroll tax, which allows for no deductions at all not even for charitable contributions. Some critics have argued that the poor still come out behind because employers pay much of the payroll tax. That demonstrates a basic misunderstanding about how compensation works in the business world. An employer decides to accept a certain cost-of-employment for each employee, and the employers share of the payroll tax is part of that cost. It comes out of your compensation whether you realize it or not. Also, a flat tax is not by definition a regressive tax. Everyone pays the same rate. And it is not an added tax, but a replacement tax, whose total burden is determined by the consumers spending decisions.

Finally, the best way to help the poor is by spurring economic growth, which the current tax code will never do, and which the 9-9-9 plan is specifically designed to do.

Claim 2: Creating a new tax is merely setting the stage for higher rates on all taxes, as untrustworthy politicians will surely raise them.

Response: First of all, that is not a criticism of the 9-9-9 plan. It is a criticism of politicians. If you dont want the rates raised, dont elect politicians who will raise them. Even if we repealed the 16th Amendment and eliminated the income tax, as some demand in return for establishing a consumption tax, politicians could raise that rate too. Whats far more important here is the fact that the very simple, flat-rate structure of the 9-9-9 plan, which allows no deductions, loopholes or exemptions (with the exception of charitable contributions for the income tax), is a far more growth-friendly tax structure than the mangled mess of rates, taxes, exemptions and ill-conceived incentives we have today. It virtually eliminates the massive compliance costs of the current tax code, and it restrains the size of government.

By taking away the politicians gateway drug of loopholes and deductions, we make it much more difficult for them to mess with the tax code. Having said that, any plan could be criticized for what it would look like if someone messed it up. The plan as Im proposing it is a huge improvement over the status quo.

Claim 3: The plan redistributes wealth from the poor to the rich.

Response: It does no such thing. It is fair and neutral, taxing everything once and nothing twice. Whats more, we are getting ready to propose empowerment zones for economically struggling areas in which the rates will be even lower. That will allow the poor to benefit even more from the plan than they already would.

Claim 4: The plan should have included a pre-bate to offset the sales tax.

Response: The last thing we need is to establish another federal entitlement, which the proposed pre-bate would quickly become. And its not necessary. The consumption tax replaces ones already embedded in prices. Its not the prices that would increase, but the visibility of the taxes being paid. Right now, money is deducted from your paycheck and you never see it, so it doesnt feel like you paid a tax. But you did. With the 9-9-9 plan, you feel it, and I suspect a good many people who clamor for higher taxes will start to feel differently as a result. But they wont be paying more than before. Theyll just be more aware of it.

Claim 5: The business tax represents a new tax on labor.

Response: Paul Krugman of the New York Times makes this claim because we do not allow businesses to deduct the cost of labor from their taxable revenue. But the claim is bogus for several reasons. First, we are reducing the corporate tax rate from 35 percent to 9 percent, so the tradeoff is a much lower rate paid on more of a companys income. Second, we treat capital and labor the same, both with the corporate tax and with the income tax. That is fair and neutral. Whats more, the current system taxes both capital investment by business and capital gains by individuals. Thats a double tax, and the 9-9-9 plan eliminates it.

Claim 6: The numbers dont add up. The 9-9-9 tax wouldnt generate enough revenue.

Response: Several groups apparently ran the numbers and came to this conclusion, including Bloomberg News and the Center for American Progress. Our report, which they do not appear to have read, demonstrates that it generates the same revenue as the current tax code, and our methodology is visible for anyone to see. Those who are making this claim should release their scoring so their methodology is as visible as ours.

Claim 7: The 9-9-9 plan is a really an 18 percent value-added tax plus a 9 percent income tax.

Response: Thats an argument? That some might be able to give it a disagreeable label? What we have done is split the incidence of the tax so it is harder to evade since youd have to dodge two taxes, not just one, to save the 18 percent. And by eliminating loopholes weve made that virtually impossible to do anyway. I dont really care what people call it. What matters is how it works.

Claim 8: Some people (like Herman Cain) who may live off capital gains, would pay no income taxes. Is that fair?

Response: First, one of the benefits of the 9-9-9 plan is that, even if someone doesnt pay much or any of one of the taxes, he or she is still likely affected by the other two. More to the point, though, everyone has the same opportunity to work hard, earn capital and put that capital at risk. Whatever I have earned has come from hard work, good decisions (and some bad ones), a willingness to take risks and a constant honing of strategy. Nothing is stopping anyone else from doing the same thing. I realize many are being told there are no opportunities available to them, but that is not true and I wish people for their own sakes would stop listening to such doom and gloom and come to understand all the opportunity that truly exists, and learn how to access it.

Claim 9: It wont pass.

Response: Politicians propose things that can pass. Problem-solvers propose things that can work. One of the worst instincts of Washington types is to judge an idea not on its substantive merits, but on their perception of its political viability. I do not underestimate the challenge of getting any good idea through Congress, but I have said all along that if you propose a good idea, and the people understand the idea, they will pressure Congress to pass it.