Former Godfather’s Pizza CEO Herman Cain is running for president as a businessman, and he’s got something to sell the American people — an economic plan that anyone can understand.
Call him the 9-9-9 candidate. That’s his economic plan, and he says it — 9-9-9 — just about every time he gets a chance to speak at a debate or during an interview, drilling it in like an ad jingle.
He only ranks fourth in the latest national poll, but Cain is on a roll after he snagged the top spot at the Florida Straw poll this weekend. His plan is simple and easily understood, which might be a plus among voters. Whether it will work for the economy is another matter.
Praised by supporters for both its simplicity and its specificity, Cain’s plan drops the current 35 percent corporate tax rate to 9 percent, swaps the 6-bracket personal income tax system for a 9 percent flat tax and creates a 9 percent national sales tax.
“Our tax code is the 21 st century version of slavery,” Cain said in a campaign video publicizing his 9-9-9 plan. “We will replace oppression with prosperity.”
Cain’s 9-9-9 video concludes with text saying, “If 10% is good enough for God, then 9% should be just fine for the Federal Government.”
And while Cain is busy pushing his 9 percent tax plan, he has yet to reach 9 percent support in the polls. In the latest CNN/ORC International Poll, 7 percent of Republicans and independents said they would support Cain, putting him in a three-way tie for fourth place with Ron Paul and Sarah Palin.
Cain said he is hoping to combat his “who is Herman Cain?” problem with a new book — coincidentally titled “Who is Herman Cain?”– which is set to hit bookshelves in October.
Unlike the economic proposals of his fellow candidates, Cain’s would add a new tax to the code in the form of a consumption-based national sales tax.
Cain said this tax would give consumers more freedom because how much they decide to buy determines how much tax they pay.
“It will encourage savings and it will encourage people to be responsible for their own decision-making,” Cain said in an interview with Fox’s Chris Wallace earlier this month.
Lawrence Mishel , president of the center-left Economic Policy Institute, took issue with Cain’s plan, saying it would disproportionately tax lower and middle income earners because they tend to spend a higher percentage of their incomes than wealthy people. And with a national sales tax, the more you buy, the more taxes you pay.
But William McBride, an economist with the Tax Foundation, said Cain’s plan was “an improvement” because it shifted from taxing savings, like income and capital gains, to taxing consumption, in the form of a national sales tax.
“Overall it’s better than what we’ve got,” McBride said. “When you tax savings, you tax growth because saving leads to investment and investment leads to growth.”
While a formal number crunch has yet to be completed, some economists are already crying foul over whether the 9-9-9 plan can bring in as much revenue as the current tax system.
“The first thing I think is show me the money,” said Joel Slemrod, an economics professor at the University of Michigan. “I want to know whether it adds up and I suspect it doesn’t.”
The 9-9-9 plan eliminates the payroll tax and estate tax, which brought in a combined $883 billion in 2010, or about 41 percent of the $2.16 trillion collected by the federal government last year. Cain’s proposal also wipes out taxes on capital gains and repatriated corporate profits.
The Tax Policy Center estimates that cutting capital gains taxes alone would allow 23,000 millionaires to pay no income taxes, a move that would add $11 billion to the deficit each year. Cain’s fellow GOP presidential candidates Michele Bachmann, Newt Gingrich and Jon Huntsman also support eliminating the capital gains tax.
Cain’s plan to end taxes on corporate profits that are earned overseas and then brought back into America would drop federal revenues by about $80 billion over the next decade, according to the tax center.
“Everything he’s talking about is if you just provide tax cuts to rich people we will all fare well,” Mishel said. “But hasn’t that been the theme for 30 years and doesn’t everybody agree that the middle class does not fare well? This is a triumph of amnesia.”
While Cain’s 9 percent corporate and individual income tax rates would be fairly simple to institute, a national sales tax would be logistically difficult, said McBride, the Tax Foundation economist.
“The devil is in the details,” he said, because sales tax rates are set by state and local governments so each municipality has different ways of collecting them and different rules for what types of products are exempt.
For example, Texans do not pay sales tax on food or pharmaceuticals, but Illinoisans pay a 1 percent tax on both.
“There is something like 8,000 sales tax jurisdictions and they all [collect] it different ways,” McBride said. “It wouldn’t be as simple as adding 9 percent to the local sales tax rate and sending that to federal government.”
If Cain left state sales tax rates untouched — which it is unclear if he would — taxes on some products would double with his added national sales tax.
In Tennessee, for example, the combined state and local sales tax rate is 9.43 percent, the highest average rate in the nation, according to a September Tax Foundation report. Under Cain’s plan a Tennessean who buys a $400 flat-screen television would pay about $74 in taxes. They currently pay about $38.
Ronald Alt, a senior research associate at the Federation of Tax Administrators, said a national sales tax would also bring up state sovereignty issues because states currently define their own sales tax policy. He noted that when the IRS offered to administer state income taxes, no state took them up on it.
“States did not want to give up their sovereign right to define what the tax code could look like,” Alt said, adding that a national sales tax “would be a very big state rights issue.”