Earlier this week, I noted some of the criticism of Herman Cain’s 9-9-9 plan from conservative circles, Kevin Williamson of the National Review chalks it up as “wishful thinking that borders on fantasy,” while Dan Mitchell of the Cato Institute doesn’t like that it keeps the income tax in the tax code.
Dean Clancy, vice president of FreedomWorks — a leading tea party organization, sees good in the proposal; but notes that there are some glaring problems that could lay the precendent for bad tax policy in the future:
The first problem is that it doesn’t get rid of the income tax. In fact, it adds a new tax — a national sales tax — on top of the income tax. Cain clearly intends that eventually the income tax will be eliminated. But what’s to guarantee that outcome? And if we want to get rid of the income tax — and we should — why not do it right from the start? Is it possible that he realizes that if he did it all in one step, folks might not be as keen on the plan (say, because his national sales tax would have to be closer to 25% than 9%)?
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The second problem with Cain’s plan is more serious. The plan puts in place the infrastructure for a VAT — a Value Added Tax. That’s bad. Very bad.A VAT is a form of national sales tax that is collected at every stage of the process from the initial gathering of raw materials to the final sale to the end consumer. It is the most insidious of all taxes, because it is built into the price of everything and consumers can’t see how much of the price is due to the tax. So when prices rise due to a tax hike, consumers assume it’s just prices rising due to market forces. Politicians love this about a VAT. They can take more money out of our wallets than with other, more transparent forms of taxation. Taxpayers should hate it for the very same reason.
European countries have much higher overall tax takes than does the United States. Why? Because the Europeans all have VATs, and we do not. Total receipts of the US Government since World War II have averaged about 18 percent of GDP and have never exceeded 20.9 percent (the peak, in 1944). By comparison, the “Big Six” European countries’ total receipts since the early 1970s when VATs became ubiquitous have not been less than 30 percent of GDP and today average a little over 40 percent! Twice as high as in the US.
Well, you say, Cain’s national sales tax isn’t a VAT. Okay, that’s true. But guess what? Europe’s first VATs all started out life as national sales taxes. Sales taxes are relatively easy to evade. VATs are much harder to evade. So sales taxes have a habit of evolving into VATs. That’s what happened in Europe. And it’s what will happen here, if we adopt Cain’s sales tax.
But Cain isn’t running on serious policy proposals. The guy knows how to market and pitch an idea; after all, the 9-9-9 plan is easy to remember and the one-liners that he is tossing out are catchy. This may be good for selling pizzas, but not for tax policy. And the lack of seriousness is best exemplified by his campaign, which has no campaign stops in early primary states this month:
[A]ccording to his public campaign calendar of events, where 19 of the 31 days of October are blank, there will not be much glad-handing in the immediate future. That is just fine with Mr. Cain, a former business executive who has recently surged to the top tier of candidates in early polls. The latest Quinnipiac University poll, released Wednesday, found Mitt Romney and Mr. Cain essentially tied within the poll’s margin of sampling error.
“I’m trying to run this campaign like a start-up business, which means lean and mean,” Mr. Cain said in an interview on Tuesday, wearing his signature black cowboy hat. “There’s a new sheriff in town.”
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But it is not clear that Mr. Cain, 65, has any particular plan to seize this moment, beyond using the attention to sell books. Like the other candidates vying to become credible alternatives to Mr. Romney and Mr. Perry, Mr. Cain is operating on a shoestring. He raised $2 million last spring. More money is coming in, he said, and he has 40 staff members, mostly in Southern states. Still, an adviser to the campaign said the campaign had only four people working in Iowa, and there is no plan to change strategy.Many Republicans doubt this will be enough to launch Mr. Cain in the crucial early states, especially if he decides to avoid retail politics.
“No candidate can afford to spend two or three weeks not being in New Hampshire this year,” said Steve Duprey, a Republican National Committee member from the state. “He has not made as much progress organizing in New Hampshire as he could have, but there’s time.”
Cain defends this by saying he’s been to Iowa nearly 30 times since the beginning of the year. That’s fine, but organization is key and at least four other campaigns (Bachmann, Paul, Perry, and Romney) are investing time and/or money there. Not to mention that there are four other primaries/caucuses in January that Cain’s campaign needs to drop resources into.
With Cain you’ve got a master of the soundbyte that has the populist appeal to get his party’s base excited, yet his inexperience and lack of substance are real concerns. Wait, that reminds me of someone…Herman Cain is the Republican Barack Obama.