By moving some of tax that we now collect from a corporate income tax and instead collecting that in the form of a tax on the sale of goods, it shifts the tax burden from only domestic businesses to be shared by both domestic and foreign businesses.
Let's say for purposes of example that today the government raises $20 from corporate income tax on domestic television manufacturers (and pretending for purposes of example that we still make those products).
And now let's shift half of the burden onto a sales tax on the sale of the televisions themselves to consumers.
In the new scenario, the government only collects $10 from the corporate income tax from the US manufacturer instead of $20 as before. This means the US manufacturer has more flexibility to lower its prices and still make a profit.
Assuming the domestic manufacturer sells one television and the foreign manufacturer sells one television, the $10 that was shifted over onto the sales tax is charged $5 on the television sold by the domestic manufacturer and $5 on the television sold by the foreign manufacturer.
The consumer is only concerned with the after-tax price. The foreign manufacturer today has a number of advantages in labor, environmental, currency manipulation, and so forth.
The Cain tax plan helps to level the field by allowing a US manufacturer to be able to compete at lower prices and placing a tax burden at the point of sale on goods by both domestic and foreign manufacturing.
Who knows, under this plan we might even see television manufacturing begin again in the US if we combine the tax plan together with lifting regulatory burdens.
There would need to be many scenarios run to validate your assumptions on this.
In lowering the domestic, corporate income tax from 39% to 9%, we would also be eliminating corporate tax deductions such as depreciation, labor, benefits, etc. Indeed Cain touts his plan as ‘revenue-neutral’, and I do not see a significant shift between domestic corporate costs and foreign corporate costs.
Companies choose to locate plants in various places for many reasons. Why else would so-called ‘foreign-car’ makers such as Toyota, Honda, and Nissan have so many plants here in the USA?