Herman Cain: Who came up with the 999 plan?

With Herman Cain now a GOP front-runner in some polls, DCDecoder offers a four-point primer on Cain's 999 plan.

Herman Cain, it may be your moment - as Decoder wrote yesterday, Cain is leading the entire GOP field in the latest Wall Street Journal/NBC poll.

Want to understand what all the fuss is about when it comes to Cain’s “999” tax plan? Here you go.

1. The Plan itself. What may surprise many is that the “999 plan” - a 9 percent personal income tax, 9 percent national sales tax and a 9 percent business tax - is actually only phase two of Cain’s overall tax vision. In phase one, Cain would cut individual and corporate tax rates to a maximum of 25 percent. Then, in phase two, he would implement the “999” rates. Phase three is the implementation of a “fair tax.” That tax would amount to a single national sales tax (typically formulated at 30 percent) in lieu of all other taxes. Why not just go straight to the fair tax? Cain writes, somewhat nebulously:

Amidst a backdrop of the economic boom created by the Phase 1 Enhanced Plan, I will begin the process of educating the American people on the benefits of continuing the next step to the Fair Tax.

2. What do economists think about this plan? There are plenty of economists with plenty of opinions, but The Christian Science Monitor’s Ron Scherer caught up with a boatload of them. In general, they aren’t very bullish:

“Every CEO says the reason they’re not hiring is because they’re not seeing demand,” says Rachelle Bernstein, a vice president and tax counsel at the National Retail Federation, a lobbying group, in Washington. “An additional tax on consumer spending will negatively impact that already weak demand.”

Some economists worry the plan would result in national tax cheating since retailers might offer items for sale at two different prices: one with tax and one without tax for people paying with cash. “The incentive to cheat is huge,” says Nigel Gault, chief US economist for IHS Global Insight in Lexington, Mass.

Mr. Gault says this is the reason why most countries have enacted a Value Added Tax (VAT) that gets tacked on during the different phases of producing a product. As each tax gets added on, there is an incentive to pass it on.

Since Cain would eliminate the business deduction for labor but not investment, the plan would most likely cause distortions that might add to the unemployment rate, says [John] Silvia [chief economist at Wells Fargo Securities in Charlotte, NC]. “This would favor heavy industries that use lots of capital and penalize companies where labor is significant and capital is small,” says Silvia. The entire service sector would be disadvantaged, he adds….

But probably the largest economic impact would be shifting the tax burden. “It’s a huge tax reduction on the very top and a huge tax increase for moderate and low income people,” says Michael Graetz, a professor at Columbia University who has testified before Congress on taxes.

The Washington Post’s Fact Checker Glenn Kessler looked into “999” as well, eventually giving Cain “Three Pinocchios” for saying most Americans would see their taxes decline under his plan.

"Just like it would be wrong to claim pizza is a low-calorie meal, Cain’s description of the plan’s impact on working Americans is highly misleading," Kessler wrote.

3. Who helped him gin this thing up, anyway?

A good question. The only economic policy adviser Cain has named is a guy named Rich Lowrie (here’s his LinkedIn profile) whose economic credentials are, shall we say, limited. For one, he doesn’t have an economics degree, although Cain called him an economist during the debate Tuesday night. Second, his professional experience extends to helping run a Wells Fargo wealth management division outside of Cleveland, Ohio, and sitting on the boards of various conservative economic groups. Cain has refused to offer up the names of any other advisers.

4. What are Republicans saying about the plan?

Reaction on the right could be described as generally positive but with a host of caveats. As one might imagine, the best part of the plan, in the eyes of conservatives, is lower tax rates. The main objections include the fact that by adding a new 9 percent national sales tax, Cain’s plan gives the federal government a new revenue stream which, some argue, would inevitably lead to more government and/or more taxes.

An analysis by Tea Party group FreedomWorks put it thus:

Mr. Cain’s 999 plan is on the right track with its goal of a lower, flatter, simpler, fairer, more transparent tax system. Nine percent would be a wonderful top rate for the income tax, compared to today’s 35% top rate. And let’s face it, abolishing the payroll tax and the death tax would simply be awesome.

But adding a national retail sales tax on top of the federal income tax (even a flat tax) is a bad idea, because it creates the infrastructure for a federal-level, European-style [value-added tax, or VAT].

And if Cain’s 9% personal flat tax failed to remain flat (as happened with Ronald Reagan’s promising but ultimately failed 1986 tax reform), we would end up with the worst of both worlds: a confiscatory income tax and a job-crushing VAT.

But while there may be some qualms over the plan, there’s much greater enthusiasm for the plan’s messenger. One blogger at conservative web forum RedState notes that Cain’s ability to sell his plan to the American public, whatever its flaws, is a positive thing in and of itself.

Yes, that it is appealing doesn’t make it workable or a good idea. But it does make it an appealing idea. Which is a helluva lot better than the alternatives we have so far. You’re not going to find crowds at Romney rallies chanting “59 Points!” or even understanding what the hell is in his 160-page economic plan. (Although, a Romney rally where the crowd did chant his entire economic plan would be akin to a Buddhist funeral ceremony… hours and hours of chanting….) Perry’s economic plan is easy to understand, and has a built-in slogan… oh wait… he hasn’t released one yet. Nevermind then…

There’s a deeper point to be made here. Cain often says on the stump that his job as President will be to educate and inform the American people, because “If people understand it, they will demand it.”

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