Should Conservatives Endorse Herman Cain 9-9-9 Plan

Ed Morrissey - Herman Cain got what he wanted from this week’s debate — he drew attention to his 9-9-9 plan for tax reform, and he proved that he could handle attacks from the field and maintain his aggressiveness.  But now that Cain has drawn attention to the plan he says will jump start the economy, he will find more questions and challenges as well as supporters.  In the latter camp, Art Laffer has given his supply-side stamp of approval:

Famed supply-side economist Art Laffer told HUMAN EVENTS that Cain’s “9-9-9″ plan was a pro-growth plan that would create the proper conditions for America’s economy to grow and thrive again.
“Herman Cain’s 9-9-9 plan would be a vast improvement over the current tax system and a boon to the U.S. economy,” Laffer told HUMAN EVENTS in a statement. “The goal of supply-side tax reform is always a broadening of the tax base and lowering of marginal tax rates.”
Added Laffer: “Mr. Cain’s plan is simple, transparent, neutral with respect to capital and labor, and savings and consumption, and also greatly decreases the hidden costs of tax compliance. There is no doubt that economic growth would surge upon implementation of 9-9-9.”
Laffer also said that “such a system provides the least avenues to avoid paying taxes, yet also maintains the strongest incentives for work effort, production, and investment.”

On the other hand, ABC News walked through the implications for a household of four earning the average national wage of “just under $50,000,” and finds that these middle-class voters will get squeezed, and squeezed hard.  That’s largely due to the third “nine,” the new federal sales tax that Cain’s proposal would create in tandem with flat taxes on personal and corporate income (also see update below):

If you have a family of four with an income of just under $50,000, they would pay more under the Cain plan. Currently, they are taxed at just less than 7 percent and pay $3,400 in income tax. Under Cain’s plan, they would be taxed at 9 percent or pay $4,500.
That’s $1,100 more.
Although the family would save almost $4,000 in Social Security taxes, it would have to give up the child tax credit of $4,000. Furthermore, it would pay an additional national sales tax of 9 percent on everything purchased, including groceries and clothes, which totals about $2,000.
That means under the Cain plan that family would be almost doubling its taxes, going from $3,400 to $6,500.

Most of the damage in this case comes not from the flattening of the tax code and the elimination of deductions — which would be almost entirely offset by the elimination of other tax streams, as Cain promises — but from the national sales tax.  In my column for The Fiscal Times today, I question whether conservatives want to champion a new tax that almost by definition will have a regressive impact on voters — and could open a constitutional Pandora’s Box that will undermine arguments against creeping federal encroachment.  But first, let’s be clear as to what exactly 9-9-9 is — and isn’t:

It is not a comprehensive economic plan. It’s actually not even a budget plan. That’s why Cain’s challenge to Romney in the debate was somewhat unfair; Romney’s 160-page proposal is a broad economic plan with specifics on deficit reduction and entitlement reform, trade and energy policy. 9-9-9 is more properly categorized as tax reform.
9-9-9 is also transitional tax reform, not the end goal. On Cain’s website, he describes 9-9-9 as merely Phase 1 of tax reform. The final stage of Cain’s tax vision is the Fair Tax proposal pushed by Mike Huckabee in the 2008 election cycle, which is a consumption tax modeled on the European value-added tax (VAT). Cain developed the 9-9-9 plan to “unite the ‘Flat Taxers’ with the ‘Fair Taxers.’”

That’s a laudable goal, but instead of uniting the two camps by using a flat tax as an intermediate step, Cain adds the federal sales tax while the income taxes are still in place.  That creates a new federal income stream rather than replacing the existing income-tax stream.  We’d have to hope that Congress could repeal the 16th Amendment shortly after implementing 9-9-9, but that’s a time-consuming process.  Cain is going to have a hard time finding two-thirds of the politicians in Congress willing to give up their ability to use the income tax as a spoils system, either now or in the future.  In the meantime, the federal government will be inserting itself into every retail transaction in the country.
And just how do conservatives feel about that?

Finally, without a specific constitutional amendment authorizing it, a federal sales tax on general purchases would get challenged by small-government federalists on principle. Unless the sale crosses state lines, it is difficult to see federal jurisdiction at the cash register for most transactions. Accepting that Congress can impose a sales tax on transactions at the local grocery store without a Constitutional amendment granting such authority would require conservatives to embrace a Wickard v Filburn philosophy of interstate commerce. Since a rejection of that philosophy is at the heart of conservative opposition to ObamaCare and its mandate, don’t expect conservatives to leap for joy at the thought of a new definition of interstate commerce that fits the final “nine” in Cain’s plan.

The federal sales tax, at least without a Constitutional amendment, makes the limitation of federal authority to interstate commerce absolutely dead.  If they have tax jurisdiction on any retail sales transaction in America, then Congress has the explicit power to regulate all commerce, not just the encroachments we’ve seen through Wickard.
Cain’s a smart man who knows how to adapt when a business plan doesn’t work out.  I’d prefer to see his 9-9-9 plan modified to a 15-15 plan, or a plan to just transfer to a constitutionally-based (and constitutionally-limited) Fair Tax without the intermediate steps at all, rather than a hybrid that ends up with Americans paying taxes in two streams, and Congress still able to manipulate both for their own political purposes.  Cain has proven that he thinks out of the box, and he’s absolutely right that we can’t pivot to long-term growth and economic stability by tweaking the systems we currently have — but a new federal sales tax on top of an income tax would be a Pandora’s Box conservatives should not want to see opened.
Update: HA reader Bill C says ABC’s computation is in error:

The first step is fine … $3400 vs $4500.  However, the $4000 from Soc Sec. taxes is direct return, but the $4000 tax credit is an adjustment to the amount to be taxed, to the amount they pay MORE would be 9% of that or $360.  $4500 – $4000 + $360 = $860.  If you then add the $2000, you end up with $3400 vs $2860.
So it is not almost doubling the tax, but reducing it by a little more than $500.

I’ll drop ABC a note to ask them to review this, but I believe Bill is correct.
Update II: However, the Tax Policy Center says the Cain calculation is also overstating current tax liability for a family of four at $50,000 (via Jen Rubin):

In fact, a family making $50,000 a year with two children would only pay about $776 in income taxes when standard deductions are factored in, based on 2010 Internal Revenue Service levels. (In fact, not factoring in deductions, a married couple filing jointly making $50,000 a year would pay $6,666 in income tax, not $10,000. But what’s important for tax purposes is “taxable” income.)
Here’s the math:
- Gross Income: $50,000
- Subtract the 2010 standard deduction: $11,400 (2011 is $11,600)
- Subtract the personal exemption (essentially the number of people in the house): $14,600 ($3,650 x 4)
- That brings us to a taxable income of $24,000
- The tax on a married couple filing jointly at $24,000: $2,766
- Then, deduct an additional $2,000 ($1,000 child tax credit x 2)
That comes out to just $766. And that doesn’t include other potential exemptions, like educator credits, moving costs, student-loan interest, health-savings accounts, etc.

ABC also got the child tax credits wrong; it’s correct in this analysis.