Herman Cain Tries, And Fails, To Defend 9-9-9
Yesterday on Meet The Press, Herman Cain admitted that his tax plan would result in some Americans paying more taxes:
Republican presidential candidate Herman Cain acknowledged on Sunday his “9-9-9” tax reform plan would raise taxes on some Americans but denied criticism it would help the rich while hurting the poor.
“Some people will pay more. But most people will pay less,” Cain, a former chief executive of Godfather’s Pizza who has never held elected office, said on NBC’s “Meet the Press.”
The acknowledgment of higher taxes could give ammunition to a growing number of Cain critics, including anti-tax crusader Grover Norquist, who oppose his plan.
“Who would pay more? The people who spend more money on new goods. The sales tax only applies to people who buy new goods, not used goods. That’s a big difference,” Cain told NBC.
Of course, what Cain doesn’t acknowledge is that a sales tax, especially one like his that has no exemptions for items like good such as many state sales taxes do, would disproportionally impact the poor and the middle class. Put simply, people with lower incomes spend more of their money because they have to, therefore they are going to end up being impacted more by such taxes. Additionally, as Gregory tried to get Cain to acknowledge yesterday, a national sales tax would have a serious impact on small business in states that already have a high sales tax. As Dave Schuler pointed out in a comment to an earlier post about 9-9-9, the sales tax rate in Chicago right now is 9.75%, including both state and local taxes. Add the Cain plan into that and you’d have an effective sales tax of 18.75% on goods that aren’t exempt under state law (on those goods it would “only” be 9%). Even here in Virginia, where the sales tax is relatively modest, we’d end up paying an effective tax rate of 14%. Numbers like that would be devastating for lower income earners, and for small businesses.
Gregory tried to address that issue with Cain yesterday, the result was, well, frustrating:
MR. GREGORY: But that doesn’t make any sense to me. If I’m already paying state taxes, and I have a new Cain administration national sales tax, I’ve got more state taxes.
MR. CAIN: No you don’t.
MR. GREGORY: How so?
MR. CAIN: David, David.
MR. GREGORY: You’re not saying they’re going away.
MR. CAIN: Your state taxes are the same. Your federal taxes, in most cases, are going to go down. That’s muddying the water.
MR. GREGORY: The Wall Street Journal says you have one on top of the other. There’s a combined levy.
MR. CAIN: That is not correct, David.
MR. GREGORY: Right.
MR. CAIN: Let’s try this one more time. State taxes are there today. The current tax code is a 10 million word mess. You have probably 100 — you have thousands of loopholes and tricks and what I call “sneak attaxes” in the current code. State taxes today, whatever they are, zero or some number, has nothing to do with replacing the tax code. Nothing.
Cain is right that the Federal Government has no control over state taxes, and Gregory misspeaks at the beginning when he said that “I’ve got more state taxes,” when he should’ve said sales taxes. Cain, however, is either blind or idiotic to ignore the impact that a combined federal and state sales tax would have in jurisdictions that already do have a sales tax, and the impact that a combined levy approaching 20% on the sale of goods would have on the middle class, and on small businesses. The most likely explanation for Cain’s convoluted response here is that he simply hasn’t thought these issues through. As we’re learning, that’s true of many of the planks of his platform.
Update: Hank Adler points out a particular problem with 9-9-9 as it applies to groceries:
One need only look to the annual report of Safeway to understand the impact of 999 on grocery prices. Because the grocery business is incredibly efficient and there is significant competition, there are very, very low margins in the industry. The pretax profit in good years for Safeway is only about 2% of sales and the Federal income taxes therefore are less than 1/2% of sales. After making a reasonable guess based on other information in the Safeway annual report, the total Federal income tax plus Safeway’s portion of their employees’ payroll taxes is less than 2% of sales. Assuming that would all be passed through to the customer in the way of price reductions, the price of food must increase by about 7%.
An immediate increase of 7% in food prices or the mere thought of this could destroy any chance Herman Cain has with retired and low income voters. As this voting block does not pay income taxes, the resultant reduction in their spending power would surely result in these voters looking elsewhere.
And that doesn’t even cover what would happen to the price of a pizza from Godfather’s