Cain's Ten Minutes in the Hot Seat

This was the first debate with Herman Cain at or near front-runner status and it showed. Right out of the gate the questions and the other candidates challenged his 9-9-9 plan.

Here he is defending it:

The thing that I would encourage people to do before they engage in this knee-jerk reaction is read our analysis. It is available at hermancain.com.

[...]

I invite people to look at our analysis, which we make available.

Secondly, the -- the point that he makes about is a value-added tax -- I'm sorry, Representative Bachmann -- it's not a value-added tax.

[...]

And I invite every American to do their own math, because most of these are knee-jerk reactions. And we do provide a provision, if you read the analysis, something we call opportunity zones that will, in fact, address the issue of those making the least.

[...]

Once again, unfortunately, none of my distinguished colleagues who have attacked me up here tonight understand the plan. They're wrong about it being a value-added tax.

The value-added tax question hasn't gone away and it hasn't gone away because Cain never explains why his proposed business flat tax is not one. He just sends people to his website.

To the limited extent he tried to argue the issue, Cain gave the misleading impression that when candidates and commentators question his proposed VAT that they're talking about his retail sales tax. Here he is:

Secondly, it is not a value-added tax. If you take most of the products -- take a loaf of bread. It does have five taxes in it right now. What the 9 percent does is that we take out those five invisible taxes and replace it with one visible 9 percent.

So you're absolutely wrong. It's not a value-added tax.

This explanation is no explanation at all. Folks aren't calling his retail sales tax a VAT. They're calling his corporate flat tax a VAT. Here's Santorum and then Bachmann explaining why:

[Santorum:] [Y]ou have a sales tax and an income tax and, as Michele said, a value-added tax, which is really what his corporate tax is, we're talking about major increases in taxes on people.

[...]

[Bachmann:] But Anderson, how do you not have a value-added tax? Because at every level of production you have a profit, and that profit gets taxed, because you produce one portion at one level, and then you take it to the next supplier or vendor at the next level, and you have an exchange. That is a taxable event.

And ultimately, that becomes a value-added tax.

Bachmann is talking about exactly what we've been talking about here for a week. Cain's corporate tax, which is calculated by taxing gross sales less purchasing costs, investments, and deductions, is a VAT because the tax falls on only the part of the sales that is "value-added." And that compounds, as Bachmann explained, at every supplier or vendor until the final sale (where the 9% retail sales tax will get another bite of it).

And while we're talking about it, here's 9-9-9 plan architect Steve Moore having second thoughts:

I love the idea [of a 9 percent national sales tax]. As you know, Art Laffer and I helped design the plan. But I’ve come to the conclusion that the American people and the voters do not want a national sales tax. He’s going to have to replace that national sales tax with a 9 percent payroll tax. And if you do that it’s a total winner.

A 9 percent payroll tax on top of the proposed 9 percent wage tax? Every small business in America just cried out in terror.

posted by Gabriel Malor at 07:45 AM

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