The Man Behind Cain's 9-9-9 Plan

During the 10/12/11 GOP debate on the economy, when Herman Cain was asked who he turned to for political advice, he replied, "One of my experts that helped me to develop this was a gentleman by the name of Rich Lowrie out of Cleveland, Ohio. He is an economist and he has worked in the business of wealth creation most of his career."

What kind of economist is Rich Lowrie?

According to his Linkedin page he has a BS in Accountancy from Case Western Reserve University.

How did Rich Lowrie create wealth?

He is currently a wealth management adviser at the Pepper Pike, Ohio branch of Wells Fargo.

"We offer comprehensive wealth management solutions for business owners, executives, professionals, families and fiduciaries."

Is a background in economics important?

Here's an exchange from the debate.

JULIANA GOLDMAN (Bloomberg TV): Mr. Cain, you say that your plan is revenue-neutral. And last year, the U.S. collected $2.2 trillion dollars in tax revenue, but Bloomberg Government has run the numbers, and your plan would have raised no more than $2 trillion. And even with that shortfall, you'd still be slapping a 9 percent sales tax on food and medicine.

CAIN: The problem with that analysis is that it is incorrect. The reason it is incorrect is because they start with the assumptions that we don't make. Remember, 9-9-9 plan throws out the current tax code.

Cain uses this statement as a means of getting back to his talking points. I don't believe that Bloomberg Government would "forget" that 9-9-9 throws out the current tax code because analyzing the alternative tax code was the purpose of their calculation.

CAIN: We have had an outside firm, independent firm dynamically score it. And so our numbers will make it revenue neutral.

Now we have a comparison of one named independent firm Bloomberg Government using existing numbers to evaluate Herman Cain's "simple, transparent, efficient, fair, and neutral" plan refuted by an unnamed independent firm's "dynamic scoring." Dynamic scoring is not an accounting principle but an economic one.

GOLDMAN: But then explain why under your plan all Americans should be paying more for milk, for a loaf of bread, and beer?

CAIN: You have to start with the biggest tax cut a lot of Americans pay, which is the payroll tax, 15.3 percent. That goes to 9 percent. That is a 6 percentage point difference. And the prices will not go up. So they have got a 6 percentage point difference to apply to the national sales tax piece of that, and in doing so, they have the flexibility to decide on how much they want to spend it on new goods, how much they want to spend it on used goods. Because there is no tax on used goods.

Here we get a look at Cain's assumptions.

Fact: Americans who pay only a payroll tax will have 6.3 percent more cash in their pocket to pay the new 9 percent sales tax.

Assumption: Prices will never go up.

Assumption: Purchasing used goods will mitigate any net tax increase from the new 9 percent tax.

Here is another fact not questioned during the debate about categories of income exempted from the 9 percent tax.

Fact: Taxes for capital gains and dividends and the estate tax go away completely.

For an independent voter it is often as important to know who advocates a proposal as the nuts and bolts of the proposal itself.

In terms of 9-9-9, how would a wealth management advisor and his clients fare under the new tax code?

Herman Cain's 9-9-9: Shifting the Tax Burden from Producers to Consumers and Suggestions for How the Poor Can Pay the Higher Taxes

Herman Cain's Message

If you visit HermanCain.com, Kent Short, an American butcher, has some glowing words for his candidate of choice. "When they asked him a question, he was just very up front and honest and says, 'I can't give you an answer because I don't know what all the facts are. And that's what we're doin' wrong.' People were giving answers without facts. And as soon as I heard him say that, I said, this is the only guy who's got any sense in the whole thing."

Herman Cain won the Florida Straw Poll with this message.



He begins with a subtle dig at his fellow candidate speakers by asking, "whose teleprompters are these? I'm not using them." It's true. He has lots of experience as a motivational speaker and radio talk show host.

"It must be borne in mind that the tragedy of life does not lie in not reaching your goals, the tragedy lies in having no goals to reach for. It is not a calamity to die with dreams unfulfilled, but it is a calamity to have no dreams." an unattributed quote from Benjamin E. Mays, who was President of Morehouse College when Cain graduated from there with a B.S. in 1967.

He lists the crises that America faces and offers the good news that we can solve these crises by identifying and hitting the target called "fix it", a reference to his days as a ballistic analyst "working for the Department of the Navy." This is not to be confused with Cain serving in the Navy. He did not.

When he states his bold solution to fix the economy, the audience chants in unison: "9-9-9." But for the independent voter, what exactly is 9-9-9?

Throw out all of the current tax code. Impose a 9 percent business flat tax, a 9 percent personal income tax, and a 9 percent national sales tax. It would be revenue neutral. It replaces all corporate and personal income taxes, capital gains, estate taxes, payroll tax. It provides certainty to the engine of economic growth: the business sector.

Energy: "America is going to dig here, drill here, and explore here first…we have the resources to become energy independent."

Restructuring Social Security: "Seniors don't worry. You won't be affected. Near retirement seniors. You don't have to worry. Because a personal retirement accounts option for younger workers will allow us over time to take care of those where promises were made." Younger workers would have an option to establish their own accounts.

National Security: "Peace through strength and clarity." We would "clearly identify who our friends are, clearly identify who our enemies are, and stop giving money to the enemies." When it comes to defense, he wouldn't look for what to cut but what to enhance. "If we are not in it to win it, we will not be in it."

The Founding Fathers: "'When any form of government becomes destructive of those ideals' (all men are created equal with unalienable rights to life, liberty, and the pursuit of happiness 'it is the right of the people to alter or abolish it.' We've got some altering and abolishing to do." Here he cites not the Constitution, which he would have to swear to protect and defend, but the Declaration of Independence, a document to spell out our grievances against King George III.

He ends with an appeal to "help me to push that shining city on a hill back to the top of the hill. Vote Cain in 2012."

9-9-9 Analysis:

On 09/30/11, the Christian Science Monitor took a look at 9-9-9 in Herman Cain's '999 plan': long overdue tax reform or job killer?" Some highlights:

9 Percent National Sales Tax

Rich Lowrie, Cain’s senior economic advisor claims it would shift the tax burden from production to consumption, allowing exporters to pay less tax on goods they produce and impose a 9% tax on imported goods.

Possible implications of the national sales tax included a negative impact on consumer demand and the possibility of retailers cheating by offering a lower price for wink, wink cash purchases.

9 Percent Corporate Tax

The possible implication of eliminating the business deduction for labor but not investment was favoring heavy industry over the service sector, such as Cain's former business: Godfather's Pizza.

Overall Tax Burden

Using an economic measure called "marginal propensity to consume" (necessary to evaluate the impact of a national sales tax), the article estimated that those who earned:

$20,000 would pay 17 percent vs. the current 12.8 percent.
$55,000 would pay 17.95 percent vs. the current 16.9 percent.
$300,000 would pay 16.3 percent vs. the 27.97 percent.

When asked about this disparity and the regressive nature of sales tax by Chris Wallace on the 10/02/11 Fox News Sunday, Cain responded with a figure for a $50,000 income earner that worked out in his favor according to his plan but without taking into account deductions allowed under the current tax code. Perhaps he should have stuck to "I can't give you an answer because I don't know what all the facts are."

Another concern voiced in the article was the impact shifting to a consumption tax would have on senior citizens who would face the new 9% sales tax on the way to a 30% national sales "fair tax" (a total shift away from income taxation) while the payroll tax supporting Social Security was eliminated.

For criteria on deciding whether independent voters should consider this "fair share" or "class warfare" see Barack Obama's Balanced Approach: Fair Share or Class Warfare?

Impact on Deficit

Chief Economist at Moody's Analytics Mark Zandi opines that the 9-9-9 plan is revenue neutral at the current rate of federal income: 15% of GDP.

The country currently spends 24% of GDP. The last time the budget was balanced was at 19.5% of GDP with $496 billion more in revenue than it collects today.



For more independent voter's perspective on the path to a balanced budget, see Balanced Budget Amendment

Poor People

On the 10/09/11 edition of Face the Nation, Bob Schieffer asked Cain about the provision that exempted used goods from the 9 percent national sales tax (I couldn't find this on hermaincain.com).

Schieffer: "Aren't poor people also going to get to pay a tax on food and a tax on medicine?"

Cain: "You give poor people more opportunity to stretch their dollar and leverage their income based upon their decision whether to buy new or used goods."

I can't help it but the option of poor people buying used food brought to mind a variation on a famous quote by Marie-Thérèse, the wife of Louis XIV, often falsely attributed to Marie Antoinette.

"Let them eat _ _ _ _. "

Barack Obama's Balanced Approach: Fair Share or Class Warfare?

On 09/19/2011, Barack Obama made some remarks on how the select committee should approach deficit reduction.

"If we’re going to make spending cuts -- many of which we wouldn’t make if we weren’t facing such large budget deficits -- then it's only right that we ask everyone to pay their fair share."

Obama's definition of fairness: "Middle-class families shouldn’t pay higher taxes than millionaires and billionaires."

Newt Gingrich was the only GOP presidential candidate to refer to Obama's "class warfare" during the 09/22/2011 debate but Paul Ryan, John Boehner, and Lindsey Graham were all characterizing Obama's "fair share" as "class warfare" by then.

In an 08/15/2011 New York Times op-ed piece by the Chairman and CEO of Berkshire Hathaway, "Stop Coddling the Super Rich," Warren Buffett argued that because he received much of his compensation as "carried interest," taxed at 15 percent, his overall tax rate of 17.4 percent was significantly lower than that of his employees, who averaged 36 percent.

An independent voter who isn't issued Republican or Democratic talking points for characterizing Obama's view as "class warfare" or "fair share" has to evaluate some facts, so here goes.

Chris Wallace interviewed White House Senior Adviser David Plouffe on Fox News Sunday 09/25/11.

Wallace used the following figures to question whether top earners were paying their fair share.


Fair Share?
Top 1% = 38% of Federal Income Taxes
Top 10% = 70% of Federal Income Taxes
The Tax Foundation Oct. 2010

Non-Payers
46% = No Federal Income Taxes
The Tax Policy Center July 2011

Looking at these numbers, it seems that the wealthy may be paying a higher percentage of their income to the federal government. Note that the first set of numbers, stating what the wealthiest pay, and the second set, what 46% of households don't pay, come from two different organizations. The second study would appear to be excluding FICA taxes, which Buffett argues disproportionately hit those who derive all their income from salary. Are those numbers also excluded from the first study?

Is seeking to adjust the tax code for high earners class warfare?

On the 08/16/2011 PBS Newshour story Land of the Free, Home of the Poor Paul Solmon reports some different numbers.

Distribution of Financial and Housing Wealth in the United States
Top 20%: 84%
2nd 20%: 11%
3rd 20%: 4%
4th 20%: 0.2%
Lowest 20%: 0.1%
Study by Dan Ariely of Duke University and Michael I. Norton of Harvard

Here we get a story that deals more with "class" and class mobility. Because it deals with quintiles instead of deciles, the numbers don't directly stack up but the underlying numbers don't appear to be necessarily inconsistent.

When it comes to the fair share or class warfare of the Buffett rule, Jon Huntsman advocates cutting the 15% taxation on capital gains and dividends to zero. Mitt Romney supports cutting tax on capital gains, dividends, and interest to zero for those who earn less than $200,000. That makes him more of a "class warrior."

Rick Santorum would cut corporate taxes for manufacturers to zero. Massachusetts Democratic senatorial candidate Elizabeth Warren would beg to differ with that approach.



"There is nobody in this country who got rich on his own. Nobody. You built a factory out there - good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory and hire someone to protect against this because of the work the rest of us did. Now look. You built a factory and it turned into something terrific or a great idea - God Bless! Keep a Big Hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

Mitt Romney's Economic Priorities

While Barack Obama’s American Jobs Plan is the most detailed document by a presidential candidate to date, Mitt Romney laid out significantly more detail than Jon Huntsman or Herman Cain in an e-book: Believe in America: Mitt Romney's Plan for Jobs and Economic Growth announced during a speech given at the McCandless International Trucks Company in North Las Vegas, Nevada. Here are his "day one" priorities.

Day One
Introduce Legislation to:

1. Reduce the corporate income tax rate to 25 percent.
2. Implement the Colombia, Panama, and South Korea Free Trade Agreements.
3. Direct the Department of the Interior to undertake a comprehensive survey of American energy reserves in partnership with exploration companies and initiates leasing in all areas currently approved for exploration.
4. Consolidate the sprawl of federal retraining programs and return funding and responsibility for these programs to the states.
5. Immediately cuts non-security discretionary spending by 5 percent, reducing the annual federal budget by $20 billion.

Sign Executive Orders to:

1. Direct the Secretary of Health and Human Services and all relevant federal officials to return the maximum possible authority to the states to innovate and design health care solutions that work best for them.
2. Direct all agencies to immediately initiate the elimination of Obama-era regulations that unduly burden the economy or job creation, and then cap annual increases in regulatory costs at zero dollars.
3. Direct the Department of the Interior to implement a process for rapid issuance of drilling permits to developers with established safety records seeking to use pre-approved techniques in pre-approved areas.
4. Direct the Department of the Treasury to list China as a currency manipulator in its biannual report and direct the Department of Commerce to assess countervailing duties on Chinese imports if China does not quickly move to float its currency.
5. Reverse the executive orders issued by President Obama that tilt the playing field in favor of organized labor, including the one encouraging the use of union labor on major government construction projects.

President Obama's American Jobs Act: How the Money is Spent

On Thursday, President Obama addressed a joint session of Congress to introduce his “American Jobs Act.”

Rather than giving a speech stressing core principles, the plan is concrete and actionable and Obama urged its passage.



The $447 billion program breaks down like this:

Fact Sheet and Overview (scroll to bottom for larger print of table)

President Obama asked Congress to come up with additional spending cuts over the next ten years to cover the cost of the program and promised a more ambitious deficit plan to cover the cost of the jobs bill and stabilize debt in the long run on September 19.

Ron Paul: Freedom, Liberty, the Constitution, Limited Government and a Balanced Budget

Ron Paul made it onto the August 28 edition of Fox News Sunday.

Some highlights: 

On FEMA:
Save a billion dollars from overseas warmongering, bring half that home, put it against the deficit and tide people over.

Unconventional Libertarian Views:
Isn’t it strange that we can apply that term (unconventional) to freedom and liberty and the Constitution, limited government, a balanced budget?

More Interested in Influence or Political Power?
I’m in it to win it and I’m more interested in influence and power. As president I would reduce the power of government. I would not go to war without Congressional approval.

Libya
We should be dealing for national security in defense of our country and not pretending that we can pick the dictators around the world. Military people want to defend this country but they don’t want perpetual war when it’s undeclared and they don’t see the end and you don’t know who the enemy is. Guard units should be here taking care of us when we have floods.

How Austrian School of Economics Would Boost Economy and Deal with National Debt
Let bankruptcy and liquidation occur. Give country a sound currency. Free up the markets. Property rights. Enforce contracts.

Ben Bernanke
All he needs to do is quit monetizing debt. Interest rates would go up and Congress would be forced to cut. Gold backing of currency restrains big government.

Jon Huntsman's American Jobs Plan

On Wednesday, Jon Huntsman came out with his American jobs plan "Time to Compete."

Some highlights submitted for your approval:

Tax Reform:

Introduce a revenue-neutral tax plan that eliminates all deductions and credits in favor of three drastically lower personal tax rates of 8%, 14% and 23%.

Eliminate the Alternative Minimum Tax, which is not indexed for inflation.

Eliminate taxes on capital gains and dividends.

Reduce corporate rate from 35% to 25%.

Regulatory Reform

Repeal existing regulations, including Obamacare (Affordable Care Act) and Dodd-Frank (Wall Street Reform).

Dramatically rein in the EPA. Oppose new ozone rule that would effectively halt new construction. On Friday, White House asked EPA administrator Lisa Jackson to withdraw the draft of the National Ambient Air Quality Standards plan. 

Ensure that NLRB and other agencies abandon their “job-destroying” policies.

Reform the FDA by streamlining the testing and approval process.

Enact comprehensive patent reform to weed out rent seeking and foster invention. "This American Life" episode "When Patents Attack" illustrates some flaws of current patent system.

Privatize Fannie Mae and Freddie Mac.

Energy Independence

Expedite the process for reviewing and approving safe, environmentally sound energy projects, including the development of North American oil and gas reserves; oil and gas in the Gulf of Mexico and Alaska; shale gas and oil in the U.S.; and Canadian oil sands.

Eliminate the subsidies and regulations that support foreign oil and inhibit domestic alternatives such as compressed natural gas (CNG), electricity, biofuels, and coal-to-liquids, which are not price-controlled by OPEC.

Free Trade

Make trade agreements with South Korea, Colombia and Panama a priority. Pursue new trade opportunities with Japan, India, and Taiwan.