Business groups blast Cain's 9-9-9 tax plan as job killer

Called a job killer at worst or a detail-free slogan at best, Herman Cain's 9-9-9 tax plan is getting tepid-to-awful reviews from some of the nation's most influential business groups.

The National Retail Federation strongly opposes the Republican presidential candidate's plan because it would institute a first-ever national sales tax of 9 percent that, the federation says, will dampen consumer spending.

"This will hurt demand and slow the economic recovery," the federation's tax policy expert, Rachelle Bernstein, said. "You definitely do not want to do this."

But Cain said the economy will boom and suggested people will see an overall tax savings due to the big reductions in the income-tax and corporate-tax rates. Each rate would drop to 9 percent.

"They have the flexibility to decide on how much they want to spend on new goods, how much they want to spend on used goods," Cain said Tuesday during a nationally televised debate.

Cain's plan became the main focus of the debate as his Republican opponents bashed it for lacking specifics and being politically unrealistic — criticisms now echoed by the retail federation and, to a slightly lesser extent, by the National Association of Homebuilders.

Until Tuesday's debate and his recent surge in the polls, Cain's 9-9-9 plan was a political plus. Catchy and bumper-sticker simple, it enabled the candidate to answer succinctly in previous debates where he didn't have to defend the plan because he was a lower-tier candidate on a crowded stage.

Now, the plan is more politically perilous. Its simplicity draws attention to his lack of political experience and allows critics to more easily claim Cain emphasizes style over substance.

In the short-term, though, the criticisms of Cain's plan have galvanized his support among many conservatives and have burnished his credentials as a Washington outsider.

Michael R. Caputo, a political consultant who works in Florida and New York, said that "when lobbyists bash a plan, I like it more." He said that Cain "had me at 9-9-9. Politicians maintain power by mystifying government until a citizen with clarity and gravitas calls them out."

Unaddressed by Cain or the critics is the effect that the new national sales tax could have in a state like Florida, where the sales-tax rate is 7 percent or higher in most counties.

Florida, the nation's largest swing state, doesn't tax food and medicines; Cain's plan probably would.

Florida's general-revenue state budget is primarily funded by sales taxes because the state has no income tax. If consumers hold back on purchases, then the budget shortfalls would likely grow bigger and state legislators would have to cut more from schools and health programs.

The homebuilders association said 9-9-9 could be bad for any state where construction is a mainstay of the economy, as in Florida. The association says Cain's proposal could impose new taxes on rentals, remodeling jobs, mortgages and sales of new homes.

"It would have a negative impact on a fragile housing market, particularly in a state like Florida," said Robert Dietz, an economist with the association.

But Dietz — like other economists and those with the retail federation, the U.S. Chamber of Commerce and the National Federation of Independent Business — said there was only so much of Cain's tax plan that could be analyzed because there aren't enough details. None of the four business groups plans to endorse a candidate in the Republican presidential race.

The chamber and NFIB were more measured in their reaction to Cain's proposal. They had little good to say about the few available details, but credited Cain for trying to simplify a complicated tax system.

So did the godfather of conservative tax policy, Grover Norquist, who nevertheless bashed Cain's proposal.

"Having three taxes, all of which can grow — it's like having three needles in your arm taking blood out, it's much more dangerous than having one," Norquist said on MSNBC's Morning Joe show Thursday.

The concerns also indicate that, even if Cain ultimately became president, his proposal would never pass Congress — a point stressed by his Republican opponents Tuesday night at the Bloomberg/Washington Post debate in New Hampshire.

Even the crowd didn't seem to like the 9-9-9 proposal when Republican Rick Santorum began blasting away at it.

"Herman's plan… could not pass," Santorum said, turning to the crowd. "How many people here are for a sales tax in New Hampshire? Raise your hand."

Not many — if any — did.

"There you go, Herman. That's how many votes you'll get in New Hampshire," Santorum said.

"9-9-9 will pass," Cain responded. "It starts with, unlike your proposals, throwing out the current tax code. Continuing to pivot off the current tax code is not going to boost this economy. This is why we developed 9-9-9, 9 percent corporate business flat tax, 9 percent personal income flat tax, and a 9 percent national sales tax. And it will pass, senator, because the American people want it to pass."

Cain said his proposal has been "well-studied and well-developed" but he didn't name names, except for a man he credited as a father of the plan, Richard Lowrie, who's a Wells Fargo financial adviser near Cleveland. Lowrie isn't an economist. Usually, campaigns employ well-known economists to flesh out their proposals.

Earlier in the debate, a moderator noted that a Bloomberg analysis estimated Cain's proposal would cause an additional $200 billion budget deficit — which Cain called "incorrect" because he used different financial assumptions. He didn't spell out why the numbers were different.

"We have had an outside firm, independent firm dynamically score it. And so our numbers will make it revenue neutral," Cain said. But he didn't name the outside firm, nor has he posted the additional analysis on his website.

If Bloomberg's analysis is right, however, Congress is likely to balk at a plan that would add to the nation's $14 trillion debt.

Also, Cain's plan could disproportionately benefit wealthy people — who currently pay a disproportionate share of taxes — and shift more of the tax burden to middle- and lower-income people, some of whom pay no income taxes at all right now.

"The 9-9-9 plan would materially raise the tax burden on many low- and middle-income taxpayers," Edward D. Kleinbard, a University of Southern California tax-law professor and a former chief of staff at the congressional Joint Committee on Taxation, wrote in an analysis.

Politically speaking, the tax shift would inevitably lead to cries of class warfare — especially in a nation where nearly every major public poll shows that even a majority of Republicans could stomach more taxes on the rich to pay down the debt.

Economically speaking, the shift in taxes and the increase in sales taxes will affect the purchasing power of lower- and middle-income people. Their purchases drive the economy. Raise the price, and sales fall, said the retail federation's Bernstein.

When big lobbies like the federation clearly voice their opposition, Congress takes note and often does little new. Congress' so-called "Super Committee" is already struggling to find a consensus over reducing the debt by eliminating tax breaks or cutting spending. Congress hasn't conducted large-scale tax reform since 1986.

"Anytime you make a big change and there are losers, that can be a challenge," said Brad Close, vice president of public policy for NFIB.

President Barack Obama learned how difficult it was to get Congress to act. Though most national polls showed he advocated popular positions about raising taxes on the wealthy, Congress — including members of his own party — balked.

Overhauling the tax code is a problem for any legislative body. In Florida, former House Speaker Marco Rubio, who's now a U.S. senator, couldn't persuade the state Senate to eliminate a portion of property taxes in return for a sales-tax increase. The Florida Retail Federation and other business groups fought the plan in the state Capitol, just as their national counterparts would in Congress.

Mark Wilson, the president of Florida's Chamber of Commerce who sits on the national chamber's board, said it was opposed to Rubio's tax swap at the time because it would have raised the cost of business in a state where about 40 percent of sales taxes result from business-to-business transactions. Wilson said there isn't yet enough detail to analyze 9-9-9, though he credited Cain for helping further the dialogue about restructuring the tax code.

Cain, the former CEO of Godfather's Pizza and an unsuccessful U.S. Senate candidate in Georgia, said the fact that he's a political outsider distinguishes him and his plan from the other Republican candidates.

"Therein lies the difference between me, the nonpolitician, and all of the politicians," he said. "They want to pass what they think they can get passed rather than what we need, which is a bold solution. 9-9-9 is bold, and the American people want a bold solution, not just what's going to kick the can down the table — down the road.

But groups like the homebuilders and the retail federations also want specifics and a tax plan that helps their bottom line. And, so far, Cain's plan doesn't look like it delivers either for them.

Business groups blast Cain's 9-9-9 tax plan as job killer 10/14/11 [Last modified: Friday, October 14, 2011 5:33pm]

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