Friday, October 14, 2011



Cain Plan's Reagan-Era Roots

GOP Candidate's Tax Blueprint Grew From Consultation With Supply-Side Guru


OCTOBER 14, 2011
Herman Cain's "9-9-9" plan might have been called the "Optimal Tax."
The Republican presidential candidate's economic adviser, Rich Lowrie, thought the plan's broad sweep and ultra-low 9% rates made it an ideal tool to revamp the tax code and encourage growth.


Herman Cain, right, talks in August with economic adviser Rich Lowrie, left, and an assistant in Spencer, Iowa. 

WSJ's Neil King has details of the latest WSJ/NBC poll that asked likely Republican primary voters who they currently support. The poll also reveals Americans' feelings about President Obama and the economy. AP Photo/Evan Vucci

Mr. Cain liked the idea, but not the name Mr Lowrie came up with.
"We can't call it that," Mr. Cain said during a cab ride through Nashville in July, according to Mr. Lowrie. Instead, the former pizza-chain executive, tapping his instinct for marketing, concluded: "We're just going to call it what it is: 9-9-9." ("What kind of nerd am I?" Mr. Lowrie says now.)

It has proved to be a significant moment for Mr. Cain's presidential aspirations. The former Godfather's Pizza chief executive has emerged as a top-tier candidate for the GOP nomination, ranking first in the latest Wall Street Journal/NBC poll. And his plan is getting a significant share of the credit—and scrutiny—for its simplicity as well as its radical prescription for the tax code.
"I think people crave the big idea when it comes to taxes," said Joseph Thorndike, a tax historian who is skeptical of the Cain plan. "People want to see the system fixed in a fundamental way….This has that kind of promise." Mr. Thorndike noted that President Reagan had a similar-sounding idea in 1980—a "10-10-10" plan, representing his intention to lower taxes by 10% for three successive years.

Mr. Cain's plan clearly has roots in the Reagan-era antitax movement. In constructing the proposal, Mr. Lowrie consulted with conservative tax icon Arthur Laffer, often viewed as the father of supply-side economics. Many conservatives continue to espouse his view that lower tax rates and a wider tax base can accelerate investment and production, and even produce greater tax revenue in certain circumstances. Liberals say Mr. Laffer's ideas led to over-optimistic assumptions about how low tax rates could go.
In fact, Messrs. Cain and Lowrie were on a trip to Nashville to get Mr. Laffer's blessing for their plan when it was given its name, according to Mr. Lowrie. He said that during their meeting, Mr. Laffer wrote an "A+" on the document and signed it as a souvenir.
Mr. Laffer confirmed the meeting and said he "could well have done something like that," but doesn't specifically recall giving the plan a grade. He said Mr. Cain's principles on taxation are "really sound," and that Mr. Cain himself is a "world-class candidate," but he also praised several other GOP candidates.   In a statement Thursday, Mr. Laffer said Mr. Cain's plan "would be a vast improvement over the current tax system and a boon to the U.S. economy."

The "9-9-9" plan would essentially scrap the existing tax code and replace it with just 9% tax rates on income, businesses and sales. Current taxes on investments would be eliminated or reduced, and payroll taxes also would be eliminated along with virtually all itemized deductions.

In practice, Mr. Lowrie's design combines two ideas that have figured prominently in conservative tax debates in recent years. One idea is a flat tax (Mr. Laffer for years has championed this idea.) The other is a national sales tax.

Herman Cain described his 9-9-9 tax plan as one that will raise as much money as the current system, maybe more, and have more people paying taxes. John McKinnon on The News Hub discusses whether the plan really adds up.

Admirers see it as a breath of fresh air in what is often a stultifying debate over how to rewrite the mammoth U.S. tax code. Many conservative economists have praised the Cain approach's shift to taxing consumption while encouraging savings and investment. But some business people—particularly retailers but also home builders—cringe at the prospect of a national sales tax. And liberals worry it would raise taxes on lower-income people,or deepen the current deficits, or maybe both.

Mr. Lowrie, a 47-year-old wealth-management adviser for Wells Fargo Advisors in the Cleveland area, has studied conservative tax theory for years. He has known Mr. Laffer for about 20 years through his work, he said. He first encountered Mr. Cain at a conservative conference in 2004. When Mr. Cain was looking for an economic adviser, Mr. Lowrie said he was excited by the opportunity. A Cain campaign spokesman confirmed details of Mr. Lowrie's account, including the development of the 9-9-9 plan.

Mr. Lowrie doesn't have an advanced economics degree, but said that isn't a hindrance. "You don't need a Ph.D. to understand a few simple truths of economics, any more than you need a Ph.D. to know what will happen when you hold a bowling ball over your foot and drop it," he said.
A longtime collector of Ronald Reagan campaign buttons, Mr. Lowrie has cultivated a smaller collection of baseballs signed by his economics heroes, including Mr. Laffer. "These are my go-to guys," he said.


While I do not particularly like the idea of a national sales tax, I am not worried about it since I know that it stands little chance of making it through Congress.  But the 9-9-9 Plan offers a springboard for Congress to drastically reform the monstrous tax code and while the final product may not contain a sales tax, it will be a vast improvement over the present tax system.

-Leo Rugiens       14 October 2011

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