IS CAIN ABLE?

Suddenly Herman Cain is hot. Today’s Wall Street Journal article by Daniel Hennigner (“Taking Cain Seriously”) wonders aloud: “Why isn’t a successful business résumé presidential material?” The article goes on to cite Mr. Cain’s accomplishments in turning around various subsidiaries of the Pillsbury Corporation, cites his “9-9-9” plan and, despite his never having served in elective office, pronounces Mr. Cain “a credible candidate” who deserves “a serious look.”

Let’s see, the last businessman elected president without having served in elective office was, um . . . Herbert Hoover. Hoover was a mining engineer and a Republican, who as president presided over the worst of the Great Depression, believed in public works projects (think Hoover Dam), signed the Smoot-Hawley Tariff and raised the top income tax bracket from 25 percent to 63 percent, none of which produced economic recovery during his term – hardly the sort of model appealing to today’s Republicans.

Nevertheless, we should not be surprised by the Wall Street Journal’s sudden warmth toward Mr. Cain. He mouths the usual Republican pieties on energy, the economy, national security, immigration, health care. However, it is Mr. Cain’s “9-9-9” tax plan that has Republican campaign donors slavering, despite the unsavory connotations of “999” to the Religious right – “mark of the beast” and all, especially coming from someone named Cain.

How does Mr. Cain’s “9-9-9” plan pencil out? The plan proposes a 9 percent flat income tax, 9 percent flat corporate income tax and 9 percent sales tax, replacing all other federal taxes. According to the Bureau of Economic Analysis personal income is running at an annual rate of about $12 trillion, 9 percent of which yields revenues of about $1.1 trillion. Corporate profits before tax are running at an annual rate of about $1.4 trillion, adding another $126 billion. And personal consumption expenditures are running at about $10.7 trillion, yielding another $963 billion. The grand total comes to $2,189 billion. That’s slightly more to last year’s revenues or $2.163 billion cited by the Congressional Budget Office . So Mr. Cain seems to be correct in saying his plan would be revenue neutral. Mr. Norquist and his fellow pledge signers in Congress doubtlessly approve.

However, that still leaves unanswered the knotty problem of a deficit of $1.4 trillion when Mr. Cain’s projected revenues are subtracted from next year’s projected outlays of $3.6 trillion. It would seem Mr. Cain has some “’splainin’ to do,” to quote Ricky Ricardo.

The voluble Mr. Cain is uncharacteristically demure about what he would cut, beyond saying (<http://www.hermaincain.com> ) “government spending is out of control,” (surprise!) “entitlements create dependency,” “the federal government has imposed expensive and often counter-productive social and welfare programs on the states and the people” and “It is time to admit the mistakes and get the federal government out of the way,” leaving “states, cities, churches, charities and businesses to offer a helping hand instead of a handout where they live.” Mangled syntax aside, Mr. Cain’s faith in these non-federal actors is touching, but hardly confidence-inspiring, given their past record. Maybe he’s planning on reviving the “thousand points of light” that worked so well during G.H.W. Bush’s presidency.

Look under the hood of the 9-9-9 plan, however, and you readily see why it is so appealing to wealthy Republican kingmakers, furthering the shift in the tax burden, initiated by Ronald Reagan, from the super-rich to working Americans.

Take your run-of-the-mill corporate CEO earning $10 million a year and spending, say, $1 million. He would pay $900,000 income tax and $90,000 in sales taxes, for a combined total of $990,000, or 9.9 percent of his total income, way, way, way below today’s 35% top income tax bracket and even way below the effective tax rate of just over 18.11 percent in 2008 for the 400 highest income earners, most of whose income is taxed at the 15% capital gains rate, according to the IRS. He doesn’t specify whether capital gains would be taxed as income, but even if they are, 9 percent sure beats the current 15%. And no estate tax. Cool.

On the other hand, take the average American household earning about $50,000, and spending virtually all of it. That’s $4,500 (9 percent) income tax and $4,500 (9 percent) sales tax for a combined total of 18%, nearly double the rate of our CEO under Mr. Cain’s get-you-coming-and-going plan.

And did you notice the teeny-tiny $126 billion tax on corporate income compared to the annualized rate of $340 billion in the second quarter of 2011 according to the BEA?

Cut federal government programs mainly benefiting working Americans and make them pay higher tax rates than the wealthy while reducing the effective tax rates paid by the super-rich and chop corporate taxes by 63%. Sounds like a plan made in a Republican heaven.