Cain Train Stops in DC

October 31, 2011

Herman Cain appeared at the American Enterprise Institute (AEI) this morning and at the National Press Club this afternoon.  I was at both events, and I'll remark here about mainly the AEI event, which was more focused on his tax plan.  Herman Cain spoke and answered questions for about an hour, and then a panel of tax wonks took over for another hour or so.  The panelists were Kevin Hassett of AEI, Bill Gale of the Tax Policy Center (TPC), Grover Norquist of Americans for Tax Reform, Stephen Moore of the Wall Street Journal, and Rich Lowrie of the Cain campaign.

1)      Cain claimed that businesses are in a survival mode, rather than a growth mode, and that 9-9-9 would lead to investment and growth by giving business the certainty that their taxes will be low.  Cain also spoke of the influence Jack Kemp had on him, saying Kemp's "fingerprints are all over 9-9-9."  Cain dodged any detailed explanation of what he is now calling "opportunity zones", formerly "empowerment zones".

2)      Bill Gale was mainly critical, arguing that 9-9-9 would exacerbate income inequality, lose revenue, and now is not the time for tax cuts.  Gale does not believe tax cuts lead to growth, and cited multiple historical episodes, essentially claiming that all periods of post-WW2 growth are attributable to monetary policy, not tax policy.

3)      Norquist spoke mainly in general terms of the dangers of new taxes.  He likes that the Cain Plan involves an eventual transition to a FairTax, but worries about the transition period.  Particularly, Norquist expressed doubt that 9-9-9 would ever be enacted because retirees would object to shifting the tax burden from income to consumption.

4)      Moore said there's nothing more regressive than the current tax system, which keeps 14 million unemployed.  He noted that Republicans have coalesced around the idea of consumption taxes, e.g. the FairTax or a flat tax.  He argued that the Reagan tax cuts worked, that in the 3rd quarter of 1983 1.1 million jobs were created, which remains a record.

5)      Lowrie responded to all the criticisms.  He made a persuasive case that production drives the economy, not consumption.  He explained that on the personal level, one must first produce something of value, get paid for it, and then consume.  Keynesian attempts to boost consumption do not address the engine of growth, which is production.  Reducing the after tax cost of investment will increase capital formation, which will increase the productivity of labor, and ultimately result in higher wages and a higher standard of living.  He also explained that the capital gains tax is a double tax that separates ideas from money.

6)      In the second round, Gale took heat for the Tax Policy Center's assessment of the Cain Plan, which claims that 84 percent would get a tax increase under 9-9-9.  Particularly, Hassett wondered why the TPC did not take into account the poverty exemption or the fact that consumption taxes, such as 9-9-9, tax wealth (Kotlikoff shows 9-9-9 is an 18 percent tax on wealth).  Gale responded that the Cain campaign has been less than clear about the details, particularly the poverty exemption, and that the TPC analysis was based on TPC's recent analysis of a VAT.

7)      Finally, Lowrie filled in some details regarding the opportunity zones.  He said 2/3rds of the provisions would apply across the U.S. (how is that a zone?), in the form of reduced rates for individuals and additional deductions for businesses.  The remaining 1/3rd would be geographically determined, e.g. for Detroit, and would be in the form of grants contingent upon local tax and regulatory reforms.  Some panelists pointed out this is at odds with the campaign's definition of fairness, which is that everyone is treated the same.

Follow William McBride on Twitter @EconoWill

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