The truth comes out!

An architect of Cain’s 9-9-9 plan says he should drop sales tax

By James Pethokoukis

October 18, 2011, 2:20 pm

Superstar WaPo blogger Jen Rubin is not a fan of Herman Cain’s tax plan and its VATastic aspect:

What is interesting is that, far from being an anti-Washington tax scheme, Cain’s 9-9-9 plan resuscitates one of the worst, old ideas floating around European capitals and Washington. Moreover, it repeats one of the central flaws of past VAT schemes; it doesn’t replace the income tax code, it adds another new tax and revenue stream.

A few thoughts here: a) I come down on the side that the Europe has embraced value-added taxes to fund its love of big government, not that VAT revenues necessarily drove the expansion of government; b) I think a VAT would be a great replacement for the current income tax system. My preference is a VAT along the lines of the Hall Rabushka flat consumption tax. It would end the bias against investment and in favor of consumption. Very pro-growth; c) I don’t buy the idea that the VAT would be a hidden tax, especially with a H-R variety where firms get to deduct wages as a cost—but then those wages are taxed at the household level.

But clearly whatever the economics of the Cain plan, it is running into some political trouble, particularly the sales tax piece. Here are some stunning, jaw-dropping comments from the Wall Street Journal’s Steve Moore on Larry Kudlow’s radio show on Saturday (which I was also on):

I love the idea [of a 9 percent national sales tax]. As you know, Art Laffer and I helped design the plan. But I’ve come to the conclusion that the American people and the voters do not want a national sales tax. He’s going to have to replace that national sales tax with a 9 percent payroll tax. And if you do that it’s a total winner. … I’m surprised how hostile people are to the sales tax. When we designed this plan, I thought people would go along with the 9 percent sales tax. But the point is they won’t. And why not just do a payroll tax. It’s the devil we know …

Then Kudlow asks Moore if he is going to tell Cain to pull the sales tax:

Yeah, yeah I am. … But I want to be very, very clear on this. I am not bearish on this plan. If you could put in place the 9-9-9 plan, oh my God, it would be like steroids in the economy. … You would have a million jobs a month if we put this in place. … I love the concept of it .. But the American people will not go for a national sales tax. They’re just afraid of it. …

http://blog.american.com/2011/10/an-architect-of-cains-9-9-9-plan-says-he-should-drop-sales-tax/