Thursday, October 13, 2011

If Paul Ryan takes Herman Cain's 9-9-9 Plan Seriously, should we keep taking Paul Ryan Seriously?

It's entirely possibly that there has never been a more ridiculed and completely dismissed domestic policy proposal than Herman Cain's 9-9-9 Tax Plan. Democrats hate it. Conservatives hate it. Even Grover Norquist hates it. Bruce Bartlett says of the plan:
At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut, with no guarantee that economic growth will increase and good reason to believe that the budget deficit will increase.

Even allowing for the poorly thought through promises routinely made on the campaign trail, Mr. Cain’s tax plan stands out as exceptionally ill conceived.
Conservatives are also quick to point out that the plan increases the tax burden on the middle class:
If you have a family of four with an income of just under $50,000, they could end up paying more under the Cain plan. Currently, they are taxed around $3,850 in income tax. Under Cain’s plan, they would be taxed at 9 percent or pay $4,500.

That’s $650 more.

Although the family would save almost $4,000 in Social Security taxes, it would have to give up the child tax credit worth the same amount. Furthermore, it would pay an additional national sales tax of 9 percent on everything purchased, including groceries and clothes, which totals about $2,000.

That means under the Cain plan that family could end up paying $2,725 more.
The poor get it even worse.

Complicating matters further is where the plan came from. Was it the brainchild of a quiet wealth manager from Cleveland? Is it simply a pizza gimmick writ large on a national economy? The product of hours of playing SimCity? It can't be just a political stunt, as Ezra Klein notes:
This plan wouldn’t work. Not as policy and, as I expect Cain will soon find out, not as politics. Moving to an 18 percent consumption tax is, among other things, very bad for older voters, who make up a substantial portion of the Tea Party base. Jacking up taxes on the poor and the middle class even as you sharply reduce them on the rich and completely eliminate them on overseas income for corporations isn’t popular among anyone in the political system who isn’t specifically paid by the Club for Growth.
The subtext of nearly every criticism of the plan, no matter from which ideological quarter it originates, is that Cain and Co. built their tentpole piece of domestic policy around a marketing strategy without ever really giving much consideration to the, you know, consequences. It's nearly impossible to see how this plan evolved otherwise.

But now that every one's lining up to take a whack at Cain's policy pinata, who should come to the rescue but ... Paul Ryan?
House Budget Committee chairman Paul Ryan says he “loves” presidential candidate Herman Cain’s signature “9-9-9″ tax plan.
Ryan told The Daily Caller in an exclusive interview that Cain’s plan is a good starting point for debate, and shows the GOP presidential campaign season has entered into a more advanced stage where ideas — not just personalities — have come to the forefront.

“We need more bold ideas like this because it is specific and credible,” Ryan said. “I’m more of a flat-tax kind of a guy.”

The budget chairman went on to say that ideas like Cain’s plan could help shape the debate over tax reform moving into 2013.

“It’s great to see such bold ideas,” Ryan told TheDC.
To be fair, Ryan isn't exactly "endorsing" the plan, as Cain's campaign manager later goes on to claim in the article. Ryan's praise seems to be focused on the "boldness" of the plan, details be damned. But why even touch something upon which so much scorn is being heaped? Even the folks who essentially support the principles of the plan are quick to criticize the particulars. Most people aren't taking it very seriously. How unserious is this plan? Here's an example:
Mr. Cain said on CNBC his plan was "not regressive" in its impact on lower-income workers, primarily because it would eliminate their payroll taxes. And speaking to reporters in Concord, Mr. Cain said that exempting used goods from the federal sales tax would ease its effect on poor people.
This is asinine. Policies that promote growth should focus on creating jobs for the poor, not supplying them with cheaper hand-me-downs. Cain's plan doesn't seem comprehend this concept.

So why on Earth is Paul Ryan giving this idea the time of day?

It's a good question. Arthur Laffer seems to dig the plan too, so maybe it's some act of supply-side solidarity, but this does little to legitimize what is a patently ridiculous tax policy. One would imagine that support for this kind of shallow proposal would call Ryan's judgment into question, especially when it comes to his "Roadmap" budget. But I don't imagine that happening any time soon.

For a thorough examination of the absurdity of the 9-9-9 Plan, check out Edward Kleinbard’s working paper:

2011-10-10 Kleinbard Analysis of Cain's Tax Plan

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