I became a big admirer of Herman Cain back in the 1990s when he was a member of the National Commission on Economic Growth and Tax Reform (aka, the Kemp Commission).
I worked as a staffer for the Commission and was able to observe Mr. Cain in action over a period of several months. Suffice to say I like what I saw. Unlike many people in DC, he is not an empty suit.
That doesn’t means he’s perfect, as illustrated by his support for the TARP bailout, but he’s definitely on the right side of the dividing line between those who want freedom and those who want statism.
And his victory in the Florida straw poll is bringing lots of deserved attention to his campaign, leading several people to ask what I think about his economic agenda.
To get right to the point, it’s a very Reaganesque package of lower taxes and more freedom that can be divided into three parts.
1. His short-run plan, which he calls the “Immediate Boost,” is to slash personal and corporate tax rates to 25 percent and eliminate the capital gains tax.
2. His intermediate plan, which he calls the “Enhanced Plan,” eliminates the death tax and the payroll tax. But the most important part is the 9-9-9 plan, which is a 9 percent tax rate on personal income, a 9 percent tax rate on corporate income, and a 9 percent national sales tax.
3. His long-run agenda, which he calls the “Fair Tax,” is to eliminate all personal and corporate income taxes and adopt a national sales tax.
This all sounds great, but let me do a bit of nit-picking. I want to focus on part 2, particularly the 9-9-9 plan.
It’s fine in theory. Heck, it’s great in theory. It means low tax rates on productive behavior. It means no double taxation of saving and investment. And it means no corrupt and inefficient loopholes.
What’s not to love about a plan that achieves all these principles?
But here’s the problem. If you happen to be one of those people (such as me) who does not trust politicians, then we run a grave risk if we ever let the crowd in Washington impose any sort of national sales tax without first getting rid of all income taxes.
I have faith that Herman Cain’s heart is in the right place, but years of experience in Washington have taught me to always assume politicians will grab more power and more money at every possible opportunity.
This is why I made this video, explaining why a national sales tax is only acceptable if the Constitution is amended to permanently bar any form of income taxation.
Let me put it more bluntly. A national sales tax – such as a Fair Tax or a VAT – would be a less destructive way of raising revenue than the current tax system.
But any form of national sales tax, if imposed on top of the income tax, would be a disaster. The experience of Europe shows that national sales tax are a money machine for big government.
This is why a national sales tax can only be put on the table after the income tax is repealed. But since I don’t trust politicians, we need to also amend the Constitution to repeal the 16th Amendment that allowed income taxes.
But since many Supreme Court Justices seem oblivious to the Constitution, we would actually need to replace the 16th Amendment with a new amendment that is completely unambiguous about banning any tax on income in perpetuity.
In other words, the income tax needs to be sealed in a lead vault, buried under 10 feet of concrete, and then covered by a foot of salt so nothing can ever grow back to haunt the American people.
Once these things happen, then we can adopt a national sales tax. See, I can be open-minded and reasonable.
