Why are they saying no to 9-9-9

The Herman Cain proposed 9-9-9 plan is being much discussed in the GOP debates, on cable news and on the Sunday morning interview programs. In all that talk, very little is said that actually discusses the true merits or the proposal. In order to bring a bit more clarity to the debate, I want to explain two of the major benefits of Cain's plan. This is by no means an endorsement of Cain's proposal, but rather an attempt to have the discussion center on reality rather than on some of the nonsense that has been discussed so far.

First, Cain's proposal will make taxation in the USA much fairer by bringing in substantial revenue from those currently illegally evading the income tax. The latest estimates are that there is something in the area of one and one-quarter trillion dollars of income in the USA that is part of the so-called underground economy. This is the revenue of criminal enterprises, wages of people who work "off the books", income hidden from the IRS and the like. Adoption of Cain's plan should encourage some portion of this income to be declared. After all, why risk prosecution if the tax rate is only 9%. More important, however, the people who receive this income will use much of it for purchases that will be hit by the proposed 9% sales tax. If only two thirds of the income is spent on taxable transactions, that will mean that 72 billion dollars per year will be added to federal revenues from this hidden income. In the parlance of Washington, this alone will mean a reduction of three quarters of a trillion dollars in the deficit over the next ten years. To put this in perspective, this is about 20% of the amount sought to make a meaningful difference in the deficit over the next decade and it will all come from people who, until now, got away with hiding their income from the IRS.

Second, Cain's proposal will give a big shot in the arm to America's workers as they compete with foreign manufacturers. Right now, if the same item is produced both in the US and abroad, the American tax code puts a significant disadvantage on the domestic product. Fully 35% of the profit on the domestic product has to be paid in taxes, while the foreign produced product pays no American taxes. Cain's proposal cuts the 35% to 9% which will give US products a big boost. In addition, Cain's proposed 9% sales tax will be levied on both the import and the domestic product. This will raise the price for the import in a way that will force imported goods to begin to contribute to federal tax revenues. These changes will make it much more likely for jobs to stay in the USA or even to move here from abroad.