The National Retail Federation strongly opposes the Republican presidential candidate’s plan because it would institute a first-ever national sales tax of 9 percent that, the federation says, will dampen consumer spending.
“This will hurt demand and slow the economic recovery,” the federation’s tax policy expert, Rachelle Bernstein, said. “You definitely do not want to do this.”
But Cain said the economy will boom and suggested people will see an overall tax savings due to the big reductions in the income-tax and corporate-tax rates. Each rate would drop to 9 percent.
“They have the flexibility to decide on how much they want to spend on new goods, how much they want to spend on used goods,” Cain said Tuesday during a nationally televised debate.
Cain’s plan became the main focus of the debate as his Republican opponents bashed it for lacking specifics and being politically unrealistic – criticisms now echoed by the retail federation and, to a slightly lesser extent, by the National Association of Homebuilders.
Until Tuesday’s debate and his recent surge in the polls, Cain’s 9-9-9 plan was a political plus. Catchy and bumper-sticker simple, it enabled the candidate to answer succinctly in previous debates where he didn’t have to defend the plan because he was a lower-tier candidate on a crowded stage.
Now, the plan is more politically perilous. Its simplicity draws attention to his lack of political experience and allows critics to more easily claim Cain emphasizes style over substance.
In the short-term, though, the criticisms of Cain’s plan have galvanized his support among many conservatives and have burnished his credentials as a Washington outsider.
Michael R. Caputo, a political consultant who works in Florida and New York, said that “when lobbyists bash a plan, I like it more.” He said that Cain “had me at 9-9-9. Politicians maintain power by mystifying government until a citizen with clarity and gravitas calls them out.”
Unaddressed by Cain or the critics is the effect that the new national sales tax could have in a state like Florida, where the sales-tax rate is 7 percent or higher in most counties.
Florida, the nation’s largest swing state, doesn’t tax food and medicines; Cain’s plan probably would.
Florida’s general-revenue state budget is primarily funded by sales taxes because the state has no income tax. If consumers hold back on purchases, then the budget shortfalls would likely grow bigger and state legislators would have to cut more from schools and health programs.
The homebuilders association said 9-9-9 could be bad for any state where construction is a mainstay of the economy, as in Florida. The association says Cain’s proposal could impose new taxes on rentals, remodeling jobs, mortgages and sales of new homes.
“It would have a negative impact on a fragile housing market, particularly in a state like Florida,” said Robert Dietz, an economist with the association.