Oct. 14 (Bloomberg) -- Republican presidential candidate Herman Cain’s 9-9-9 tax plan stems from basic economic principles and didn’t need a professor to develop it, said the suburban Cleveland investment adviser who did.
Rich Lowrie of Gates Mills, Ohio, who is Cain’s senior economic adviser, developed the plan with Cain based on “pro-growth economics” and in consultation with economists including Arthur Laffer and Stephen Moore, whom he calls friends.
“When people say, ‘Well, you’re not an economist, you’ve not even set foot in a faculty lounge, what could you possibly know about economics?’ I’m not holding myself out to be that,” Lowrie, 47, said in a telephone interview yesterday from Cleveland. “We’re just focused on simple truths of economics, the same way it doesn’t take a Ph.D. in physics to know what would happen if I held a bowling ball and then dropped it.”
Cain has moved to the Republican race’s top tier in part because of the 9-9-9 plan, which would tax sales transactions at 9 percent, and apply the same rate for business and individual incomes. The campaign has described it as a first step toward eliminating the income tax and imposing a single national sales levy.
At a debate sponsored by Bloomberg News and the Washington Post on Oct. 11, Cain singled out Lowrie as “my lead economist on helping to develop this.”
Lowrie, who received an accounting degree from Case Western Reserve University in Cleveland, has been managing money at Lowrie/Carney/String/Smith Wealth Management Group of Wells Fargo Advisors in Pepper Pike, a suburb, since 2008. He previously worked for McDonald Investments and McDonald & Co. Securities, according to his resume.
He said he met Cain, 65, at a conference hosted by the antitax Club for Growth in 2004 in Florida, where Cain was a speaker. Lowrie introduced himself and began following his career, he said.
“He made a lasting impression, to say the least,” Lowrie said. “I thought, ‘This guy really gets it.’”
Lowrie said he became friends with Mark Block, Cain’s campaign manager, when both were involved with Americans for Prosperity, a nonprofit organization based in Arlington, Virginia, that promotes limited government.
Block called Lowrie last year to tell him that Cain planned to run, and they had casual conversations about economic policy, Lowrie said. Lowrie was hired as an adviser in June, and has kept his full-time job as he does campaign work on his own time, he said.
Lowrie used what he called “rough-cut numbers” to develop the 9-9-9 plan.
Soak the Poor
Cain’s proposal would lead to a shift of the tax burden to individuals from corporations and investors, Edward Kleinbard, a University of Southern California law professor and former chief of staff to the congressional Joint Committee on Taxation, has said. Eliminating the deductibility of wages would raise the cost of labor, which businesses would pass on to workers in the form of lower pay, he said.
That, combined with no mention of the standard deduction, personal exemption or earned-income tax credit, “means a huge tax hike for the working poor,” he said.
During the Oct. 11 debate, U.S. Representative Michele Bachmann of Minnesota raised concerns about the 9-9-9 sales tax turning into a value-added levy, a tax on the worth added to a product at each stage of production.
Transparent, Efficient, Fair
Lowrie said the criticism is wrong. The plan is based on the ideas that production drives the economy, not consumption; that risk-taking creates growth, so tax or regulatory policies that inhibit entrepreneurship aren’t good; and that units of measure must be dependable, Lowrie said. Cain also insisted on something simple, transparent, efficient, fair and revenue-neutral, he said.
“It isn’t anything revolutionary,” Lowrie said. “The only thing that’s revolutionary is the guy that’s bold enough to champion real reform.”
Laffer, who said he met with Cain about his 9-9-9 proposal, described it as “wonderful” and “an efficient plan to collect revenues we need to run government,” in an interview yesterday on Fox News Channel’s Special Report, according to excerpts provided by the network. It wouldn’t take a bigger slice of income from the poor because it would eliminate payroll and other taxes, Laffer said, according to the excerpts.
“What you want is a very efficient tax code people don’t try to cheat on,” he said. “His plan does that dramatically.”
Cain has already backed away from a clean 9-9-9 plan. The tax wouldn’t apply to used goods, he told reporters in Concord, New Hampshire, on Oct. 12. His campaign then said that excise taxes, such as those on beer and cigarettes, wouldn’t change.
Richard Vedder, a professor of economics at Ohio University whom Lowrie described as a mentor, said he has spoken with Lowrie about the plan. Concern among conservatives that the sales-tax component opens the door to a value-added levy could be a political problem, he said.
“Looking at it as an economist, we like large bases and low rates, and this plan is the best thing I’ve seen in years in that regard,” Vedder said in a telephone interview.
Lowrie said that the man pitching the plan deserves the credit.
“I kind of knew all along that Cain was going to be the one that was going to become the national figure and kind of take the country by storm,” Lowrie said. “I just thought if I can be kind of a behind-the-scenes helper, then I’m serving my country.”
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