They Think You're Stupid (11 page)

Democrats do not want the public to study history or become versed in the dynamics of elementary economics. When President Reagan took office in 1981, the top marginal tax rate was 50 percent. He cut that rate to 28 percent, which provided the impetus for the historic economic growth that occurred in the 1980s and 1990s. President Kennedy introduced a plan in 1963 to lower the highest marginal tax rate of 91 percent to 70 percent, which sparked similar economic growth. Democrats are not happy when Republicans laud President Kennedy's tax-cutting measures. They seem to be embarrassed that "one of their own" committed the sin of tax rate reduction.

The fact is, replacing the federal tax code will benefit all citizens and provide people from all income brackets with incentives to create wealth, save more money, and invest more money in their futures and the futures of their children and grandchildren. In the 1990s I became chairman of the Tax Leadership Council for an organization called Americans for Fair Taxation (AFFT). AFFT is the organization responsible for promoting replacement of the current federal tax code with a national retail sales tax, also known as the FairTax.

The idea of replacing the federal income tax with the FairTax is gaining grassroots support and momentum across the country. It was introduced in Congress by Georgia congressman John Linder and in the Senate by Georgia senator Saxby Chambliss. The FairTax legislation has more than fifty co-sponsors. The FairTax will replace the current federal tax code with a national retail sales tax on all new goods and services. Replacement of the federal tax code with the FairTax will result in an immediate increase in take-home pay for all wage earners and effectively "untax" the poor (see table on previous page). You can read more about the benefits of the FairTax at www.fairtax.org.

The Social Security structure is broken beyond repair, but Congress has never shown the political will necessary to fix it. The Social Security system will be unable to meet the demands of the baby-boomer retirees and, left in its current condition, will be fiscally insolvent before most of the baby boomers die. Subsequent generations can expect to receive zero return on their lifetime of contributions to the system.

A number of solutions have been offered to save Social Security, including President Bush's proposal to enact an optional system of personal retirement accounts. Instead of working on a solution to the looming Social Security crisis, however, Congress continues to shirk its responsibilities to the public by increasing the retirement age and decreasing benefits to future retirees.

The current Social Security structure adversely affects all citizens, but it has the greatest negative effect on racial minorities. For example, due to the disparity in average life expectancy for Black men--sixty-eight years versus seventy-five years for White males--Blacks can expect on average only a few years of low benefits from the Social Security system. If Congress continues to increase each year the retirement age to receive benefits, Blacks and others with lower average life expectancies could find themselves contributing all their lives to a system but virtually guaranteed to receive zero return on their investment.

The current Social Security structure also has a disproportionately adverse affect on the poor and those below the median income level, regardless of race, due to the increasing income limit used to determine who automatically pays Social Security taxes. The highly regressive Social Security payroll tax only taxes wages, the primary or singular source of income for most of the poor. Workers making more than $90,000 do not pay payroll taxes on their income over that limit. The entire salaries of workers making less than the limit are therefore subject to the Social Security payroll tax. If Congress raises the amount subject to payroll taxation, the salaries of millions of workers will forever be reduced to pay for the failed Social Security system.

Liberals do not want to face the reality that the Social Security structure is insolvent. Congressional liberals view the Social Security system as a mechanism to fund all their favorite social engineering programs, since the payroll taxes contributed to the system go straight to Congress's general fund. The Social Security payroll tax is another mechanism designed to relieve you of your money and provide you nothing in return. Millions of citizens should question why we keep in place a retirement system that is not funded at the necessary levels to meet the demand of the coming baby-boomer retirees, will require increasingly high and regressive payroll tax increases to sustain, and provides a zero percent return on your investment--if you live long enough to receive all the money you paid in.

To liberal Democrats, the nation's economy is never prosperous when Republicans control the presidency, Congress, or both, and it is only getting worse. According to Democratic candidates and most media sources during the 2004 election cycle, the U.S. economy was stagnant, struggling, and losing jobs. They argued that President Bush was responsible for an economy that produced more than two million job losses since his election. The Democrats and their accomplices in the media neglected, of course, to mention the reasons jobs were lost at the beginning of the first Bush administration--the "dot-com" burst of the late 1990s, numerous corporate scandals, and the terrorist attacks on New York City's World Trade Center on September 11, 2001.

In reality, the 2004 economy showed declining unemployment, increases in jobs in many sectors, and strong economic growth as measured by higher hourly earnings, increases in home purchases and construction, and increases in Gross Domestic Product. Media stories about job creation and unemployment have not been consistent. In 1996 during President Clinton's reelection campaign, stories were positive 85 percent of the time--more than four times as often as they were for President Bush--even though the unemployment rate measured at the same times of the year was lower in 2004 and the economy added two million jobs from 2003 to 2004 alone.

Moreover, the Joint Center for Political and Economic Studies found in its
2004 National Opinion Poll
that 60 percent of Blacks surveyed, and 70 percent overall, considered themselves financially the same or better off than in the previous year.

A key component to the Democrat policy agenda since the Clinton administration of the 1990s has been to enact a nationalized health care system that covers all the health care costs of all U.S. citizens. A nationalized health care system would destroy the free-market incentives to improve health care and develop new and better pharmaceutical drugs, and the quality and accessibility to health care services would plummet.

In 1994, as vice chairman of the National Restaurant Association, I was part of a nationwide initiative to help raise awareness that the Clinton Health Care Plan was an economic and social disaster. President Clinton stated on numerous occasions that the cost of his health care plan for service businesses like restaurants would only be about 2.5 percent of the cost of doing business and that he did not understand why the restaurant industry's opposition was so intense. My staff and I had been through the calculations many times, and we continued to find that for many restaurant businesses, the president's calculations were way off!

I was asked at that time to participate in a live town hall meeting the president would conduct in Kansas City, with hookups to audiences in Omaha, Nebraska; Tulsa, Oklahoma; and Topeka, Kansas. I jumped at the opportunity to address President Clinton about his health care plan and the fact that his administration had miscalculated its true cost.

I attended the April 1994 town hall meeting at a television studio in Omaha. When the second round of questions began, I was informed that I would be the next to ask President Clinton a question. I have to admit this was one of the few times in my life that I truly felt a little nervous. It was not nervousness because of Bill Clinton but because of my respect for the office of president of the United States of America, the highest office of the greatest nation on the face of the earth.

My turn soon came, and I rose to speak. Our conversation went as follows:

Herman Cain (HC): "Mister President, thank you very much for this opportunity, and I would like to commend you on making health care a national priority.
[
The president nodded politely.
] In your State of the Union speech, you indicated that nine out of ten Americans currently have health care insurance, primarily through their employers. And tonight you indicated that out of those people who do not have insurance, eight out of ten of them work for someone. And your plan would force employers to pay this insurance for those people that they currently do not cover. I would contend that employers who do not cover employees do not for one simple reason, and it relates to cost."

Next, I explained I had calculated what his program would cost Godfather's Pizza, Inc., and that I had also spoken with hundreds of other business people about his program's impact on their operations.

HC: "The cost of your plan is simply a cost that will cause us to eliminate jobs. In going through my own calculations, the number of jobs that we would have to eliminate to try to absorb this cost is a lot greater than I ever anticipated. Your averages about the impact on smaller businesses--those are all well intended--but all of the averages represent a wide spectrum in terms of the businesses impacted. On behalf of all of those business owners that are in a similar situation to mine, my question is, quite simply, if I'm forced to do this, what will I tell those people whose jobs I will have to eliminate?"

Instead of answering my question, the president proceeded to try to convince me and the audience that the impact of his plan on my business (and therefore, on other restaurants and small businesses) would be minimal.

President Clinton: "So suppose you have part-time workers and some wouldn't have to be covered. So you wouldn't go from two and one-half percent of payroll to seven point nine percent. You might go to something like six percent. If you had six percent of payroll . . . let's just say six and one-half percent, that's a good, even number. You had four percent of payroll--and that's one-third of your total cost. So you would add about one and a half percent to the total cost of doing business. Would that really cause you to lay a lot of people off? If all your competitors have to do it, too? Only if people stopped eating out. If all your competitors had to do it and your cost of doing business went up one and a half percent . . . wouldn't that leave you in the same position you are in now? Why wouldn't they all be in the same position? And why wouldn't you all be able to raise the price of pizza two percent? I'm a satisfied customer. I'd keep buying from you."

Not only was President Clinton's arithmetic incorrect, but it didn't even make sense! His suggestion that all of my competitors would also raise their prices amounted to illegal price fixing, even if the government effectively mandated the price increase, and it shows a severe lack of understanding of Economics 101. Even if the president's proposal were possible, to pass along a 7.9 percent increase would require about a 16 percent price increase on the products my company sold.

HC: "Okay. First of all, Mr. President, with all due respect, your calculation on what the impact would do, quite honestly, is incorrect."

I then proceeded to explain to the president the errors in his calculations and the difficulties associated with recovering profits by simply raising prices. President Clinton got the last word in our exchange:

President Clinton: "Let me ask you a favor. Would you send to me, personally, your calculations because I know we've got to go on to other questions."

I did send the president my calculations in a letter that appeared in the
Wall Street Journal
, the
Omaha World Herald
, and several other newspapers. And the response I received from the head of the Small Business Administration, Erskine Bowles, did not challenge my calculations, logic, or rationale. Instead, his response attempted to rationalize how much better off society in general would be under the president's plan, regardless of its impact on business or the economy. That was the last I heard from the president or his administration. They simply chose to ignore the facts.