|1 year Subscription to Real Estate Investor's Monthly
|Best Practices for the Intelligent Real Estate Investor |
|Distressed Real Estate Times
|How to Get Started in Real Estate|
|How to Order|
Copyright 2011 by John T. Reed
Herman Cain is atop some Republican presidential nomination polls—perhaps only momentarily. Seems like almost all the candidates have been on top at times—including non-candidates like Trump, Palin, Huckabee, Giuliani, Christie, and Daniels.
I want to talk here about two things:
• Cain business experience
• Cain’s 9-9-9 plan
Cain claims rock solid, successful, small business management experience. I cannot say it’s not true, but a couple of things about it raise my eyebrows. He is the same age as me. Here is his resume.
• bachelors in math Morehouse College
• masters in computer science Purdue
• math-related civilian job with the U.S. Navy
• computer analyst Coca Cola Co.
• restaurant/food analyst Pillsbury
• oversaw 400 Burger King franchises (Pillsbury subsidiary) in the Philadelphia area (franchises are managed by their operators; Cain was apparently managing the relationship between the franchisees and corporate headquarters) Reportedly changed Philly area from last to first in sales by getting counter clerks to smile more.
• appointed president and CEO of Godfather’s Pizza (Pillsbury subsidiary) cut number of stores from 911 to 420 and changed from losing to profitable overall
• Cain and some other executives purchased Godfather’s from Pillsbury and Cain continued as CEO for eight more years
• CEO of National Restaurant Association (trade association and lobbying organization)
• board member then chairman of the Federal Reserve Bank of Kansas City
• board member at Aquila, Nabisco, Whirlpool, Reader’s Digest, AGCO
• columnist, radio talk show host
His degrees sound strong. Logically, we would like to have a president with education in real subjects like math and science. Although looking back at past presidents it must be admitted that Cain’s education most resembles past presidents like Jimmy Carter and Herbert Hoover, or in the case of his Harvard MBA, George W. Bush.
Cain’s Navy job was not private sector. He was an entry-level analyst at Coke and initially at Pillsbury. Nothing wrong with that. I would prefer that sort of experience to community organizer or Perry’s life of politics. But it’s not enterperneurial or managerial.
The rest of his resume is appointive management. That is, he was appointed to various managerial positions by corporate boards. They seemed to be profit centers which means the success or failure attributable to Cain was somewhat clear as opposed to being an elected official or bureacrat like most of the rest of the Republican field. (Romney was in charge of Bain Capital and the Salt Lake Olympics; Gary Johnson founded his own successful company.)
Given the era in which Cain has worked, I assume he was a beneficiary of affirmative action. I would not be surprised if he opposes affirmative action, but I would be very skeptical if anyone tried to claim he did not benefit from it. That’s not a knock on him. It was ambient during his adult life. I absolutely oppose affirmative action. It is racism and has as its basis the thoroughly discredited notion that two wrongs make a right.
Had he founded his own successful company like Gary Johnson or Steve Jobs or Michael Dell, and succeeded without things like minority set asides, affirmative action would be irrelevant to Cain’s life and success. But Cain chose to essentially spend his life going hat in hand to a series of boards and asking them to promote him to various corporate positions. That benefits from affirmative action and is to large extent a measure of your ability to impress boards of empty suits. There is a big difference between that sort of private sector career and founding your own business.
I do not understand why Cain describes himself as a small business veteran. The U.S. Navy, Coke, Pillsbury, Burger King, Godfather’s Pizza, the National Restaurant Association, the Federal Reserve Bank of Kansas City, Acquila, Nabisco, Whirlpool, Reader’s Digest, and AGCO are not small businesses. He has NO small business experience. That is not a disqualifier, but I do not care for people making false statements. I feel the same about Obama’s claiming he is black (on his census form and elsewhere). He does not have to be black, but claiming you are black when you are mulatto (one white parent and one black parent) is a lie.
The only success reported at Cain’s wikipedia writeup is the Burger King smile campaign. Changing Godfather’s from losing money to profitable is sort of minimal. Businesses are supposed to be profitable. Conspicuous by its absence is any claim of success beyond increasing net income from negative to profitable by closing losing franchises at Godfather’s. Most of his managerial resume entries seem to be of the “he was appointed to be head of _____.” Ooookay. So what did he do in that job?
Essentially, we are being expected to give him the toughest, most important job in the world simply because he held managerial positions at various household name corporations that are well-known to like to put blacks in prominent positions. You say Cain may have made it on merit not affirmative action? Maybe, but in the era when he was an adult, it is almost certain he got an assist from his skin color. If he or any other black of that era does not like having their accomplishments denigrated by suspicion of affirmative action, they should have opposed affirmative action or pursued careers where it was irrelevant like founding your own business that does not get sales because of the minority race of its owner. As far as I know, Cain did neither. Blacks like that made their own affirmative action bed, now they have to lie in it.
I hasten to add that Cain’s resume is infinitely better than Obama’s, which is essentially blank, and I would surely vote for Cain over Obama. But Cain’s resume is not as good as Romney’s or Johnson’s. I do not like government, but president of the United States is a government job so experience as governor is probably very helpful for understanding what a government executive can realistically accomplish and knowing how one gets things done in a checks-and-balances government setting as opposed to giving smile orders to fast food clerks.
The problems America faces are, in order of importance:
1. about to be record federal debt-to-GDP ratio and skyrocketing beyond that record level
2. economy paralyzed by overregulation and fear of far greater regulation from ObamaCare and Dodd-Frank regulations not yet announced, anti-business rhetoric and laws/regulations, abandonment of the rule of law especially with regard to debtors having to pay their debts, fear of high inflation; lack of confidence that the financial system will not go through another too-big-to-fail major crisis
9-9-9 address neither of these problems. It is purely a tax-reform plan. Specifically, it would lower the individual income tax rate to one bracket—9%, do the same with the corporate income tax also at 9%, and establish a new federal sales tax of 9%.
Would the 9% flat rate tax be better than the current Internal Revenue Code? Sure. What wouldn’t be better than the current IRC? (I am the author of the book Aggressive Tax Avoidance for Real Estate Investors now in its 19th edition.)
Is a 9% flat tax the best reform? No. My head tax is. Roughly speaking, it would have every adult over 24 pay an average of about $10,000 a year. With about 220,000,000 such adults in the U.S., that would produce about 220,000,000 x $10,000 = $2.2 T, same tax revenue as now.
The so-called flat tax is not flat. It makes people who make $800,000 a year pay 9% x $800,000 = $72,000 in tax and a guy who makes $80,000 pay 9% x $80,000 = $7,200. That’s not flat. It’s not fair. My head tax is truly flat and fair. If you say the $800,000 guy can afford to pay more, you are a Marxist. What he can afford is none of the government’s business. Indeed, how much he makes is none of the government’s business. With my head tax, all the government would care about is your birth date and whether you were a U.S. resident or U.S. citizen living abroad. $430 billion of annual comply-with-the-Internal-Revenue-Code expenses would be wiped out overnight.
Taxing corporations is one of those rare things that economists agree on. The other two are that free trade is best and that price controls are insane.
You cannot tax corporations because there is no such thing as a corporation. A corporation is legal concept. Words in a law book and signatures and a stamp on a filing document in a musty file cabinet in Wilmington, Delaware. You cannot tax law book clauses or pices of paper. You can only tax people. My head tax does that. It taxes everyone over 24 in the country and U.S. citizens overseas. Everyone includes those who own corporations.
If you pretend a corporation is a person—an evil person at that—and punish it with taxes, you are accomplishing nothing but levying a hidden sales tax on the products and services of that company. Sales taxes are paid by the company’s customers hidden in its prices.
This reminds me of that TV commercial where some big corporate executive says he likes to stick it to The Man and his subordinate points out that HE is The Man. When Herman Cain or anyone else shoots the corporation with his 9% corporate tax, he is really hitting the customers of all the corporations in America because the corporations will have to raise their prices to cover the 9% corporate tax.
Obama recently said there is no law that says banks have to make a certain minimum profit.
Oh, yes there is. It’s called the Law of Economics. Banks and other corporations are usually capital intensive. That means they have to attract bond and/or stock investors. To do that, they have to pay interest rates or earn a return on equity that is equal to or better than other corporations with similar risk. If they fail to attract that capital, they die, like politicians who cannot atract more votes than their opponent. Is there a law that says politicians like Obama have to get a minimum number of electoral votes must get? Yes. 270. Same deal in the busines world. Corporations must pay market interest rates, earn a rate of return on equity to attracts and keeps capital, and, in the case of small business, earn enough money for the owners to adequately compensate them for their time.
Obama and his associates do not understand the first thing about business and the first thing about business is it must not only make a profit but it must make an adequate profit compared to possible alternative uses of the owner’s time and money.
Cain says he’s lowering the U.S. corporate income tax to 9% will make the U.S. more competitive with the rest of the world. Not as competitive as my head tax will makes us. With a head tax, the corporate tax is where the economists say it should be: 0%.
There has never been a federal sales tax. Many are scared that the Congress and future presidents will raise its rate. Cain says they will not. He has no way of keeping that promise.
Michelle Bachmann had a great and very wise comment about 9-9-9. She suggests people turn it upside down and says that the devil is in the details. Indeed. For example, Cain was asked about home and car prices. He then modified his 9-9-9- sales tax to say it would not apply to used homes and used cars being sold by their users. Okay, but doesn’t that mean he has to raise the sales tax to 10%—9-9-10—to make up for the revenue lost by exempting your house and car?
And what will the 9% federal sales tax do to the sales of new homes and cars in this country? Those are our two top industries in terms of sales amonuts. Both are hurting, especially home builders. Herman Cain is going to turn the economy around by hitting the already flat on their back home builders with a 9% increase in how much they have to sell their products for? The crowd for his inaguration will be outraged home builders and construction workers carrying pitchforks, torches, and nooses.
Perhaps the more immediate problem with a national sales tax is everybody and his brother will demand they or their product be exempt. And Cain has already folded like a tent at the first sign of such “not me” requests.
Cain’s national sales tax would be on top of the individiual income tax and the already existing, city, county, and state sales taxes. With such huge total sales taxes, huge incentives to cheat will be created. We have long seen that the higher you raise sin taxes on tobacco and alcohol, the more truckloads of tobacco and alcohol the Mafia runs across the borders of the high-sales tax states. Cain’s 9% federal sales tax is the Black Marketeers Full Employment Act of 2013 and the Canadian and Mexican Border Town Retail Growth Act of 2013.
Cain says his 9-9-9 plan would produce the same tax revenue as now. I don’t believe that. How could anyone know until it was tried? More than doubling the sales tax nationwide would have a depressing effect on sales. How much one could not know until it was tried because it is large and unprecedented.
My head tax, in contrast, would produce the same revenue as now. The math is far simpler. The only unknown would be the number of deadbeats and the success the IRS would have collecting from them or selling the receivables to private collection agencies.
Plus my head tax would attract to the U.S. those who currently pay higher taxes all over the world. That would be a good thing. And my head tax would discourage welfare types from coming here or remaining here in the U.S. Also a good thing.
The bigger problem with 9-9-9 is the broader Herman Cain approach is exemplifies. One other Republican presidential candidate said it sounded like a pizza slice price. Indeed. That’s exatly what it is. A catchy name that purports to simpilfy the complex.Herman claims or implies that he did a rigorous analysis of good tax policy and just coincidentally, the best policy happened to be one where each of three unrelated tax rates was 9%. An amazing coincidence!
No one believes that. Nor should they. Cain chose 9-9-9 the same way he chose pizza prices—and for the same reason. It’s simple and catchy and memorable. It is a two-bit advertising slogan that is appropriate in the pizza business but not for setting the tax policy of the world’s biggest economy.
Cain is big on simple. That is probably an ocupational hazard of spending your adult life selling burgers, fries, and pizzas. If you pay attention, you will note that like Obama, he relies heavily on a few cheap tricks of rhetoric. In the case of 9-9-9 it is a rhetorical trick known as repetition, like Obama claiming to be focused laser-like on jobs, jobs, jobs.
Listen to Cain discuss a dozen topics and you will typically get a dozen bullet lists. He likes bullet lists. I do too. There are a lot of them in my writing. They are useful in certain situations, including in this article. But not every question warrants a bullet-list answer.
He is also extremely big on accusing questioners and debate opponest of focusing on the wrong question, but he levels that accusation when it does not match the comments he porports to be responding to.
In the 10/18/11 debate, he repeatedly accused Mitt Romney and others of mixing apples and oranges. That accusation does apply to some exchanges, but it was absolutely inapplicable when Cain applied it on 10/18/11. Romney simply said that the Cain 9% sales tax wous going to be aded on top of state taxes. Cain refused to admit that, using the apples and oranges accusation as an intellectually dishonest attempt to confuse the audience and prevent them from realizing Romney was correct.
Also, the question of simplicity is tricky. My head tax is certainly simple. That is one of its great virtues and why the nation’s tax compliance bill would all but disappear if it were adopted.
But Albert Einstein said,
Everything Should Be Made as Simple as Possible, But Not Simpler.
Without mentioning Einstein, Romney seemed to accuse Cain of violating that rule. It is a valid accusation. Cain did violate it. United States federal tax policy ain’t pizza.
Cain’s policy is simpler than Romney’s because Cain believes Americans are a bunch of dimwits who can’t follow anything more complex than 9-9-9. He is probably right about that, but he is dishonest when he says that 9-9-9 policy, chosen solely because of its catchiness and simple-solution sound, is the best policy. Romney’s 59-point plan is partly designed to appeal to the public but also designed to withstand scrutiny of highly qualified expert analysis which he knows will be done on his plan. I think Romney is being more truthful when he says he believes his plan is best for America than Cain is whan he says that about his plan. Cain’s plan was designed to appeal to the ignorant, not to cure Ameriac’s ills.
Also, I have to go back to the biggest problems we face right now issue.
Does the U.S. Internal Revenue Code need to be reformed? Absolutely.
Is it one of our top priorities? No.
Would it fix the deficit? Broadening the tax base, that is, making the 49% who currently pay no federal income taxes resume paying a federal income tax would result in a small lowering of the deficit but not enough to matter. Also, that would shift much consumer spending to government spending. Since government spending is always less efficient than individual spending, this would lower the efficiency of the overall economy and would possibly result in a net diminution of the GDP, which, in turn, would lower tax revenues.
Would 9-9-9 make the GDP grow? It would be a mixed bag but probably would not make the GDP grow much if it grew at all.
It is just a tax plan, not a growth plan or a deficit-cutting plan.
One big general comment about Cain. His appearance on Stossel was an embarrassing disaster. They sort of “stopped the fight” like you would where one boxer was in danger of getting killed. He strikes me as having not done enough to inform himself on the issues pertinent to being president.
When I was in middle school and high school, like most kids, I was assigned to do some research reports. Typically, I would fill about 20 index cards with pertinent facts then use every single one of them in the paper and nothing else.
Now, I am a pro at that. I write non-fiction books. I have written 34 of them, 96 if you count editions, plus more than 5,000 non-fiction articles. They are generally read by experienced people in the field who pay me money for them. For example, I have written two books on baseball coaching: Coaching Youth Baseball and Coaching Teenage and Adult Baseball. Those books are the tip of an iceberg of research including over 100 books I own that are thoroughly underlined like a good college student’s text books, 20 years of playing and coaching from the tee ball to semi pro levels, years of copies of Baseball Coaching Digest including one that I wrote an article for, years of attending baseball coaching clinics, dozens of baseball coaching videos, attendance at baseball coaching camps, discussions with top Major league and college baseball coaches, and so on. The same is true more or less of all my books on different subjects. I cannot, as a pro author, get away with such superficial research as we did in middle and high school.
But Herman Cain has done something similar to middle school research regarding his preparation for the presidency and he thinks he can get away with it. In debate formats, where each person only gets 30 to 60 seconds to respond, he does. But when a well-prepared questioner has more time, as Stossel did, and drills down looking for the bottom of the iceberg of which Cain only shows the tip, it is revealed that there is no bottom. With Cain, what should be the tip of the iceberg is, in fact, the whole iceberg. Cain’s understanding of the presidency is a combination of a middle school kid’s research report on what a president does and retail pizza marketing specials of the week.
He also reminds me of the Vietnamese street vendors I saw in that country. Could they speak English? They could speak enough English to sell you a Coke or sewing your military patches on your uniform or whatever. But you could not have a conversation about the weather or the war or their children with them in English. So it is with Cain. He speaks enough policy to rise in the polls through sound bites, but he probably could not pass a simple ten-question quiz on any one pertinent issue.
Barack Obama was utterly unqualified to be president. He still is. It’s not an opinio. It’s a plain fact. His resume has nothing but degrees from Columbia and Harvard Law School, probably affirmative action degrees since he refuses to release his grades or test scores. Gore and George W. Bush both released their grades and test scores in 2000. Obama is apparently ashamed of his.
But he has a great voice and is skilled at using some cheap rhetorical tricks like random pauses and ending nearly every sentence with an “And that’s final” certainty. It’s wearing thin now because he seems to be all voice, pauses, and “that’s final” nowadays—no action. No competence.
Voters atributed all sorts of wonderfulness to Obama because of his voice, pauses, and certainty. That’s called the halo effect. Assuming that because person A can do A well he must be able to do everything well.
I see a similar thing going with Cain. Cain also has a rich, deep voice. He is a decent gospel singer. I defy anyone to say “deep dish” better than Herman did in that early debate. Cain also has something that Obama does not: near professional comedic timing and delivery. Obama cannot tell a joke. He laughs at his own jokes. Red Skelton got away with that, but I know of no other comedian who ever did.
I doubt Herman Cain could write his own material or do improv, but he can deliver comedy lines written for him.
Again, it is likely that voters are succumbing to the halo effect with regard to Cain. He has a good strong voice and near pro comedic timing and delivery, therefore, he must be wonderful at everything.
Read my lips. Having a good voice means you have a good voice, period. Having pro comedic timing or the ability to use cheap rhetorical tricks means you have pro comedic timing and can use cheap rhetorical tricks, period. There is a whole chapter about halo effect in my book Succeeding.
The halo effect is a propensity of humans to draw overly broad conclusions based on meager, first-impression evidence.
That thin thread is what Herman Cain’s current poll rankings hang by.
John T. Reed