Herman Cain’s 9-9-9 plan
Financial planners tend to toil quietly in the background, but all that changed for suburban Cleveland planner Rich Lowrie when Republican presidential contender Herman Cain identified him as his economic advisor during a televised debate. Cain credited Lowrie with helping to shape his suddenly famous 9-9-9 tax proposal that has helped vault Cain to the top of the polls.
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In an extensive and exclusive interview, Lowrie, a managing director of wealth management for Wells Fargo Financial Advisors in the affluent town of Pepper Pike, Ohio, responded to critics who questioned Cain for not choosing an academic as his senior economic advisor.
“You don’t need a Ph.D. in economics to explain simple economic truths to people,” says Lowrie, 47, who holds a bachelor’s degree in accounting from Case Western Reserve University. “Not surprisingly to us, the American people understand economics a lot better than Washington gives them credit for.”
Wells Fargo’s Rich Lowrie
Or, as Cain has put it, “Rich has more common sense than many who call themselves economists.”
To the charge the 9-9-9 plan will hit the poorest Americans hardest, Lowrie says many of the people at the bottom of the economic pyramid would be exempted. He says the Cain campaign plans to unveil new details of its plan in Detroit on Friday.
Lowrie’s prominence in the campaign may mark a historic moment in the roughly 40-year-old profession of financial planning. Now-retired financial planner Jack Gargan served briefly as chairman of Ross Perot’s Reform Party in the 1980s. But aside from him, none of the leaders of the Financial Planning Association, nor any of the other longtime planners contacted this week, could think of another planner who’s helped shape a national debate.
Lowrie doesn’t have much time to wonder whether he should be on the hot seat. It’s all he can do to keep his campaign work and his advising practice separate, as requested by Wells Fargo. For that reason, he declined to answer even the most basic queries about his business, questions to which most other planners respond readily.
For his part, Lowrie claims no interest in the spotlight. His work as a behind-the-scenes conservative activist dates back seven or eight years. That work has roots in a still-earlier decision he made in the early ’90s to refocus his business to carve out substantial time for new pursuits, from national politics to helping underprivileged kids in Cleveland.
A lightning bolt
“When my oldest daughter Rachel was about 2 and my youngest daughter Ryann was still on the way, I thought to myself, ‘OK, in five more minutes, I can put her down and then dig into those research reports,” recalls Lowrie, who’s now divorced. (His daughters are now 13 and 11.) He caught the thought before acting on it. “It was almost like God sent one of those lightning bolts down and it hit me and that was the turning point. I thought I’ve got to get out of this transactional approach to business and build something with more value for my clients.”
In short order, Lowrie signed up with a business coach who offered a three-year program designed to free clients from the time-sucking daily minutiae of operating a business.
As part of the program, the coach asked Lowrie to envision his death and how he wanted to be remembered. At this time, the demise of his political hero remained fresh in his mind. In 2004, when Ronald Reagan lay in state in Washington, mourners came to view the body at all hours. After a long day at the office, Lowrie drove through the night to the Capitol to pay his respects. At about 4 a.m., he and a friend had their turn to see Reagan’s body. They then drove home, and Lowrie returned to work later that morning.
After the three years of working with the business coach, Lowrie learned how to focus on building client relationships, leaving the day-to-day operations of his practice to others and spending one or even several days every week away from the office.
One of his first new passions became the Club for Growth, the Washington-based political action committee that supports conservative political candidates for Congress. While at an organizational gathering in 2004, Lowrie says he heard a talk by Herman Cain, then a candidate for the U.S. Senate from Georgia.
“I thought this guy really gets it,” Lowrie recalled. “If he has half the impact on the American people as he has with me, he is going to be a force to be reckoned with.”
Cain finished second in the primaries, but soon after landed his own radio show. From afar, Lowrie followed the show to keep up with Cain. In the meantime, Lowrie threw his support behind Kenneth Blackwell, another prominent African-American conservative, in Rockwell’s 2006 bid to become governor of Ohio.
Blackwell was campaigning on a platform of a state spending cap. Lowrie supported the concept and decided to cast a spotlight on it by hosting an event featuring renowned economist, and fellow Ohio native, Arthur Laffer.
The Laffer effect
From the earliest days of his planning career when he was an intern at the investment firm McDonald & Co. in 1988, Lowrie says he’s read research reports by Laffer regularly. A member of Reagan’s Economic Policy Advisory Board, Laffer’s work helped give rise to the Laffer Curve, which proponents say illustrates how lower taxes leads to economic growth. Lowrie says after he cold-called Laffer, the two developed a friendship; he regards the economist as a mentor. While Laffer says he refrains from endorsing candidates during primaries, he strongly endorses 9-9-9.
While Blackwell’s 2006 race ended in defeat, Lowrie had become well connected in the world of politics.
‘You’re not going to believe this’
Last year, Mark Block, a friend of Lowrie, called him and said, “You’re not going to believe this, but Herman Cain is going to run for president and I am going to be chief of staff.’ ” Lowrie says he’d met Block while helping him open an Ohio chapter of American for Prosperity, a conservative advocacy group founded by billionaire brothers David H. and Charles G. Koch.
“This time around, I knew Cain was going to shake things up,” Lowrie says. During the campaign’s earliest days, Block and campaign aides called the planner frequently for advice on economic issues.
“I would get a call from Mark saying, ‘Cain is looking to get rid of taxes on repatriated foreign products,’ ” Lowrie recalled. Companies that operate and pay taxes overseas pay another round of taxes when bringing assets back to the U.S. “I told them to keep driving that one home. … It’s double taxation.”
Lowrie’s connections and informal consulting led Cain to ultimately offer him the job of senior economic advisor of his campaign.
Fundamentally, Lowrie says, he and Cain agree on three “simple truths.” The first, as they see it: Production drives the economy, not spending. “We all have to produce first and only then can we consume,” he says. “Production pulls along consumption like a caboose and people get that backward all the time.” The second, in their view: Risk-taking drives growth. “If you need to expand the economy by one more unit this year, then you need to take a risk, whether that’s one salesman making one more phone call or one company making one more product.” The third: The dollar must hold its value. “Ask people what it would be like to wake up every morning and have to ask how many inches there are in a foot? It would be chaos. The dollar has to hold its value in the same way that there are always 60 seconds in a minute. Instead, it’s up and down like a yo-yo. … If we get these three things right,” he continued, “the natural state of things is prosperity. The only way to screw it up is to screw those principles up.”
Lowrie says he and Cain devised the 9-9-9 plan with these ideas in mind. Lower taxes would lower the cost of production. This would decrease the cost of risk-taking behavior, he says, and attract capital to the U.S. to stabilize the dollar.
The plan is nothing revolutionary, according to Lowrie, it borrows heavily from prior flat-tax plans and so-called fair-tax plans that have sought to overtly tax consumption and eliminate other taxes. Laffer, in an editorial supporting the plan this week in The Wall Street Journal, described it as “not all that different from California Gov. Jerry Brown’s 13% flat tax when he ran for president in 1992. … Who says a flat tax can’t be a bipartisan proposal?”
Lowrie says he and Cain first began discussing how to overhaul the country’s tax code earlier this year while driving together on the campaign trail. “’How bold do you want to be?’” Lowrie asked Cain. The candidate replied with a big smile and a booming voice. “Bold,” Lowrie says Cain replied. “I want something that will tax everything once and nothing twice.”
The plan’s triple nines refers to a 9% tax on income, a 9% business tax and a 9% national sales tax. During the presidential debates in Las Vegas on Tuesday, several of the candidates slammed Cain and his plan, which they claimed would simply add to the current tax burden on most Americans. They were fueled by a report by the Washington-based Tax Policy Center that 84% of Americans would pay more taxes on the plan.
Not so, Lowrie insisted the next day. Including corporate taxes and personal taxes, the marginal cost of producing goods stands at 42%, he says. The three 9% taxes together add up to a marginal tax rate of 27%, a drop of 15 points. The plan would also eliminate a whole raft of taxes, including capital gains, estate taxes and the tax on repatriated profits.
Right now, Lowrie continues, all goods purchased in the U.S. contain embedded taxes that seem invisible. When you buy a $1 bottle of water, he says, that price includes corporate and payroll taxes paid by the bottler, the distributor and the grocer. The 9-9-9 plan would reduce the overall embedded taxes. Although it would add a national sales tax, that tax would become visible to consumers on their receipts. Lowering the cost of production to consumers per bottle to around 90 cents, the sales tax would return the price to about $1, making the plan price-neutral to consumers.
However, Lowrie claims, the most profound effect would be felt elsewhere. By eliminating deductions and other complexities, the plan would eliminate the roughly 30 cents in lost time and direct costs associated with tax preparation that Lowrie claims Americans incur to pay every dollar they hand over to the government.
Excerpted from an article by Ann Marsh, published in Bank Investment Consultant.