Posted on 10/06/2011 8:42:39 AM PDT by SeekAndFind
Looking at recent polls, Herman Cain is the man. So, as with any front runner, it’s time to take a closer look at his campaign trail stump line known, affectionately, as “Nine, nine, nine.” At first it rattles off like classic Grand Slammer Boris Becker on court after hitting a poor shot. There’s also an angry scene in Quentin Tarantino’s bloody cult hit Inglorious Basterds that quickly flashes across the mind, but let’s pretend we didn’t see that. Ultimately, it’s the heart of Herman Cain’s big sell. So far, not only is it easy to remember, but it probably has a chance of being equally effective in application.
Under Mr. Cain’s plan, there would be a nine percent tax on corporate income; a nine percent tax on personal income; and a nine percent national sales tax. Fairly simple.
To better understand the effect of the proposal, let’s look at a hypothetical single-parent taxpayer under two scenarios: 1. where she is a wage earner, and 2. where she is self-employed. Let’s also assume under both scenarios that the taxpayer has gross earnings of $21,570 and we are applying the tax code for the year 2010.
As a wage earner under the current tax code, our single parent has gross income and adjusted gross income of $21,570. After subtracting a standard deduction of $8,400 and taking two exemptions of $3,650 each, her taxable income is $5,870. The tax on this income is $588, leaving an effective tax rate of 2.7%
Under Mr. Cain’s 9-9-9 plan, the wage earner’s federal tax liability would be $1,941.30. Outside of rent and food, our wage earner doesn’t get out much, so her national sales tax would be an additional $100, bringing her total tax bill to $2,041.30. His effective tax rate under the 9-9-9 plan would be 9.46%.
At this point, the progressives would be ready to pounce and scream at the perceived regressive nature of the tax under Cain’s plan. But, let’s hold that thought for the moment and proceed to the self-employed scenario.
Under the current code, our self-employed single parent – having given up on finding a nine-to-five job – has earned $21,570 during the first year of his start-up. After deducting expenses for advertising, use of the home, etc., his net profit is $20,018. He subtracts an additional $1,415 for self-employment taxes, which brings his adjusted gross income to $18,603. He is also entitled to standard deductions of $8,400 plus $7,300 in exemptions leaving his taxable income at $2,903. According to the tax tables, his tax is $291, an effective tax rate of 1.45%.
Under the 9-9-9 plan, the self-employed single parent, earning $21,570 in gross revenues, subtracts $1,652 in business expenses or investments, bringing his net profit or income to $20,018. At a rate of 9%, total taxes amount to $1,802, an effective tax rate of 8.35%.
Now, it’s time to pounce.
Under Mr. Cain’s plan, whether you are a wage earner or entrepreneur, your effective tax rate, defined as taxes divided by total income, will increase. This downside could be offset, however, by increasing investment in productive, income generating activities.
For example, under the 9-9-9 plan, a business owner could increase the level of its business investments, increase purchases from other businesses, or increase the payouts of dividends, which in turn can also be deducted from taxable income.
Individual tax payers under the 9-9-9 plan can live and/or work in empowerment zones, increase charitable donations, or invest in entrepreneurial activities. This, presumably, offsets the national sales tax which is consumption based.
The impact on the entire economy from the 9-9-9 plan is the broadening of the tax base. Whether as a result of income or sales taxes, everyone would contribute to the national coffers.
Criticisms of the 9-9-9 plan have been mounting in the social media space. Among the criticisms are some taxpayers unwillingness to pay both a national sales and a national income tax.
Another criticism is, given the need for additional consumer spending to get the economy going, do we really need a national sales tax dampening the impact of consumer spending?
One thing appears certain. Mr. Cain is the only GOP candidate so far that has offered a tax plan that has gained some traction and resonance in the public discourse. How long the traction will hold is as uncertain as whether the pizza deliveryman will accept a coupon beyond the expiration date.
-- Alton Drew is managing director and senior legal and public policy analyst at The Alton Drew Group LLC. In addition to being a contributing writer at Politic365.com, Mr. Drew blogs at Law and Politics of Broadband and The American Centrist
With Sarah out and Perry on the ropes, time for the MEdia and RINO establishment to make Cain the flavor of the week
A 9% national sales tax is a slippery slope into European Style Socialism.
Before giving Cain the high fives conservatives need to ask their European friends how they like national sales taxes that are as high as 25%.
The average sales tax in the 50 states is about 7%. So with Cain’s 9% national sales tax, we will be paying 16% sales tax total.
Most taxes start low and get higher. So soon will be bankrupt like the Europeans.
Mike
RE: Cain the flavor of the week
What about his 9-9-9 plan? What’s right and what’s wrong with it? Is it tweakable? Or do we prefer the current 35,000 page tax code with all its attendant loopholes where GE and nearly half of America pays no taxes?
With 9-9-9 the cost of goods such as food and housing and transportation will go down.
Which affects poor and lower middle class people the most.
If you were going to post the article, you should at least post the comment below it demonstrating that the math used in the article is incorrect!
There’s nothing wrong with debating Cain’s 999 plan, even some good conservatives have some questions about it, but at least attempt to use accurate numbers.
Your calculations are incorrect.
The self employment tax rate is 15.3% - the payroll tax for the self employed person in your example should be $3,063.
You forgot to take into account that under the Cain plan the payroll tax is eliminated. The $3,063 in payroll taxes plus the $291 in income taxes ($3,354 — a 16.75% tax rate) is what you should compare Cain’s 9% rate to.
The payroll tax amount for the employed person is also 15.3% (she pays half directly out of her paycheck, and her employer pays half on her behalf—that parts a hidden tax, but she is stil part of her salary). Her total payroll tax is $3,300 + $588 on income brings her total incomem tax to $3,888, or 15.7%.
When you factor payroll taxes (social security taxes, etc...) in the equation, then Cain’s 999 plan comes in pretty close to the current tax system.
My position exactly.....9-9-9 opens a lot of doors that need to stay closed to greedy government.
[ A 9% national sales tax is a slippery slope into European Style Socialism.
Before giving Cain the high fives conservatives need to ask their European friends how they like national sales taxes that are as high as 25%.
The average sales tax in the 50 states is about 7%. So with Cain’s 9% national sales tax, we will be paying 16% sales tax total.
Most taxes start low and get higher. So soon will be bankrupt like the Europeans. ]
The 9% sales tax only goes into effect AFTER the 16th amendment is repealed and REPLACES the previous two 9’s.
Here’s one critique I read from a low income advocate’s point of view:
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In the city of Chicago, for example, the effective sales tax rate is already 9.75 percent on non-food items; for food, it is 2.25 percent. Add in the new federal tax, and consumers would pay 18.75 percent sales tax on goods and 11.25 percent on food.
A working family of two parents and two children, according to the Economic Policy Institute, spends about $587 per month on food; the numbers are from 2004, and food costs have increased dramatically, but using that figure, the family would pay $13.23 per month in sales tax at the Chicago rate, or $158 over the year. Add in Cain’s tax, and that same family pays $66 in sales tax. Over a year, that’s nearly $800 in taxes for a family with a modest income to start.
And that’s just for food.
If the household income is $100,000 per year, after the 9 percent personal income tax, the $800 in sales tax is 0.88 percent of their budget. If the family makes $35,000 per year, though, their net income is $31,850. The sales tax on food then takes up 2.25 percent of that family’s total resources, effectively taxing them at nearly three times the rate of a family with three times the income.
The state of Washington, which does not have individual income taxes, relies on sales taxes. In 2005, Seattle Pi reported that, according to the Institute of Taxation and Economic Policy, while families at the poverty level spent 17 percent of their income on sales taxes, the highest earners spent only 3 percent of their income. That differential leaves the $100,000 family paying $3,000 in taxes to the $35,000 family’s $5,950. The lower-income family spends nearly twice as much as the family with more money.
Such taxes are called “regressive” because they disproportionately affect people with lower incomes. Herman Cain has repeatedly said his tax is not regressive, but does not explain why or how, leaving the words empty and without any data to support them.
OK 9-9-9 DEFENDERS, THE BALL IS IN YOUR COURT.
Naturally, they leave off the other portion of the plan - the portion which makes it workable -
Elimination of taxes on repatriated foreign profits and capital gains, the entire payroll tax and the death tax.
All of those things IMMEDIATELY put more money in EVERYONE’S hands.
[ RE: Cain the flavor of the week
What about his 9-9-9 plan? What’s right and what’s wrong with it? Is it tweakable? Or do we prefer the current 35,000 page tax code with all its attendant loopholes where GE and nearly half of America pays no taxes? ]
999 eliminates loopholes and makes it harder to hide taxes that consumers pay. Taxes that are normally hidden, ie. Taxes on production that are passed onto customers by businesses raising prices.
If 999 were implemented exactly as it is written, it would be impossible / political suicide for politicians to raise taxes.
Although a high earner, I have always been a frugal guy and a high saver. I had the top income tax rate rate of 35% last year. So, let's do the arithmetic for $100 earned and saved in December 2010 and then spent in 2014 under the 999 Plan.
($100 earned in 2010) - (35% Income rate) = ($65 left over to put in the bank in 2010)
($65 of saved money) - (9% Federal Sales Tax in 2014) = ($59.15 of left over purchasing power)
TOTAL CUMULATIVE TAX RATE ON THAT MONEY SAVED AND SPENT: 41%
Those of us born in the 1950's who were taught the conservative values of hard work, frugality and savings will take it in the shorts as our life savings will be double taxed at an obscene cumulative rate.
Those who were taught to spend like drunken sailors without ever saving a dime don't have to worry about the double taxation on their current savings because they HAVE no savings.
SIMPLE SOLUTION:
Cain must make it clear that those of us who have ALREADY been taxed on our savings will not be taxed AGAIN.
Savings earned prior to the 999 Plan could be put into "Already Taxed Savings" (ATS) accounts that can be accessed by "ATS Cards".
If goods are purchased with an ATS Card, no National Sales Tax is charged.
As far as tweaking, all proposals at this point are just a starting point.
The fact that someone has identified what they feel is a problem with the plan, doesn’t mean it should be 100% discouted. The question should be can it be modified to handle the complaint.
RE: If you were going to post the article, you should at least post the comment below it
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If I have to post every single response below the article, then I’d be missing so many responses because it could go on for web page after web page.
People can click on the link provided and read the responses ( pro or con ) for themselves.
The UPSIDE of 9-9-9...
is that is shows Cain to be a man of ideas.
The DOWNSIDE of 9-9-9...
is even if Cain could get elected Congress would never overturn our revenue system. It would simply absolutely never happen.
Exactly. A new tax is a fool’s errand. I like Cain but this plan is idiotic. Under a democrat regime it will be 25/25/25.
Eliminate income tax, which is disgusting, then we’ll talk.
RE: As far as tweaking, all proposals at this point are just a starting point.
I take this to mean that it could be a 10-3-9 plan or a 14-2-29 plan, or even the 15-0-25 plan after the tweaks are in place?
Sorry it not the Rino Establishment who is pushing Cain. The RINO Establishment is lined up squarely behind Perry. They view Perry as Bush's 3rd term.
The current tax code works incredibly well for everyone so why would anyone want to change it? /s
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