Truth-O-Meter: Herman Cain said workers now pay 15.3% in payroll taxes (How accrate is this?)

Herman Cain’s 9-9-9 plan was the talk of the debate held Oct. 11, 2011, in Hanover, N.H., with Cain’s Republican opponents for the presidential nomination assailing the plan as unworkable.

At one point, moderator Charlie Rose warned other candidates that mentioning the plan meant more rebuttal time for Cain. "If you keep mentioning 9-9-9 and Herman Cain, I'm going to have to go back to him every other question," Rose said.

Basically, Cain’s plan would replace the existing laws on income taxes, payroll taxes and corporate taxes with flat tax rates of 9 percent -- a 9 percent income tax, a 9 percent national sales tax and a 9 percent corporate tax.

Cain’s opponents focused on the proposed new sales tax. "We're not going to give the federal government, Nancy Pelosi, a new pipeline, a 9 percent sales tax for consumers to get hammered by the federal government," said Rick Santorum, a former senator from Pennsylvania. "How many people believe that we'll keep the income tax at 9 percent? Anybody?"

Cain’s plan seems to have struck a chord with some voters because it appears easy to understand, particularly compared with the current tax code and its mish-mash of different rates, deductions, credits and loopholes.

But would voters be better off? The day after the debate, Cain was grilled by NBC’s Chuck Todd, who wanted to know how the plan would affect working people. Todd quoted an analysis by economist Bruce Bartlett that said, "At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut."

"First of all, the fact that I got attacked so much and my plan got attacked so much last night, that's a good thing," Cain said. "Because it gives me an opportunity to correct some of those misperceptions.

"For example, here's what a lot of people missed, including Bruce Bartlett. ...Start with the 9-9-9 and the fact that every worker pays 15.3 percent payroll tax. Now they're going to pay 9 percent, okay? That's a 6 percentage point difference. The 9-9-9 plan replaces payroll tax, capital gains tax, corporate income tax, personal income tax and the death tax. So, five taxes we replace with those three. We start with throwing out the current tax code."

Cain is suggesting that the new national sales tax would be a smaller percentage than today’s payroll taxes. But the 15.3-percent number he mentioned didn’t sound quite right to us, so we decided to check it out.

What we found is that Cain is counting both worker and employer contributions to payroll taxes to arrive at the 15.3 percent number.

First, here’s a quick primer on how payroll taxes work: If you work for an employer, the employer deducts payroll taxes before you get your paycheck and then sends the money on to the federal government. The taxes pay for Social Security and Medicare; it's listed as FICA on your pay stub. Typically, workers pay 6.2 percent of their first $106,800 in earnings for Social Security taxes, and they pay 1.45 percent on all their earnings for Medicare hospital coverage. That’s a total of 7.65 percent in payroll taxes for workers making less than $106,800.

But the employer also has to match those taxes, bringing total contributions on behalf of an individual to 12.4 percent for Social Security and 2.9 percent for Medicare. That means total payroll taxes for each worker reach 15.3 percent, the number Cain mentioned.

So most workers see only about half the amount Cain mentioned deducted from their paychecks.

(And for every tax rule now in place, it seems like there are exceptions. The exception in this case is on the self-employed. They are required to pay the worker’s share of payroll taxes and the employer share. So that group would be paying the 15.3 percent Cain mentioned.)

Also in Cain’s defense, many economists believe that if the government were to end payroll taxes, it would mean higher pay for workers -- maybe not immediately, but at least over the long run, because it’s part of the cost of labor.

Still, there’s no rule or law that would require employers to give workers a raise equal to the employer's share of payroll taxes previously paid to the government. The taxes paid now are not considered part of workers’ wages in any formal or legal sense.

We have to add one other note of explanation that’s particular to the current economic downturn. In 2010, President Barack Obama and Congress knocked 2 percentage points off Social Security taxes for workers, as an economic stimulus measure. So this year, most workers are paying 4.2 percent while employers pay 6.2 percent. That means the current overall number isn’t 15.3 percent, but 13.3 percent.

One final note on the 9-9-9 plan itself: In our review of the commentary on Cain’s tax plan, we saw that economic analysts have said the Cain campaign needs to release more detailed information on the plan so that it can be properly modeled, to find out how much revenue it would generate and how it would affect taxpayers of different income levels. Cain said in the interview with Todd that he intended to release more information on the plan soon.

Cain said, "Every worker pays 15.3 percent payroll tax." That's not accurate. Workers only pay half that, with the exception of the self-employed, as we mentioned above. The worker contribution is normally 7.65 percent, and thanks to the payroll tax rollback of 2010, the number this year is 5.65 percent. You can reach that number only by including the half of the tax that employers pay. Some economists say that if the employers’ half of payroll taxes were ended, workers would see a proportional rise in wages over the long run. But whatever the case, Cain was talking about the reality today. Workers don't pay a 15.3 percent payroll tax, so we rate Cain's statement Mostly False.

Since there will be no more corporate tax, the cost of goods will be much lower, even with the 9% Fed Sales Tax. And that is only on NEW purchases, not expenditures.

Retirees will do well with this plan.

Can you imagine how much an employee would have saved up over time if 155 of their wages were put away in a private account over their working life?

I did a rough calculation on mine (I'm 56 now) and honestly wanted to throw up. Work would now be a choice instead of a necessity if I'd been able to put that money into a private account.

Do you pay any income tax now? Do you collect social security or will you in the future? Do you have any children or younger friends who need jobs presently or in the future? Do you think if the economy gets worse you will be better off? If it gets better?

Yes, no/yes,yes,no,no

Now, what's your point?

Money the employer pays ‘on your behalf’ in taxes is money that would go to YOU

Where is it written that all employers across America are going to give employees that money?

How does it feel to be stupid?

Let's make believe your shallow mind never produced that comment.

Pensions are exempt, from what I have seen.

As of right now, they are not..........And for what it's worth, my pension has been exempt from state taxes here in Michigan.....Our newly elected governor Snyder wants to change that too........Not sure if it will affect me but if it does, then it will be nominal and I have no problem with that.

This thread (and others like it) have convinced me that we don’t need to even bother discussing 999, because it will never pass.

Why? Because the American people are so goddam stupid that they will never understand it. They would rather stick with the current shitty tax code because it’s familiar, even though nobody knows how the hell it works.

It’s one thing to oppose the plan based worry of having an income tax and sales tax simultaneously. There are good points on both sides of that argument. But we will never even make it to that point.

9-9-9 is simple economics. Yet even some FReepers, who are supposed to be smarter than the average American voter, are unable to comprehend it.

So let’s just accept that 9-9-9 is doomed, doomed, doomed, as is the Flat Tax, Fair Tax, and any other tax reform that requires only the most basic economic understanding.

Good grief. This thread has been just sad.

Exempt? The only place used items aren’t subject to state sales tax here are garage sales and craigslist. Start shopping at Goodwill, consignment stores, or for a used car and you bet your sweet bippy the state is there collecting sales tax. Is the 9-9-9 plan just going to exempt person to person used transactions?

..Now, what’s your point?...

My point is to suggest you look at more than one year for a bigger picture. I think you will probably pay less taxes and get the same or more for what money you have to spend and have more security for the future. Social Security will be exempt from 999 income tax as far as I have heard, and now it may or may not be subject to income tax. (since 1983)

Another consideration is how safe is your pension, if the economy really tanks for a long time is your pension safe? Would a little change now to help the economy for now and the future help secure your pension? Take a look at American Airlines stock its been dropping recently because pilots have been retiring in droves as their pensions are tied to the stock price as of date of retirement. (they can cash out) I wonder what happens to other peoples pensions should their companies or cities go bankrupt?

Since there will be no more corporate tax, the cost of goods will be much lower,

In your dreams!

Name me three major corporations who experienced windfall profits that actually lowered the cost of their products rather than passing on those profits to their employees via pay increases and bonuses........

When was the last time you actually saw a decrease in the cost of automobiles despite sales records and record profits? When was the last time you ever saw a decrease in the cost of anything that wasn't related directly to competition?

It ain't gonna happen.........

The point is that the payroll tax results in an employee taking home 15% less money than he otherwise could were it not for the tax.

The other way to see it is that the employer pays out 15% than he knows the employee will accept for his work (i.e. his net pay). If the employer suddenly doesn't have to pay this, it's gravy, and you're assuming that he'll see it in his best interest to pass that gravy on to the employee rather than apply it to his bottom line and benefit his shareholders. I think, based on my interactions with the real world, that this is delusional.

I think you will probably pay less taxes and get the same or more for what money you have to spend and have more security for the future.

Well, I THINK that any additional taxes on my spending will be additional to what I am already being taxed on.......

In other words, I THINK you are wrong.........

When was the last time you ever saw a decrease in the cost of anything that wasn’t related directly to competition?

It ain’t gonna happen.........

unlesse producers collude in not lowering prices, competition will insure prices are lowered ...

I very well could be wrong, i have been on many occasions..espcecially when I dont have enough information to compute with...If you are paying less than 15 income tax now and dont have to pay payroll taxes on your income, you could be right...

the rest of the my comments are speculative rather than purely mathematical. I believe with a better economy over the long haul its better for the USA and all of us especially upcoming generations and what parent doesn’t sacrafice something for their child?-

all boats rise in a high tide...some run aground and break up in a low tide and storm.

A few things would make me happier with the 9-9-9 plan:

1) Exemption of Social Security and RMDs from the income portion

2) Exemption of ALL used goods from the sales tax, not just garage sale type stuff.

3) Provision that any rate hikes must occur uniformly across all three portions: Income, Sales, and Business.

4) Provision that the law cannot be changed, only struck down.

Odd. I’ve been here every bit as long as you, and I remember lots worse. I was called a baby-killer during the Kosovo war, and I wasn’t even there.

And no, I do NOT have any respect for someone who believes, after reading the article, that he only pays 7% in SS taxes, and the rest comes from his employer. And you should note, the guy I replied to called Cain a liar for citing a rate of 15%.

Competition is the reason prices will come down. Companies charge as much as they can get away with. To gain an edge, they lower prices.

In the instances where the company is able to avoid lowering their prices, they will, as you say “pass(sic) on those profits to their employees via pay increases and bonuses........”. That is also a good thing. More $$ in the economy and out of Washington.

No matter how you slice it, it works out better.

"called Cain a liar for citing a rate of 15%." He is wrong IMO, but surely we still have the right to call candidate a liar. I think Cain lies when he pulls that "I was just joking" BS. Perry and Romney and Bachman have all been called out for lying. It doesn't make the poster stupid and lowers the level of the conversation.

I still looking to see if VA Disability will be taxed. If SS isn't, I suspect I'm safe. That is most of my income. At least Cain has the guts to come out with something he knows will get him attacked and stands by his plan. He's a tough guy.

they will, as you say “pass(sic) on those profits to their employees via pay increases and bonuses........”. That is also a good thing. More $$ in the economy and out of Washington.

Nice if you're working but not if you're retired and on fixed income..........

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