Posted on 10/17/2011 1:52:25 PM PDT by SeekAndFind
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.
Our ruling
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.
Wait a minute- I just realized how disingenuous that reply was. You can’t use a pro to answer a con and then, when someone points out your pro is flawed and may not apply, wave the whole issue away as so much minutiae in pursuit of the greater good.
I don’t really have a dog in this fight- I ran the numbers going by the info floating around and my family comes out fairly even- but what kind of citizen would I be if I didn’t look deeper into the underlying assumptions? I must say that hand-waving and strawmen do not exactly engender confidence....
But you are paying taxes on your retirement income now.
The 9% Income Tax and 9% Sales Tax (assuming it is on TOP of current prices, which it is NOT) would still be less than what you currently pay.
Doesn’t matter. 9-9-9 is dead if not even FReepers can understand it.
Oh well. I don’t think we’ll ever be able to get rid of our horrible current tax code.
Indeed. Who are these fools?!!
Could receive it in wages.
It is entirely accurate. However, what makes the question utterly fascinating is to see who believes it is inaccurate and why. Exposing ignorance is easy with a question like this.
Taxes for employers and employees are 6.2% of all wages up to $106,800 and 1.45% on all wages without limit. This adds up to 15.3 %.
For the year 2011, the employee's contribution has been temporarily reduced to 4.2%, while the employer's portion remained at 6.2%. To the extent an employee's portion of the 6.2% tax exceeded the maximum because of multiple employers; the employee is entitled to a refundable tax credit upon filing an income tax return for the year
Here is an interesting aspect of the cost to wage earners for the Social Security System over time. Part of what makes it interesting is the relentless claim that Social Security is not broken juxtaposed with 60 years of constant fixing.
Compare the maximum amount a wage earner would pay in 1950 to the maximum amount a wage earner paid in 2009. I want to first point out that the figure is not typo. The maximum cost to the wage earner has increased 27,134%.
A quick comparison of what a 27,134% increase in a pound of bacon or a loaf of bread or a new car is interesting but what about wages.
If a worker earned $2.00 an hour in 1950 and his wage increased 27,134% his 2009 hourly pay would be $544.68.
1951 – 0% increase
1961 - 380% increase
1971 – 1,252% increase
1981 – 6,483.5% increase
1991 – 13,517% increase
2001 – 20,402% increase
2008 – 25,910% increase
2009 – 27,134% increase
The problem with 999 is it remains a mystery as to exactly what is considered taxable income - so everybody is guessing and Cain is throwing stuff against the wall to see what will stick. When he offered up the plan to the public he should have produced Lowrie's worksheet that showed his calculations. Then we could have seen if Social Security, Retirement, Disability, etc. was taxable. I have a feeling Lowrie is in the panic mode trying to overcome these last minute exemptions Cain is throwing against the wall.
RE: The Calculator from the site you gave in your post....
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Someone in another thread posted this to me using the calculator... and I’d like to read your comments on that.
Let’s talk about a family earning $40,000/year.
Here are some concerns with the calculations from the website you gave:
1) In the first place adding the Employer FICA to the equation incorrectly skews the results. That is a cost to the employer, not the employee, and if it is done away with then that’s a cost reduction to the employer and not an addition to the employees paycheck.
2) In the second place, since the tool does not mention marital status or family size then it’s impossible to see what it is comparing it to.
So for calculations doing it both ways.
CALCULATIONS FOR A FAMILY...WITH AN INCOME OF $40,000
A) TRADITIONAL CALCULATION BASED ON CURRENT TAX CODE
First let’s look at the median family in this country: husband, wife, and two kids. Use your income of $40,000 per year. Individual deductions are $3650 for each person, standard deduction is $11,400 for a total of $26,000 in deductions and a taxable income of $14,000. That gives them an income tax of about $1400. The current child tax credit brings that down to $600 refund. The Make Work Pay credit brings the refund to $1400. You can argue the logic behind that but it is what it is. So our family also pays the Social Security and Medicaid taxes of 5.65% less the federal refund, for a total tax bill of about $1450. Now lets look at them under the Cain plan.
b) CALCULATION BASED ON 9-9-9 PLAN
No individual deduction. No standard deduction. No credits. Just a flat tax of 9% for a tax bill of $4500.
That’s an increase of $3050 in income tax.
Add to that the 9% sales tax and their taxes go up another $2000 to $3000 or more. Their taxes easily exceed $8000, a considerable percentage of their income. Far more that they had under the old plan
___________________________________
CALCULATIONS FOR AN UNMARRIED INDIVIDUAL EARNING $40,000
Now look at it for an individual. One individual deduction and one standard deduction brings his taxable down to $30650. Income tax is $4179, about $500 less than under Cain. His FICA is $2260. So with the 9% sales tax a single person doesn’t get hit quite as hard as a married couple does, but taxes do go up.
But in addition to that, what else have you just done? Under Cain’s plan the whole concept of ‘marriage penalty’ is back with a vengeance. If you’re single then it’s close to a wash. If you’re married with a family you are seeing your taxes skyrocket. Where is the benefit of that?
And another thing that doesn’t seem to be factored in in all these Cain examples is what he does to state income taxes.
In many states, state taxes are reduced by standard or itemized deductions. Without those, taxable income goes up there and the taxes for the people in your example go up another $550 to $750. So under the 9-9-9 plan the hits just keep on coming for people, married or single.
Do you have any response to this calculation?
Your arguments belie the purported purpose for the original post. No one can be this dense.
From a policy perspective, I don't care at what ratio the employer passes that additional "savings" to employees v shareholders. In either case, it's going to people who are actively working to create economic activity, either through their labor or by risking their capital. Beats the hell out of letting faceless bureaucrats give it to deadbeats who do nothing.
If I am dense, maybe you can show everyone where the calculations are wrong in Post #108 above.
Yes we should ask the CBO to tell us the truth, they always do. </idiot>
By what math is $4500 equal to 9% of $40,000? Looks like 11.25% to me.
Their taxes easily exceed $8000, a considerable percentage of their income. Far more that they had under the old plan
Did you really just claim that a 9% income tax + a 9% sales tax would equal >20% of total income ($8000 / $40,000 = 20%)?
And by the way, the standard deduction for a couple filing jointly is $11,600 in 2011. That, plus an exemption of $2700 per child, equates to a taxable income of $21,000 - not your stated $14,000.
Yes.
Does this mean all deductions will be taken away?
There will be a deduction for charitable donations. All other deductions are eliminated.
Does this mean 9% will go on top of existing sales state tax therefore 8% will not be added to the new 9% therefore 17% is added on what you buy similar to a VAT?
The 9% will be added to existing state and local taxes, so if your state charges 8% then it will be a 17% tax on all new purchases. It is not similar to a VAT. A VAT tax is added to the additional value created at each stage of the manufacturing process from mining the raw material to completing the finished product. The Cain tax will be a 9% tax levied once at the final point of sale.
I’m under the impression that if you make less than 20 grand then you pay 5.75% tax but this will go up to 9%?
Depends on your circumstances. If you make $20,000 as a single taxpayer then you already pay income tax. If you make $20,000 and have a wife and a kid or two then you pay no income tax and probably get about a $2800 refund once all the child and working credits are factored in. So in that case you would pay maybe a few hundred dollars net in FICA. Under Cain you pay $1800.
Typo - $2700 should be $3700. My overall math is still accurate though.
Make the employer pay the 9%.
Since this is supposed to be a transitional tax system, I think a little deception to get it passed would be ok. The working dumb can think they aren’t paying any income tax.
Another way to sell the idea is to promote a national 7.65% pay raise. Coordinate this with states to increase the minimum wage by this amount when the new tax system goes into effect. If the movement gains enough steam, employers would feel pressured to increase wages by this amount.
Ah - another well thought out remark by another self perceived genius.
I paid the max for 30 years while at the same time Warren Buffet was getting his healthcare tax free and I was paying the marginal rate. Politifact is FOS. In my case I would have passed the employers half right along to the employee under Cains plan. However, for the record I oppose any national sales tax now and always.
Do not count on itsafool to respond with anything coherent.
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