Posted on 10/18/2011 7:42:10 AM PDT by commish
This is a very simple, but hopefully accurate, analysis of what Herman Cain's 9-9-9 plan would mean to me. I make around $90,000 a year, and have rounded figures to get to exactly that for this analysis.
To do the analysis I took my current monthly pay, my current taxable amount, my annual tax refund, and my monthly 'disposable' cash after bills/savings/etc. I consider FOOD part of disposable as I can decide how much I spend on groceries.
For the purposes of this analysis I consider ALL disposable income as being spent and therefore taxed by sales taxes. I also consider the annual refund part of DISPOSABLE income though in reality it usually goes to pay bills or into savings.
First, here is my current situation:
Income $90,000 -- $7500 a month
Taxable income -- $7000 a month
State taxes -- $280.00 a month
Federal taxes -- $1412.60 a month (approx 20.18 effective rate)
After tax income -- $5307.40 A month
Disposable income after bills/savings/etc -- $2000.00 a month
Annual average tax refund -- $1200.00
Annual DISPOSABLE (IE sales taxable) income -- $25,200.00
Now under 9-9-9
Income $90,000 -- $7500 a month
Taxable income -- $7500 a month (notice for 9-9-9 it is all taxable now)
State taxes -- $280.00 a month (state tax does not change as state taxable amount stays the same)
Federal taxes -- $675.00 a month (9% rate)
After tax income -- $6045.00 A month
Disposable income after bills/savings/etc -- $2737.60 a month
Annual average tax refund -- $0.00 (no refund under 9-9-9)
Annual DISPOSABLE (IE sales taxable) income -- $31,651.20
Annual DISPOSABLE AFTER 9% sales tax -- $28,802.59
NET CHANGE UNDER 9-9-9 -- $28,802.59 - $25,200.00 = +$3,602.59
Bottom line, at the end of the year I have $3600 more buying power under Herman Cain's 9-9-9, and that is assuming prices stay stagnant when all indications are that prices will lower under 9-9-9 due to less tax burden on businesses.
There is nothing in the current system that prevents taxes from going up in the future.
There is nothing in any other proposal that would prevent taxes from going up in the future.
Actual my view is the new sales tax would be less likely to move up then what we currently have. The Sales tax impacts everyone, if it goes up everyone is feeling it because it's money out of their pocket and the will fight/vote against it more.
This thread is good, shows the tax rate is no a decrease for most, increase for a few. I don't think Cain's 9-9-9 plan major benefit is what each person pays. The benefit is how it helps the US economy as a whole.
Business labor cost will be a lot cheaper so people will get paid more or business will have a lot more money to grow.
Product will have cheaper cost, less labor and tax cost means the price can be cheaper or business make a lot more money
When businesses grow and make more money they tend to hire, as companies hire salaries increase and more people have salaries
Also at global level the 9% on business profit is very good. Other countries are mostly 20% - 30%. Again more jobs, money income for American workers
And who says the current system will stay with its current rates? The main thing in favor of 9-9-9 is that it gets rid of most indirect taxation hidden in corporate income taxes (which, transmitted to the consumer in higher prices is regressive just like a sales tax).
But Cain better make clear that 9-9-9 also gets rid of excise taxes or no one in the heartland will really be able to support it when they realize what it would do to gas and diesel prices.
I’m curious about another tax. I have verizon - bundled with tv, computer and phone. Total taxes per month are approximately $24.50. Will the 9% be ADDED to this or do any of the taxes that total $24.50 be gone? How about gasoline taxes - isn’t it about .45 cents now?
There is also no reason a constitutional amendment would be required for the sales tax component, either. There is no explicit constitutional authority for federal fuel taxes, telephone excise taxes, et al. Just a statue and we’re paying those.
THAT is the big assumption.
The lower rates for personal and corporate are all GOOD things. I also commend Cain for even raising the issue of tax rates and structure. It is an excellent political strategy, and almost anything would be better than the corrupt hairball tax system we have now.
I just do NOT trust any politician or Gov't with a new way to tax. I guarantee you that any sales tax will NOT stay at 9% for very long. Where I live, in upstate NY, the fact that sales tax falls mainly on poorer people hasn't kept the tax from going from 3% to 8.75% in the past 20 years. I simply do not accept your premise.
Here's one from Nerds4Cain.com.
bfl
Well if you knock a tax reform because the government won’t abide by it, you’re pretty much knocking any and all tax reform and accepting your fate.
Wait a minute - WHERE do you get THAT idea??? I make approx. 49K, and I have ALWAYS paid Federal income tax - in fact, I've paid Federal income tax ever since I've started working, since 1968.
actually I do itemize, and most of the $1200 ave refund comes from the mortgage deduction protion of that itemization.
The sales tax is on new goods. So you could use your savings to buy a used car or pay your mortgage payment or pay other bills, etc.
He is getting the “Those making under 50K or so currently don’t pay any Federal income tax” from a study that shows that a family with children will get back every cent withheld in their refund.
The fallacy of that is that it only takes into account FEDERAL INCOME TAX and does not subtract what is withheld in FICA, Medicare, unemployment from the equation — which in most cases would mean that even with the big refund most are still “in the red” to the fed at the end of the year.
A blanket statement that they don’t pay any taxes due to the refund also does not take into account that the 9% income tax will actually increase their take home pay throughout the year and that they will actually have more buying power even with the 9% sales tax. They just won’t get they “FREE” big screen TV every February.
It also doesn’t take into account that their buying power will be increased even more buy the fact that businesses will be able to lower prices, raise salaries, hire more people, etc etc ....
Why can’t they raise the current tax rate?
>>From the last paragraph of the article:...assuming prices stay stagnant when all indications are that prices will lower under 9-9-9 due to less tax burden on businesses.<<
Biggest mistake in the article.
The way Cain describes the 9% “corporate” tax, it appears to be essentially a Value Added Tax (VAT) rather than the current corporate income tax.
As it’s described on his site (when I last checked), the 9% tax would be applied to adjusted Revenues, not Income, and the adjustments are mainly raw materials, products, utilities, etc., purchased from suppliers. Labor is not an adjustment.
So, in effect, all of the value added to the resource inputs is taxed at the 9% rate. This could be a higher tax than the current 35% corporate income tax. For example, it would almost certainly be a higher tax when a company is operating at breakeven or even a loss, and paying no income tax at all in a down year. There would likely still be some tax owed at the 9% rate under Cain’s plan, however.
I’m not saying this is a bad thing, by the way. It’s just that people are consistently confusing Cain’s 9% corporate tax (which is close to a VAT) with the present 35% corporate tax (which is paid only on net income), and are concluding that companies will pay much less tax as a result, but they’re wrong because they’re comparing apples and oranges.
When considering lower income households, I think the combination of the 9% sales tax and 9% income tax will offset the savings from not paying the FICA tax, and the 9% corporate VAT will come close to raising as much as the 35% income tax.
I also think that the 9% corporate VAT tax might be a better tax, because businesses operating on the 35% tax are always evaluating expenses like corporate perks and salaries as though they were only costing 65%, with the feds picking up the other 35%. Once that cut dropped to 9%, the shareholders would eat the 91% of the cost of that box suite at the ball game, instead of just 65%. This would likely cause businesses to pull in some of the more outrageous expenditures, at least in some cases.
If your average refund is $1200, you need to adjust your withholding. Why are you loaning that much at zero interest to the gubermint? Starve the beast!
Yes. They do ignore things that are hard to quantify. This plan should result in lower prices especially on “generic” food stuffs (luxury goods and gourmet goods are different) that most people buy. All goods should generally drop in price but luxury goods defy the traditional economic models but even in a fight between Mercedes, BMW and Lexus one of them will blink and lower prices on their US made goods.
They also ignore that since employers don’t need to kick up matching funds anymore, there is room for wage inflation. The 6.5% (or more) that payrolls collect is free to go to employees. While not everyone will get all that money, some will and this pushes up wages and/or allows for more hiring or both. Either scenario is good for workers as competition for employees is what pushes wages up, and high unemployment keeps wages stagnant.
They also ignore an important aspect - capital gains are not taxed. This is great to encourage investment but importantly it helps retirees who have saved and invested. No more taxes on your savings and gains. I am unclear if they will have to pay 9% on their SS checks but I hope SS is not considered wages.
Overall I am impressed with the plan and I am thinking I like it better than the FairTax. Cain needs to rethink whether we can actually make that transition, or if just a simple, visible, easy to understand system works better. FairTax to me seems to punish savers and retirees too much and I can’t see, politically, how it can pass. 999 might have a chance.
Bull.
The marginal tax rate for those making $34,500-83,600 is 25%.
And unless you know a different sort of math than I, $34,500 is less than $50,000.
And remember, if you rent, you will see a 9% federal sales tax on your monthly rental “purchase”.
Does anyone know how 9 9 9 plan treats muni bond interest income?
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