Simple example of the outrageousness of Cain's 9-9-9 plan

[shira]

Here's a very simple example, with realistic, simple numbers and easily-verifiable rules, comparing how much a family of 4 - not in poverty, but making only $50,000 annual income - would fare under current federal tax rules and under Cain's 9-9-9 plan:


Assume $50,000 adjusted gross income.
Assume married couple, filing jointly, with two dependent children.
Assume this family cannot itemize deductions - if they can, the comparison is even more outrageous.
Assume this family contributes 6% to either a 401K plan (curent system) or to a savings account (9-9-9 system), which is the family's total savings.
Assume this family does not have employer-subsidized medical insurance - if they do have such insurance, the comparison is even more outrageous.
Assume that this family pays 3% average state income tax ($1,500).

Under current federal rules:

Standard Deduction (2010) = 11,400
4 exemptions = 14,600
6% pre-tax to 401K = $3,000

Taxable income = 50,000 - 29,000 = 21,000

Income Tax (from 2010 tax table, married, filing jointly) = $2,316

SS and Medicare tax: = 50,000 * 0.0765 = $3,825

Federal sales tax: 0

Total federal tax under current rules: $6,141

Under Herman Cain's 9-9-9 plan:

Deductions and exemptions and pre-tax 401K: 0

Taxable income $50,000

Income tax (9% rate) = $4,500

SS and Medicare tax = 0

Amount spent after state and federal income taxes and savings = 50,000 - 4,500 - 1,500 - 3,000 = 41,000

Federal sales tax = 41,0000 * 0.09 = $3,690

Total tax under Cain's 9-9-9 plan: $8,190

Tax INCREASE under Cain's plan: $2,049 (33% increase).

And what does Cain say?

http://www.csmonitor.com/USA/Politics/The-Vote

Currently, a family of four with an income of $50,000 annually pays about $10,000 in taxes, said Cain. Under 9-9-9, they would pay $4,500 in income tax, leaving them over $5,500 to decide how to spend on sales taxes for new goods.

“They are still going to have money left over,” said Cain.

How did $6,141 in federal taxes become $10,000?

Let's take a guess: Cain's position is that EVERY poor family and EVERY working middle-class family is self-employed and pays DOUBLE on SS and Medicare. But note that even if that were true - even if the example family paid an additional 7.65% ($3,825) on their $50,000 income - their total federal tax burden would STILL be less ($34 less) under current rules than under Cain's rules). And for even lower-income families, the Earned Income Credit kicks in, destroying Cain's math even more.


Not only is Cain's plan hugely regressive, shifting the tax burden even further from the wealthy to the poor and middle class, but Cain is a lying sack of shit.

 

[spidey07]

Time for them to pay their fair share.

 

[yhelothar]

the ironing.... is delicious

http://www.youtube.com/watch?v=-N3-j3HM7-A&NR=1

 

[Ausm]

It makes the Rich richer and penalizes people of limited means....MISSION ACCOMPLISHED!

 

[Craig234]

http://theweek.com/article/index/220346/herman-cainrsquos-9-9-9-plan-inspired-by-simcity

 

[Gamingphreek]

Here's a very simple example, with realistic, simple numbers and easily-verifiable rules, comparing how much a family of 4 - not in poverty, but making only $50,000 annual income - would fare under current federal tax rules and under Cain's 9-9-9 plan:


Assume $50,000 adjusted gross income.
Assume married couple, filing jointly, with two dependent children.
Assume this family cannot itemize deductions - if they can, the comparison is even more outrageous.
Assume this family contributes 6% to either a 401K plan (curent system) or to a savings account (9-9-9 system), which is the family's total savings.
Assume this family does not have employer-subsidized medical insurance - if they do have such insurance, the comparison is even more outrageous.
Assume that this family pays 3% average state income tax ($1,500).

Under current federal rules:

Standard Deduction (2010) = 11,400
4 exemptions = 14,600
6% pre-tax to 401K = $3,000

Taxable income = 50,000 - 29,000 = 21,000

Income Tax (from 2010 tax table, married, filing jointly) = $2,316

SS and Medicare tax: = 50,000 * 0.0765 = $3,825

Federal sales tax: 0

Total federal tax under current rules: $6,141

Under Herman Cain's 9-9-9 plan:

Deductions and exemptions and pre-tax 401K: 0

Taxable income $50,000

Income tax (9% rate) = $4,500

SS and Medicare tax = 0

Amount spent after state and federal income taxes and savings = 50,000 - 4,500 - 1,500 - 3,000 = 41,000

Federal sales tax = 41,0000 * 0.09 = $3,690

Total tax under Cain's 9-9-9 plan: $8,190

Tax INCREASE under Cain's plan: $2,049 (33% increase).

And what does Cain say?

http://www.csmonitor.com/USA/Politics/The-Vote



I'll just take this out because it is purely conjecture based on no hard facts.

For real? Did you even read the albeit limited particulars that have been released?

First off, is this family spending 100% of their income!? Why in the world are you applying the 9% sales tax to that?

Second off, he hasn't stated that he is getting rid of pre-tax contributions. For example 401K and Charitable contributions still count as deductions.

Third off, why is a family living under the poverty line contributing 6% to a 401K? Don't get me wrong, I think saving is what this country doesn't do enough of, but if you are below the poverty line, you are living paycheck to paycheck.

Why do people see 9-9-9 as 9+9+9=27%?

 

[shira]

For real? Did you even read the albeit limited particulars that have been released?

First off, is this family spending 100% of their income!? Why in the world are you applying the 9% sales tax to that?

Second off, he hasn't stated that he is getting rid of pre-tax contributions. For example 401K and Charitable contributions still count as deductions.

Third off, why is a family living under the poverty line contributing 6% to a 401K? Don't get me wrong, I think saving is what this country doesn't do enough of, but if you are below the poverty line, you are living paycheck to paycheck.

Why do people see 9-9-9 as 9+9+9=27%?

In Cain's own statement, he said a family with $50,000 income would pay $4,500 in federal income tax; how many deductions do you thing HE's allowing this family? And he's specifically stated that under 9-9-9, there would be NO deductions, not for 401Ks or health care premiums or charity or anything. Every penny of wages would be taxed at the 9% rate.

As to your bolded question, just how much do you think a family of four saves out of $50,000 income? Frankly, my 6% savings assumption is pretty generous - most Americans save nothing. So every dime not paid in taxes or to a modest savings account is spent, and every penny spent is subject to the 9% federal sales tax.

Cain has said nothing about "special rules" that exempt certain types of spending from his 9% sales tax. And when asked, he refuses to give details. So if this asshole refuses to state that payments for rent or tuition or medical expenses are exempt from his 9% tax, then I'm damn well not going to ignore that spending in my calculation. And in fact, when the wingnuts tell us how great the "fair tax" is, they compute the revenue based on the U.S. total GDP; they don't exempt anything. And since Cain's "phase 3" is a 23% "fair tax," why on earth would I assume that he intends there to be any exemptions from his tax?

 

[Gamingphreek]

In Cain's own statement, he said a family with $50,000 income would pay $4,500 in federal income tax; how many deductions do you thing HE's allowing this family? And he's specifically stated that under 9-9-9, there would be NO deductions, not for 401Ks or health care premiums or charity or anything. Every penny of wages would be taxed at the 9% rate.

As to your bolded question, just how much do you think a family of four saves out of $50,000 income? Frankly, my 6% savings assumption is pretty generous - most Americans save nothing. So every dime not paid in taxes or to a modest savings account is spent, and every penny spent is subject to the 9% federal sales tax.

Cain has said nothing about "special rules" that exempt certain types of spending from his 9% sales tax. And when asked, he refuses to give details. So if this asshole refuses to state that payments for rent or tuition or medical expenses are exempt from his 9% tax, then I'm damn well not going to ignore that spending in my calculation. And in fact, when the wingnuts tell us how great the "fair tax" is, they compute the revenue based on the U.S. total GDP; they don't exempt anything. And since Cain's "phase 3" is a 23% "fair tax," why on earth would I assume that he intends there to be any exemptions from his tax?

http://www.hermancain.com/999plan

9% Individual Flat Tax.

Gross income less charitable deductions.
Empowerment Zones will offer additional deductions for those living and/or working in the zone.

I bolded the relevant part 🙂

As for your question about how much a poor family saves, why in the world are they using a 401K? Heck, if they are in that much poverty, why are they able to save at all?

 

[blackangst1]

So what is the income point where taxes increase vs decrease vs our current system? Anyone know?

 

[her209]

As for your question about how much a poor family saves, why in the world are they using a 401K? Heck, if they are in that much poverty, why are they able to save at all?

And people wonder why we need Social Security and Medicare.

 

[her209]

So what is the income point where taxes increase vs decrease vs our current system? Anyone know?

Not sure what you mean.... under the current system, taxes are always increasing even when moving from one marginal tax bracket to the next.

 

[Gamingphreek]

And people wonder why we need Social Security and Medicare.

Well no, it just means the couple can't "retire" from that job. They need to continue to work in order to make enough money. That said, they are likely able to save more and more as time goes on since those children will grow up and are no longer dependent on them (In the case of the OP's example).

Also important to note, retirement is a privilege, not a right.

-GP

 

[Anarchist420]

9-9-9 is too damn high for anyone and the only thing this shit is centered on is what he deems fair not about reducing the country's tax burden. And it doesn't include deductions for anything but charitable contributions which would only be 9 cents on the dollar. Herman Cain's IQ must be less than 50. His 9-9-9 BS isn't tax reform, it's retaining the status quo.

 

[Gamingphreek]

9-9-9 is too damn high for anyone and the only thing this shit is centered on is what he deems fair not about reducing the country's tax burden. And it doesn't include deductions for anything but charitable contributions which would only be 9 cents on the dollar. Herman Cain's IQ must be less than 50. His 9-9-9 BS isn't tax reform, it's retaining the status quo.

Do you have any quantitative evidence to back up such a harsh claim? Why do you think it is too high? Any examples? Why do you think it won't work?

 

[Ausm]

Well no, it just means the couple can't "retire" from that job. They need to continue to work in order to make enough money. That said, they are likely able to save more and more as time goes on since those children will grow up and are no longer dependent on them (In the case of the OP's example).

Also important to note, retirement is a privilege, not a right.

-GP

Tell that to my body after working 50 years😉

 

[Fern]

-snip-
How did $6,141 in federal taxes become $10,000?

Let's take a guess: Cain's position is that EVERY poor family and EVERY working middle-class family is self-employed and pays DOUBLE on SS and Medicare.

No.

You're missing a big part of what Cain is saying.

Personally, I don't like the 9-9-9 plan, but I have heard him explain it. He was on with David Gregory (Face the Nation?) yesterday and they discussed quite a bit. There is an aspect that is less-than-obvious: embedded taxes.

Currently, we have a lot of taxes that are included (embedded) in the price of the products we purchase. Cain's position is that his 9-9-9 plan will eliminate or reduce the embedded taxes. Remember, he keeps mentioning that his plan is transparent. Embedded taxes are not transparent. So, while the straight up tax calc looks more expensive than the current income tax, Cain insists you are failing to take into account the savings his 9-9-9 plan will bring.

However, if his plan is revenue neutral, some will pay less, some will pay more, some may pay about the same. That is unavoidable if his plan is truly neutral. The only way we can just pay less or the same amount is if his plan is NOT revenue neutral (it would have to result in less fed revenue).

I am aware that embedded taxes exist and may even be substantial, but am not sure how his plan removes those. I do not believe sufficient details have been released yet allowing us to confirm that. (I could be wrong about the details, am going by what I hear on news. Personally, I don't think it has a chance of passing nor do I want it to.)

Fern

 

[Fern]

-snip-
Herman Cain's IQ must be less than 50. His 9-9-9 BS isn't tax reform, it's retaining the status quo.

No, it's not the status quo.

I think it represents a philosophical shift of sorts regarding federal taxation. IMO, what Cain and his economic advisors are advocating is a shift away from taxation based upon production and towards consumption. I cannot agree with that philosophy.

Fern

 

[Gamingphreek]

Tell that to my body after working 50 years😉

Ha yea I hear ya 😉 Also, I certainly meant no offense to people in this situation as well - just an unfortunate reality that gets overlooked. I wish there was a fair way that everyone could have at least a workable retirement 🙁

Very interesting read, Fern. I don't understand all about the embedded taxes, but I would be interested in learning more about them when/if more details are released in the near future.

-GP

 

[Gamingphreek]

No, it's not the status quo.

I think it represents a philosophical shift of sorts regarding federal taxation. IMO, what Cain and his economic advisors are advocating is a shift away from taxation based upon production and towards consumption. I cannot agree with that philosophy.

Fern

Just out of curiosity (Not meant to derail the thread), why do you prefer taxing based off of production instead of consumption.

For me personally, I like the idea that if I want to save instead of consume more, I can. I like the idea that I get to determine how my money is spent knowing full well Uncle Sam gets some of it should I choose to spend it.

Just wondering 🙂

 

[QuantumPion]

The sales tax does not apply to mortgage/rent/car loan/utility bills/etc which probably makes up at least half of the family's spending. When you take that into account the total tax comes out around the same or less.

 

[soundforbjt]

The sales tax does not apply to mortgage/rent/car loan/utility bills/etc which probably makes up at least half of the family's spending. When you take that into account the total tax comes out around the same or less.

Please link to that, I can't find it on his website.

 

[shira]

No.

You're missing a big part of what Cain is saying.

Personally, I don't like the 9-9-9 plan, but I have heard him explain it. He was on with David Gregory (Face the Nation?) yesterday and they discussed quite a bit. There is an aspect that is less-than-obvious: embedded taxes.

Currently, we have a lot of taxes that are included (embedded) in the price of the products we purchase. Cain's position is that his 9-9-9 plan will eliminate or reduce the embedded taxes. Remember, he keeps mentioning that his plan is transparent. Embedded taxes are not transparent. So, while the straight up tax calc looks more expensive than the current income tax, Cain insists you are failing to take into account the savings his 9-9-9 plan will bring.

However, if his plan is revenue neutral, some will pay less, some will pay more, some may pay about the same. That is unavoidable if his plan is truly neutral. The only way we can just pay less or the same amount is if his plan is NOT revenue neutral (it would have to result in less fed revenue).

I am aware that embedded taxes exist and may even be substantial, but am not sure how his plan removes those. I do not believe sufficient details have been released yet allowing us to confirm that. (I could be wrong about the details, am going by what I hear on news. Personally, I don't think it has a chance of passing nor do I want it to.)

Fern

In California in the late 1970s, there was a big effort to reduce soaring property taxes. One of the strongest arguments made was that if landlords received a big deduction in their property taxes, a large part of the savings would be passed on the tenants.

Well, Proposition 13 was passed, and how much of the savings was passed on to renters? Exactly nothing. In fact, rents continued to rise so fast that in many communities rent controls were put in place. Naturally, the same landlords who had received a windfall from Prop 13, promised to pass on the savings, yet continued to raise rents, were the most vigorous opponents.

What people forget about taxes is that they're paid on profits. We don't have a VAT in the U.S., so the price of goods has no tax built in. I'm highly skeptical that the price of goods would be greatly affected by the 9% corporate rate under 9-9-9.

But the one thing that will definitely get greatly reduced in price will be houses: Without the federal mortgage deduction on interest payments and property taxes, the housing market will suffer further price declines. Great if you're a first-time buyer, but yet another blow if you're already a middle class home-owner.

 

[shira]

Just out of curiosity (Not meant to derail the thread), why do you prefer taxing based off of production instead of consumption.

For me personally, I like the idea that if I want to save instead of consume more, I can. I like the idea that I get to determine how my money is spent knowing full well Uncle Sam gets some of it should I choose to spend it.

Just wondering 🙂

The main problem with a large consumption-based tax is that it's highly regressive. Many households have no choice but to spend almost every dollar they earn. Yet those higher up on the income scale can decide to consume less, and therefore pay an overall percentage of their income LESS than those lower down.

 

[xBiffx]

The main problem with a large consumption-based tax is that it's highly regressive. Many households have no choice but to spend almost every dollar they earn. Yet those higher up on the income scale can decide to consume less, and therefore pay an overall percentage of their income LESS than those lower down.

Fairly certain than it any consumption tax scenario food is not a taxable item. This is probably the number one expenditure for low income families.

 

[her209]

Fairly certain than it any consumption tax scenario food is not a taxable item. This is probably the number one expenditure for low income families.

Cain has said only used items aren't taxed. Not sure if you can count foods as used items.