Cain's 9-9-9 Plan

Johnny - posted on 10/19/2011

http://www.taxpolicycenter.org/taxtopics...



http://taxvox.taxpolicycenter.org/2011/1...



Cain’s 9-9-9 Plan Would Cut Taxes for the Rich, Raise Taxes for Almost Everyone Else

Howard Gleckman | Posted on October 18, 2011, 4:42 pm



Herman Cain’s 9-9-9 tax plan would result in a massive tax cut for nearly all of the highest earning Americans and a steep average tax hike for everyone else, according to a new Tax Policy Center analysis.



As Cain knows, when you are in the fast-food pizza business marketing is everything. Your white cheese, pureed tomatoes and slightly-sweet dough are not much different than the other guy’s. So it’s all in the promotion. That’s what’s so clever about his 9-9-9 tax. It sounds great: small numbers, nice symmetry. What’s not to like?



Except this pie is not at all what it appears to be. A middle income household making between about $64,000 and $110,000 would get hit with an average tax increase of about $4,300, lowering its after-tax income by more than 6 percent and increasing its average federal tax rate (including income, payroll, estate and its share of the corporate income tax) from 18.8 percent to 23.7 percent. By contrast, a taxpayer in the top 0.1% (who makes more than $2.7 million) would enjoy an average tax cut of nearly$1.4 million, increasing his after-tax income by nearly 27 percent. His average effective tax rate would be cut almost in half to 17.9 percent. In Cain’s world, a typical household making more than $2.7 million would pay a smaller share of its income in federal taxes than one making less than $18,000. This would give Warren Buffet severe heartburn.



When you get right down to it, Cain’s plan is a 25 percent flat-rate consumption tax—not all that different from the FAIR tax that he says is his ultimate goal. This tax would be paid three times: first on wage income, again at the cash register as a sales tax, and yet again by businesses on their sales minus their cost of goods and services. For tax junkies, the first is a flat tax. The second is a retail sales tax and the third a business transfer tax. But they are all consumption taxes.



Cain’s triple tax would replace payroll and estate taxes as well as the corporate and individual income taxes as we know them. All deductions, exemptions, and credits (except for charitable gifts) would be eliminated from the individual tax. Because businesses could deduct all their capital purchases, capital income would be tax free. But wages would be taxed—again and again and again. First, directly through the individual flat tax and then, because firms can’t deduct wages as an expense, twice more through the business tax and the sales tax.



Say you want to buy a pizza. First, under the business tax the pizza guy pays a tax on the difference between the retail price and his cost of producing the pie. Every firm along the supply chain would do the same: The farmer would pay 9 percent on his sales of raw tomatoes minus his costs, the sauce manufacturer would pay another 9 percent. This is just like a retail sales tax, except it is collected at every step of production along the way. But it is still passed on to consumers. Next you pay a separate 9 percent retail sales at the register. Finally, you have to pay the 9 percent individual flat tax.



There is more. Because employers would be taxed on wages they pay, economists figure the levy would result in lower salaries. Not only would the combination of lower incomes and higher taxes reduce the current standard of living for many middle-class households, those lower wages would also result in lower Social Security benefits down the road.



Cain apparently has an idea for a credit to protect low- and middle-class households from some of the burden of this triple tax, but he has not yet said what it is. And the problem, of course, is the more generous the credit, the less revenue the tax will generate. Because his plan is roughly revenue neutral now, that would force him to either increase the deficit or abandon that nice sounding 9-9-9 and raise his proposed tax rates.



Now, there is nothing wrong with a well-designed consumption tax. There are even benefits to adding a Value-Added Tax to a personal income tax while using it to buy down corporate income and payroll taxes. But a well-designed consumption tax retains a progressive rate structure somewhere in the system. Cain’s does not. Instead he opts for what is effectively a 25 percent flat rate sales tax. And that’s why he raises taxes on typical middle-income households by more than $4,000 while cutting them on those with the highest incomes by an average of $1.4 million.



http://www.taxpolicycenter.org/aboutus/i...

Johnny - posted on 10/19/2011

Jenny, I would have to disagree. That may sometimes be the case, but capital gains are not meaningless numbers and can be a result of positive success in the economy and be a sign of good things going on. I agree that a lot of the current capital gains come from moving numbers around on paper, and often destroying profitable, productive, and employing companies to remove their wealth. But that does not have to be the case and was not historically how capital gains have be realized. Deregulation is to blame for those issues, not the investment system in and of itself. Much of my capital gains income last year came from the co-operative businesses in which I am an owner and from my father's small business in which I am an investor. The capital gains from the co-operative businesses were re-invested back into the companies (which grows the companies and employed more workers) and that from my father's company was used to invest in other companies (as he is retiring). The original purpose of investing is to grow wealth while creating jobs and generally growing the economy. It has been perverted by unmitigated greed, but it is not inherently evil or harmful in and of itself.

Karla - posted on 10/18/2011

According to Investopedia.com Capital gains is real earnings from investments; not just on paper, and not the money one has invested, but rather that real profits from investments.
"What Does Capital Gain Mean?
"1. An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

"2. Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain). If the security continues to be held, the gain is unrealized. A capital loss would occur when the opposite takes place.

Read more: http://www.investopedia.com/terms/c/capi...

Jenny - posted on 10/18/2011

I just want to add that Capital Gains is money never created by anything tangible and is just numbers moved around on computers.

Karla - posted on 10/18/2011

“One more thing . . . .one of the things I love about him is he ANSWERS questions. He doesn't talk in circles without ever actually saying anything like most of our politicians.”

I’d have to disagree with that. I find he doesn’t answer questions and his 999 plan is just one of the things I find he has not made clear.

Scary points:
He has proven himself to know little or nothing about foreign relationships, legal issues, and people struggling to make ends meet.
He makes sweeping statements without having researched them as seen in many interviews.
He seems to hate Muslims and has said he wants to ban the building of Mosques – so much for religious freedom.
He views homosexuality as a sin and a choice.
He recently said women should be able to get an abortion – it’s their choice, but that abortion should be illegal.

Bottom line: I have no faith that this guy can effectively run the country.

Concerning his 999 plan, I think it might have a chance of working, but I do not think it has any chance of passing with the current Congress… at all… none. I also think the plan would have to be tweaked (more than the 888 plan) to accommodate those at poverty levels. I cannot judge the plan further than that because of the many unanswered concerns.

Johnny - posted on 10/18/2011

I just wanted to add that here in Canada, 50% of your capital gains are taxed at your individual tax rate (based on total income). It does not prevent a robust level of investment in the economy.

Johnny - posted on 10/18/2011

A tax plan that helps the minority of Americans who have been fortunate enough to make enough money to be able to put aside some for the future who actually still have enough of those investments left to live off in retirement is not going to do any thing to stimulate the US economy. It's fairly common sense to realize that if the almost 50% of people who are not paying income tax at this time end up paying even more of their pittances to taxes, they will have a lot less to actually spend to stimulate the economy. Many who are now paying income taxes would also end up paying more in both income tax and sales tax under Cain's plan. It is really only the top 25% of the population that may see some amount of savings. It is unlikely that group is going to be able to spend sufficiently more in the marketplace to stimulate the economy.

If consumer spending decreases, the tax savings that corporations may see will be eaten up by the decline in sales profits. It's unlikely to be passed along to workers in the form of pay increases and it is unlikely to lead to any hiring of new employees.

In the past 20 years, the corporate tax rate and the tax rates amongst the top 10% have declined significantly, and there has been no domestic growth of jobs to mirror the tax benefits given to the "job creators". In fact, there is little support in any historical analysis of tax code and job creation that supports the idea that lower taxes actually creates jobs. Until the unemployment rate and earned income rates amongst the lower 50% of the population improve, the economy will not get better. Increasing the wealth of the wealthiest in the past 10 years has not done anything to help. Why would just another plan to increase the divide change this picture?

Christa - posted on 10/18/2011

One more thing . . . .one of the things I love about him is he ANSWERS questions. He doesn't talk in circles without ever actually saying anything like most of our politicians. There's a debate on CNN tonight, if you feel like it watch it I'm sure he'll be asked some questions. Watch some interviews with him he always answers the questions. You can tell he believes in this plan, he is so intelligent you tell that by watching him speak, he has run the numbers and he understand business and the economy and taxes much better than most and you can tell he believes in this and is happy to answer the criticisms because his plan can take them. In case you can't tell he's my guy and I have high hopes for him. :)

Christa - posted on 10/18/2011

Karla, if you want to look at capital gains that way go ahead. But my plan is to live off the "interest" as much as possible of my retirement accounts. And I believe you've earned that money and if you are smart enough to invest it and save it you shouldn't have to pay taxes again on the same money. And for the record let's say you save 500K in a brokerage account you already paid taxes on that. Let's say you make 10% capital gains (I'm keeping the numbers simple), so you pay taxes on that too. You now have 550K in your account (not accounting for compounding again to keep it simple) and now you are retiring. Let's say you need to pull out 3K a month to live, that’s 36K a year. Well you are now taxed AGAIN because that money is considered income and I’m pretty sure you are taxed on your SS income as well (not that that money will be there for us). Now let’s say you die 5 years after retirement and you have roughly 350K still in that account that you have left to your children. They then have to pay the taxes on that money and will end up with much less of your hard earned money. It’s really a very complicated process and if you actually run the numbers you will see you end up paying taxes on that same 500K you earned over the course of your life 2 or 3 or even 4 times in our current tax system. This plan will save every American who plans to retire a lot of money.
We have been stealing from the SS fund for years that’s why it’s broke. This plan just puts all the tax revenue in a pot and then we pay our bills from it. Much like you or I do. We bring in X amount and we have Y in bills, start writing checks.
And no there is nothing written up yet, which is why there are still some questions and why I said even if he’s elected he will have to continue to prove his case to the American public and there will need to be an actual bill for us all to examine. And yes I do think upon some more education he will be able to prove his case to the American public. That’s why I’m encouraging you to look outside the box and give it a chance. Run some numbers.

Karla - posted on 10/18/2011

From Christa: “Yes there are some millionaires who are living off their capital gains and would not pay taxes. Do you actually know what capital gains mean? It means they are living off of their savings. Off money they have already paid taxes on.”



No, that’s not what I understand capital gains to be… Capital gains is the amount of profit gained from an investment. (I invest $500, later I sell for $550, my capital gains amount is $50. – so, I never paid taxes on capital gains.) People who live off their capital gains are living of the earned *interest *of their investments; that’s a big difference than “living off their savings.”



If I’m wrong, please site references, thanks.





“He said you get no deductions on the payroll tax, which is correct. They take that right off the top and there is no way to file a tax return and get that money back. He’s not speaking of income taxes there.”



Thanks, it never even occurred to me that he wanted to eliminate FICA. I wonder how he plans to fund unemployment and social security then.



Christa, can you link to the actual plan? I didn’t spend a lot of time looking, but I thought it should have been linked on his web site and I only saw a “flyer” for it. You keep saying “he said” this and that, but I’m not willing to hen peck his words; I want to see it in print. Thanks.



"Again I really encourage you to step outside your box and stop listening to MSNBC et al who will obviously hate this."



This statement is exactly why a link to the actual proposal (not the sparks notes version) would be helpful.



Christa, do you really think our corporate influenced, primarily millionaire Congress would pass this plan? I don’t, because it would hit them hard (except for their capital gains income of course.)

ME - posted on 10/18/2011

I don't have cable and never watch msnbc, and I have found plenty of economists who find flaws in this plan. NYT, Wall St Journal, PBS, NPR...all have pointed to several way that this will = a tax increase on the poorest and a tax decrease on the wealthiest....since most of America believes that the opposite is in order, I don't understand how this guy can be winning your primary...

Christa - posted on 10/18/2011

So many inaccuracies here. . .

First the payroll tax, yes Krista as I already covered, the rate is 15.3%. Yes only 7.6% is taken out of a person’s check and the company covers the other 7.6%. However when a company hires an employee this rate is figured into a person’s cost to the company so effectively that number is figured into your salary as are your benefits cost. They say a person’s true salary is 17% higher then what it says on their paycheck because of taxes and benefits paid by the company. By removing this 7.6% burden off the company they can then actually pay you some of that 17% cost as actual salary. Like I said this should raise wages and increase hiring. Something the 14 million unemployed would prefer.

Second the capital gains argument. Yes there are some millionaires who are living off their capital gains and would not pay taxes. Do you actually know what capital gains mean? It means they are living off of their savings. Off money they have already paid taxes on. It’s no different than granny who’s living off of their 401K’s. They wouldn’t be taxed on that money either. Run the numbers the amount you and I will have to save for our retirement dramatically decreases if we don’t have to account for the money we will have to pay in taxes once we retire. This will help every person in the country whoever wants to retire. There will still be plenty of millionaires who will be paying the 9% on their large incomes, ie Wall Street execs, CEO’s, Hollywood, etc. Anyone who actually makes an income. And people like Buffet will be able to use some of that income to expand businesses etc.

Karla, your first point is incorrect. He said you get no deductions on the payroll tax, which is correct. They take that right off the top and there is no way to file a tax return and get that money back. He’s not speaking of income taxes there.

To your next point, he has mentioned empowerment zones before. He’s used Detroit as an example, they could be a 8-8-8 zone. Still paying but at a lower rate to encourage growth.

One of your last comments about what’s taxed by the sales tax. He’s made this very clear, new goods not used. So a new house purchase is taxed but a used house is not because the tax has already been paid. This is why I believe mortgage/rent/loan payments would not be subject because the mortgage and loan payments the tax would have been paid on the purchase of the product (if it was new of course) and rent is the use of a used item and the homeowner would have paid the tax. I would like confirmation of this but I’m fairly certain I’m correct.
Even if Cain is elected he still has to get this plan through congress, so there will be lots of time to debate this and to actually read the legislature if it comes to that. I applaud him for thinking outside the box and trying to fix some of the problems both sides have continued to complain about. Again I really encourage you to step outside your box and stop listening to MSNBC et al who will obviously hate this. When you really start running the numbers and thinking about this critically it makes a lot of sense and could really be what this economy needs to get out of this rut.

Karla - posted on 10/18/2011

Concerning Herman Cain’s article as linked by Crista:

“Claim 1: The 9 percent sales tax, which is one third of the formula, is regressive and hurts the poor, many of whom pay no federal income taxes now. Response: This claim ignores some important aspects of the plan. One is that we eliminate the 15 percent payroll tax, which allows for no deductions at all – not even for charitable contributions.”



Cain states that income tax has no deductions, but that’s not true. We do all pay income tax, but when filing a 1040 there are credits and adjustment to that tax; most poor people end up getting most of their tax money refunded.



“Claim 3: The plan redistributes wealth from the poor to the rich. Response: It does no such thing. It is fair and neutral, taxing everything once and nothing twice. What’s more, we are getting ready to propose empowerment zones for economically struggling areas in which the rates will be even lower. That will allow the poor to benefit even more from the plan than they already would.” \



“Empowerment zones” is a new aspect to his plan, so it was impossible to address that – and still is – without seeing this change.



“Claim 8: Some people (like Herman Cain) who may live off capital gains, would pay no income taxes. Is that fair? Response: First, one of the benefits of the 9-9-9 plan is that, even if someone doesn’t pay much or any of one of the taxes, he or she is still likely affected by the other two.”



That’s nice for millionaire Cain – he’ll be affected by at least 2 of the 3 taxes; but middle class me will be affected by all three.

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

9% National Sales Tax.

o Unlike a state sales tax, which is an add-on tax that increases the price of goods and services, this is a replacement tax. It replaces taxes that are already embedded in selling prices. By replacing higher marginal rates in the production process with lower marginal rates, marginal production costs actually decline, which will lead to prices being the same or lower, not higher.



According to Cain’s web site, the sales tax is explained as redistributed current taxes which are currently found through the production process. Doesn’t that mean it will not be generating any more tax dollars?



I’m having trouble finding a decent write up of the plan. I went to Cain’s web site and only found a flyer-type of write up. It doesn’t explain if the sales tax would be on everything – groceries etc, or whether mortgage/rent would be included. These are big factors.



I think there are many corporations and upper class folks who would hate this plan.(I know, those bleeding heart liberals! – sarcasm) Currently with deductions and tax breaks we know many people end up with refunds on the current taxes paid, it sounds as though Cain’s plan would not allow for this. That means the income taxes being paid by those at the poverty level would NOT be refunded; and the income taxes paid by a millionaire would NOT have deduction either. Somehow this isn’t rectifying the problems.



I have no time to address my other concerns, and I don’t see a good account of the plan to be more knowledgeable about the plan – so that’s all for now.

Jenny - posted on 10/17/2011

Hmm, seems billionaires would still have loopholes under this plan: http://thinkprogress.org/economy/2011/10...

Krista - posted on 10/17/2011

The way I see it is this: A flat tax is only fair if costs are flat as well.

So if I have to pay 9% of my income, and a billionaire only has to pay 9% of his income, then fine. If a gallon of milk costs me 1% of my monthly income, then it should cost a billionaire 1% of HIS monthly income as well.

Otherwise, that 9% is hurting me a HELL of a lot more than it's hurting a billionaire. Yes, the amount he pays in taxes is more, but at the end of the day, he still has a hell of a lot more left over than I do.

Besides, flat tax? Here's a map of the countries that use a flat tax. http://upload.wikimedia.org/wikipedia/co...

Want to be like them? Go riiiiiigggght ahead.

Christa - posted on 10/17/2011

Making lunch so I gotta run but I just came across this and wanted to share. :)

http://www.northstarwriters.com/2011/10/...

Krista - posted on 10/17/2011

And I think that Cain's plan will screw people over. For example, right now, the statutory payroll tax rate is 15.3%, right? But the worker’s share of that payroll tax is only half that 15.3% – or 7.65%. So, switching to a 9% flat income tax rate could result in a direct tax increase on workers, even before the new sales tax.

Christa, even a lot of conservatives are against this plan -- they think it will suppress consumer spending, and I do not think they're wrong.

I've said it before and I'll say it again. Trickle down economics do NOT work. You have to trickle up. Put more money in the hands of the working class. They're not going to put it in offshore accounts or buying champagne in Dubai. They'll buy groceries, and clothing, and gas for their cars, and the basic stuff that drives the economy. When they go out and spend more, that increases demand on the businesses. So not only do they have the financial means to expand, but the increased consumer demand to justify expansion. THAT is what creates more jobs. When you give the money directly to the large corporation, that does not create an increase in consumer demand. The consumers are still staying home, because they can't afford to go shopping.

Put the money in the hands of working families -- offer them universal healthcare and cut their taxes, and you will see a MUCH healthier economy.

Krista - posted on 10/17/2011

For example the "big bad corporation hating liberals" will love that every company pays the same no matter size or industry. No more GE's paying no income tax or subsidies for oil companies.

Wow, that's quite the strawman, Christa. It's fair to say that yes, liberals do not think it just that large corporations get away with paying less than the working class. However, that does not mean that we want every company to pay the same.

Personally, I have no issues with tax breaks and incentives for small businesses. I think they need it in order to stay competitive in an economy that is being swallowed up by the corporate giants. And unlike the CEOs and shareholders of these huge corporations, the vast majority of these small business owners likely WOULD put the tax savings back into their business, expanding and creating jobs, instead of squirreling it offshore or buying themselves a third house.

Christa - posted on 10/17/2011

You need to broaden your new sources if the only economists you've seen talk about how awful it is. There are plenty economists on each side with pros and cons. The problem with any economic plan is you have to allow for certain variables and make some assumptions so if you tweak those one way or another you get different results. I still have some questions about it myself but so far I really like it.

I think the fact that it is an innovative new plan that doesn't just play with the current broken system but tries something totally different. He was originally for the fair tax (23% sales tax to replace all income taxes) which I'm not a fan of, but seems to have taken some of the criticisms of that plan and come up with this new alternative.

I like that it is transparent and simple. I think both sides will find things they like in it. For example the "big bad corporation hating liberals" will love that every company pays the same no matter size or industry. No more GE's paying no income tax or subsidies for oil companies. Conservatives will like that everyone is now paying equally and everyone is contributing. It will stop them from using the "drain on society" talk about those on gov't programs. It also allows us to gain some taxes from illegals who are avoiding income taxes but still spending.

It replaces the payroll tax drain, which I hope we can all admit takes a huge chunk out of our checks and increases businesses overhead. We already pay 7.6% and the company pays the other 7.6% (this is of course before the stimulus payroll tax break). So we are really only talking about a 1.4% increase from that. Most of us pay more than that in income taxes so it will be a break. Plus the business won't be spending that 7.6% on each employee so they can use that for wage increases or new jobs.

I know the sales tax is where a lot of people have a problem with, and this is one thing I would like more info on, but from what I know it's only on new goods and services. So I assume mortgage/rent/loan payments wouldn't be subject to it, I think for most people those types of payments make up at least half of their monthly expenses. Plus we will no longer be taxed on interest or capital gains so it will encourage people to save and not spend. This is good for every family. There is also an argument that the cost of goods will go down and many hidden taxes already in the prices will go away as businesses want to stay competitive. He has also said that social security payments are not taxable and I’m not sure about other gov’t programs payments (UE, welfare, etc), but it wouldn’t hurt the elderly, in fact it would help them. If they collect their SS and any retirement 401K’s or other investment income tax free all seniors will be paying is the 9% consumption tax.

I didn't expect liberals like yourselves to love it, but I hope you will look more into it. I really think it could be a great solution to some of the problems both sides complain about ALL the time. And I think the obvious transparency of it will prevent people on both sides from giving special breaks to whoever is the lobbyist of the week. :)

Pamela - posted on 10/14/2011

Every economist I have listened to has said it would be a huge burden on the middle class and that it is hugely complicated. But I honestly don't know tons about it so I'll have to do a little more look-see:) It's a really good conversation though - thanks for bringing it up Christa. Plus, it's good to see you back.

Karla - posted on 10/14/2011

@ Kelley I'd love to see a 4th 'nine' for all the non-citizens that work for years in the U.S. without contributing a dime. We could call it a tourist tax

If you are talking about illegal immigrants, I just read that approximately 75% of illegal immigrants pay income tax - it's deducted from their pay.

ME - posted on 10/14/2011

I think that this plan would totally destroy the overburdened middle class (what's left of it). every economist I've seen discuss it agrees that it would be a tragedy.

Karla - posted on 10/14/2011

What he doesn't mention is that he effectively adds 9% sales tax, because currently sales tax is a state tax. That would mean I would pay 15% sales tax with his plan (9% federal, and 6% state.) His plan also does not offer tax breaks to low wage earners, and I find that appalling. From what I understand his 9% income tax would not be applied to capital gains... so still, percentage wise, the rich get a better deal than the poor.



Politifact.com has a good write-up on it...

http://www.politifact.com/florida/statem...

Kelley - posted on 10/14/2011

In general this is a plan that I am really in favor on... but there are a some possible loop holes left in it that could eventually lead us or allow goverments to return us to this 'PUT IT ON MY TAB' for future generations spending. No# 1 it must be for EVERY, and with no exclusions every citizen, and that every taxed area of gov. #2 must budget it, and #3 absolutely nothing more added to this 9-9-9. Each group- local, state, federal, must bring budgets in line, and published for the citiizens. Can you imagine?!? and that the peoples of these areas would not be limited to also pulling together to fund projects privately, but not mandated to pay overages due to special interests etc....
I'd love to see a 4th 'nine' for all the non-citizens that work for years in the U.S. without contributing a dime. We could call it a tourist tax :)