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Financial Planning / Tax Strategies
|Subject: Cain 9-9-9||Date: 10/16/2011 8:54 AM|
|Author: wrjohnston91283||Number: 114161 of 120795|
I'm trying to wrap my head around Cain's 999 tax plan. I know that decisions shouldn't be made based on proposed plans, let alone proposed plans for potential candidates, but I want to understand the basic premise.
From what I read, there would be a 9% income tax (gross less charity), 9% sales tax (I don't see anything about exemptions) and a 9% business tax.
By my calculations, a married couple making $50,000 would pay $8,595 ($50,000 X .09) + ($44,500 X .09). This is compared to 2010 taxes (income plus payroll) of $9,775. So by the numbers, the 999 plan is better off, for them. This doesn't take into consideration any change in their wages or the price of goods due to the 9% tax on businesses.
Cain's plan has been critised, stating that individuals would end up paying the full 27% (9+9+9). The basic math is off as they wouldn't pay a full 9% of their income in sales tax, since part of their income goes to the income tax, making the first 2 nines together be 17.2%). I'm more confused about how this critic is adding in the third 9 (business tax). They seem to be simply adding it on to the other two taxes. To me, this doesn't make sense. Sure, wages and prices are affected by prices, but this isn't a new tax - its a reduction of taxes already in place. Am I missing something?
That’s because middle and low-income Americans get all, or nearly all, of their income from ordinary wages — all of which would be subject to Cain’s 9 percent wage tax — and then they spend all of their income, which means it would be taxed again by the 9 percent sales tax. Finally, the burden of the 9 percent business income tax would be passed on to them as well, either in the form of lower wages — since wages are not deductible — or in the form of higher prices for goods and services.
The bottom line is that most Americans will pay all three of Cain’s taxes, making their real federal tax rate 27 percent. Compare that to the current tax code, under which someone in the bottom quintile pays two percent of their income in federal taxes and someone in the middle quintile pays 15 percent.
It seems that this critic is saying "under Cain's plan, lower earners will pay 27% vs the current 2% to 15%". However, the 27% is their interpretation of a total federal tax bill, but they are comparing it only to federal income taxes. Shouldn't they be comparing it to (15% personal income + 7.65% payroll + 35% business) of 57%?
Of course, given the few details released about this plan, its hard to form any opinions.
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