Please help me break down how Herman Cain's 999 plan will affect me personally

[RoseMead]

I am in the middle of debating with a friend who has been coming out in strong support of Herman Cain. He favors Cain because he claims that Cain's 999 plan would give him lower taxes. I gave him the Urban Brookings Tax Policy information, but he's just blowing it off; I think he believes that any opposition to Cain's plan is politically motivated.

Anyway, I thought I would break down Cain's plan using my own family's income, to give him a clearer picture of what this thing will do to people who aren't wealthy. I would be grateful for any help, to ensure that I'm providing good information.

Currently my husband is the only working adult in our household. We have two children.
My husband currently makes $8.90 per hour. He doesn't get 40 hours a week, but it's fairly close, so I'll go ahead and say our yearly income at this point is $17,000.

Looking at his last pay stub, it looks like we pay about 10% in "federal tax". This amount does not include FICA.

We live in a state with a 6% sales tax.

So, as I understand it so far, Cain's plan would lower our federal income tax by 1%, but raise the amount I pay in sales tax by 9%, resulting in an 8% tax increase overall for my family. Is that correct?

I do not understand how the other "9" - the business tax - would affect us? Can anyone help me with that?

Finally, Herman Cain's web site (forgive me) says, "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." Can anyone help me understand what the heck this actually means?

Any help with understanding and explaining this thing would be greatly appreciated.

[pnwmom]

1. It's much worse than that. Your 6% sales tax will go up to 15%, which means your new sales tax

will be 250% of your old one. How much that means in terms of dollars depends on how much you buy.

I'm surprised that with a family income of only $17,000 you are currently paying 10% in Federal Tax (above and beyond Social Security). Are you sure that's right?

[TheKentuckian]

7. Probably more than that as these scams tend to tax thing excluded by state sales tax

Think 9% higher rent, gas, utilities, maybe even food and medicine.

[RoseMead]

10. That's what thought

He's convinced that Cain's plan will exempt food and clothing, even though that hasn't actually been stated yet.

[procon]

26. Maybe this will help...

"During an interview with CNN's Candy Crowley on Sunday, Cain said food and clothing would not be exempt from the 9 percent national sales tax he would attempt to enact if elected in 2012. Crowley, who seemed surprised by a potential tax on those basic necessities, pushed Cain to expand on his reasoning."


more: http://m.ibtimes.com/herman-cain-999-plan-would-tax-poor-people-s-food-228430.html

[RoseMead]

29. That is helpful

Thank you!

[RoseMead]

8. Good question.

On his most recent pay stub, it breaks down this way:

Year to date earnings (including overtime and holiday pay: $4639.96. I rounded that to $4600.00
"Federal Tax" ytd: $442.78 (which I rounded to $443.00)
"Social Security" ytd: $261.90
"W.Virginia" ytd: 165.00

Obviously, W. Virginia is state tax. I'm not actually sure if "Social Security" is just their way of saying "FICA", or if "Federal Tax" includes something more than just income tax.

[pnwmom]

25. Do you usually get a refund at the end of the year?

If so, your actual tax is less than whatever is taken out.

As I recall, there should be three Federal taxes -- income, Social Security, and Medicare. So maybe that one number that's close to 10% is a combination of your Social Security and your Medicare?

But I haven't looked at one of those slips in a long time, since ours is automatically deposited.

[RoseMead]

30. We do get a refund

So you're right, it's probably lower than 10%. So Cain's plan would be worse for us than I projected.

[underpants]

15. Correct- the 9% income tax (the average now) will be cut down for the rich in loopholes

the corporate tax at 9% will be lower than the statutory current 35% rate. Exxon had an effective rate of 17% from 208 to 2010 but actually paid no taxes
http://thinkprogress.org/romm/2011/05/11/208069/exxon-pays-a-lower-effective-tax-rate-than-you/
Again with loopholes Cain's 9% will become around 0

The 9% sales tax is the worst idea since waging a war without raising taxes (we are the only country that has EVER done that). It will both be devestating to the middle (what's left of it) and poor as well as being disasterous to the economy. The poor and then the middle class are the only thing keeping us above water. The rich are out of the picture other than screwing things up. This sales tax as the poster above stated would make you think that gas is reasonably priced compared to 10 years ago.

[RoseMead]

17. Can you explain to me (if it makes any sense to begin with)

what Cain means when he says his sale tax will be 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."

Is he claiming that the taxes embedded in the production process (for things like materials, etc, I'm guessing) are already more than 9%, and that by bringing everything down to 9% it will lower the cost of products? That's what it sounds like to me.

Of course, I understand that that completely ignores the question of whether those savings would be passed on to consumers.

[underpants]

18. No I can't explain that

He is either arguing against Value Added Tax (VAT), which doesn't exist here, or he is advocating FOR the VAT.

He may be arguing the naive ASSumption that since costs are lower in the production process those savings will be passed along at each step. Say there are four steps and at each their costs reduce at a certain percentage. There is nothing to suggest that they will reduce their price to match it. If there is real competition that could happen but there appears to be more collusion these days. The naive part of this ASSumption is that we operate in an actual capitalistic system - we are not. The economic situation in this country is actually worse than the news situation in this country and that is horrific ....which is part of the reason for the economic situation.

[RoseMead]

19. I understand

Thanks. I too think Cain is saying that lower taxes along the production chain will result in lower prices for consumers. I place this in the same category of thinking that says that lowering taxes on businesses will result in more hiring. There is no guarantee of any savings being passed on; I'm sure it's far more likely that any savings will be absorbed into profits instead.

[pnwmom]

27. And why would costs be lowered in production when prices of components will now be higher --

due to the 9% sales tax on everything?

[underpants]

42. Yes that doesn't make sense either

this made my head hurt

[Amonester]

2. There was an OP by DUer pampango earlier today with a graph in it.

A graph of just how regressive Cain's 999 plan really is.
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=439&topic_id=2146186&mesg_id=2146186

Send the link (or save the graph as a picture, and send it).

[RoseMead]

11. Thanks! The only problem

is that this guy isn't interested in what they have to say. I think he believes that any negative assessments are politically motivated. He's also leaning heavily on the idea that there are still more details to be revealed as an excuse to deal with the reports that this thing will hurt most Americans.

[TheKentuckian]

3. It is another flat tax scam designed to reduce the taxes of the wealthy and the corporations

while hammering the lower income scale by applying a punishing sales tax to those of us who spend most of our income and in some cases raising our income taxes as well.

The amount of money your family will spend in taxes will greatly multiply, robing you of much needed resources for food, shelter, utilities, and transportation.

Your "friend" is no friend, they would have your poor family struggle much more to give the rich and the wealthy a break.

[RoseMead]

12. He's a guy who really doesn't understand what he's buying into

I think if I can explain it in a way he can grasp, it might change his mind.

[ananda]

4. One thing is absolutely certain.

You will pay far more in tax as a percentage of income than anyone
in the top 1%.

[Warpy]

5. This was posted earlier

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x2147720

It gives the hit for each quintile of income.

[RoseMead]

16. Thanks!

My guy is already choosing to ignore the Brookings findings. :-( I thought if I could personalize the results, they might have more meaning for him.

[WinkyDink]

6. It is completely stupid AND EVIL. What more do you need? Is your friend a multi-millionaire?

DO YOU THINK REPUBLICANS WILL REDUCE TAXES ON THE LESS-THAN-RICH?

BWAHAHAHAHAHAHAHAHA!!!!!!!!!!!!!!!!!

[RoseMead]

13. I don't

But he does, and I'd like to change his mind about that. He's not an evil person, and certainly not rich. He is ignorant of what he's dealing with.

[spanone]

9. why waste the time? it's moot.

[RoseMead]

14. Eh, I'm still trying to change hearts and minds

Possibly a vain and stupid endeavor, but I'm not quite ready to give up on it yet.

[customerserviceguy]

21. The argument relies on assumptions that are completely unprovable

Why not debate the idea of Cain on his other policy positions, ones he's more likely to enact by executive order?

Or, better yet, let your asshat Republicon friends and acquaintences actually keep this stupid fool politically alive until the convention that will NEVER nominate him. My personal hope is that Cain, Romney, and the other collection of idiots split up the Rethug delegates so very badly that none of them can come to Tampa with a first-ballot victory in hand. The chaos that would ensue would be glorious.

[RoseMead]

31. You make a good point

and it is hard to debate this plan, because there isn't much information to actually discuss. It's all very vague and subject to a bunch of changes that may or may not ever be applied.

This guy is married to Cain's tax plan, though, because he insists it would have saved him all kinds of money when he was working. He's retired now, and no, I don't know why he's focused on what he might have saved under different circumstances in another time, instead of whatever situation he's actually facing as a retiree. :shrug:

[customerserviceguy]

20. This is like the medieval religious 'scholars' debating

how many angels could dance on the head of a pin. Even in the extremely unlikely circumstance that Herman Cain could get the Repuke nomination, and even more remote chance that he could actually win the election, there is no freaking way that he's going to get 9-9-9 through even a Rethug Congress. They're bought and paid for by the folks who derive an enormous benefit from the current deduction system.

If merely electing a person President could accomplish all of his/her campaign promises, we'd have a much better world today than we did in 2008.

[RoseMead]

32. Amen to that.

I'm probably exerting more effort than I should at this point, because I agree that this thing will never pass Congress and I'm very doubtful that Cain will be nominated.

[SomethingFishy]

22. You know where the plan came from right?

THe 9-9-9 tax plan? It's from a video game. Sim City 4. That is the tax rate in the game. 9-9-9. Will Wright(creator of sim city) is the "leading economist" on Cain's team :rofl:


Ask your "friend" if Cain's plan is so great, if it's the be all end all of saving this country, then why will no economist come forward and admit that it's their plan? Cain claims he's had many of the nations top economists working on this, and if this is the greatest thing since sliced bread why will not a single person claim credit for it?

You could also remind your friend that we are in the hole for trillions of dollars, and ask them how Cain plans to pay for that by lowering taxes.

[LiberalFighter]

23. As a family of 4 and married filing jointly you will have the following for your 2011 tax return.

$11,600 - standard deduction if you don't itemize
$14,800 - 4 personal exemptions at $3,700 each
$26,400 - total income exempt from taxes

Amount of income that will be taxed based on your imputed income of about $6,100. ZERO

Your effective tax rate for 2011 --- 0%

Amount of your likely 2011 tax refund --- About $590 -- more if eligible for tax credits


Social Security was taxed at 6.2% of income. I believe it is currently 4.2% which may negatively effect you when you start receiving Social Security in retirement. There is 1.45% on Medicare.

What is the 9-9-9 plan?

9% on wages
9% on goods purchased
9% on business

Already just the 9% is more than the total of your FICA (Social Security & Medicare) and federal income taxes. If FICA was where it should be you would pay 7.65% on the income.

But it won't be 9%.

The sales tax would be on everything including food and medicine. Only so called used goods such as used cars and existing homes.

A family with income of $120k would pay about $500 more in taxes. Those with less income will find their situation worse.

A family with income of $50,000 would find themselves paying about $5,000 more in taxes.


It appears that Virginia has an average annual state & local sales tax of $1,111 per person.

[pnwmom]

28. That makes sense. The 10% income tax cited in the OP can't be right.

[RoseMead]

34. Yeah, you're right.

Numbers are not my friends.lol

[LiberalFighter]

37. That 10% is only on the income that falls within the taxable range.

After all exemptions, deductions, and tax credits are deducted.

In the example I provided, if you had income of $50,000 the first $26,400 would not be taxed. The next $17,000 or so would be taxed at the 10% rate. The remainder would be taxed at 15%.

If you had $200,000 of income the first $26,400 would not be taxed either if they took the standard deduction. Again the next $17,000 or so would be taxed at the 10% rate just as the household with $50k of income. Any income beyond that would be taxed at the appropriate tax rates. There are 6 different tax rates. Anyone with something like over $380,000 of taxable income would have their taxable income taxed at 6 different tax rates.

But a family with $200,000 or more of income is not likely to take the standard deduction. Instead, about 95% of them will itemize their deductions because it means more of their income is exempt from taxes. On average they have $64,000 of itemized deductions.

Ask your neighbor how much of his income is exempt from taxes. Especially how much he itemizes.

[RoseMead]

33. You're right, I didn't take into account our refund

I'm severely math challenged. lol

So this plan will be way worse for us than I projected. Good to know.

We're actually in WV, not Virginia, but the sales tax per person may not be very different between the two states.

[pnwmom]

35. Well, you got the bottom line right. This will be bad for you.

Even worse, unfortunately, than you thought.

[pnwmom]

36. Bottom line: you would have a NEW income tax of 9%.

Plus you'd have a NEW sales tax of 9% on top of the 6% you're already paying. For a total of 15%, which is 250% of what you're paying now.

[workinclasszero]

24. Like each and every Teapublican plan..

The poor, the working class and the former middle class take it in the shorts while the rich walk away free as a bird.

[brewnas10]

38. what you'd pay with 999

first this is first, imagine the whole federal tax code is gone...now

for the first 9 -- you pay nothing (but if you live in a poor area that might qualify for "empowerment zone" might make you more attractive to an employer, over same person with same skill in non-empowerment zone)

second 9 -- you'd pay nine percent of your income, unless you give to charity, you'd get a deduction

if you don't give to anything, and you live in an "empowerment zone" you'd get "additional deductions for those living and/or working in the zone", don't know what that is, i'm sure that would be a selling point to most politicians as any zone that was declared "empowered" would surely have a massive rise realestate value and population

third 9 --for this i would have to agree with a previous post that Cain is talking about reducing the marginal rate by lowering the cost of the goods and services...he can't be talking about a lower federal sales take b/c there isn't one...and there is no VAT (value added tax) in America. So his selling point is this replacing the current tax code with a VAT. Will you pay less???? Cain has said if the item is used then no sales tax. Do you drive a used car? Better yet how many things will americans start to buy used? I would think refurbished electronics would be used...the question will be what is used...and as for food and clothing...if you buy second hand, no tax...food will be tricky most states don't charge sales tax for food

Question...will corporations really let this happen.. No, why, that would allow way too much competition and many fortune 500 companies don't pay corporate tax b/c of loopholes they've developed through lobbying. How long would this tax code last? Not long, b/c politicians would make everybody an "empowerment zone."

[brewnas10]

39. followup

i should add about the rich....don't know what every billionaire's effective tax rate is...but, i believe warren buffet and it's below their secretary. That too is not because we don't tax rich enough, it's b/c the rich have loopholed their way out of taxes. (e.g Warren Buffet only makes a salary of 100,000 a year, and with deductions, puts him in a tax bracket probably around 20%, but he also gets paid billions in other sources of income, one might be dividends which pay only 20% currently). So in short you can't just tax rich more...won't do anything...you really do need reform

[pnwmom]

40. We need reform, but we don't need Herman Cain's upside down reform --

stealing from the poor and middle class to give more to the rich.

We need to put more real progressively back into the tax code.

[LooseWilly]

41. I think LiberalFighter called it well... with 17K in income your actual tax rate is liable to be 0%

This is what the Republicans are talking about when they say something like 53% of households pay no taxes... because a family with $17K in income has a deduction of about $5700 per adult and $3750 per child... not to mention the possible other deductions such as the $1K per child tax credit, child care tax credits, credits for monies invested in retirement plans (such as 401Ks), etc. and then the fact that after all the deductions one then has a window of income which is below the threshold for taxation.

I could do the numbers, but without bothering I'd say that $17K for an individual is liable to lead to an effective tax rate of about 2-4%... with a (non-working) spouse... or children, you're looking at 0% (the 10% deductions from paychecks will ALL be refunded).

With Cain's plan NONE of it would be refunded (well, 10% of it wouldn't be collected... you'd have 9% rather than 10% deducted... but you would get NONE of it back). Further, under Cain's plan you would have an extra 9% federal sales tax added on top of your state/county/local sales tax (assuming you have state sales tax). This is a tax that would have no deductions and would have no exemptions... unless you buy used food, for instance (I'll leave the meaning of that to your imagination).

Meanwhile, the rich who are currently basking in the loophole wonderment of having to only pay 15% on capital gains and preferred dividends, will be able to get away with only 9%... and rather than the 15-35% marginal tax rates (applied to incomes of various levels, but increasing as the totals get higher)... they will just pay a straight 9% on all income...

And, meanwhile, corporations will pay 9% on everything, rather than rates that average about 35%...

As for the "hidden tax" that Cain suggests won't be adding to the costs of goods... what he hasn't admitted is that he's adding new "hidden taxes" that he might not even realize. Sure, the corporations will only be paying 9% income tax, and only 9% income tax for all the employees along the supply chain... and theoretically it MIGHT be possible that corporations would reduce prices as a result of the income tax expenses saved along the supply chain... but what isn't being mentioned is that Cain's plan doesn't include any accommodation for the writing-off of any of the other expenses of production or distribution. No wages expense deductions, no fuel deductions, no rent or depreciation of facilities or equipment deductions... and without these deductions, compared to which the tax expenses for generally under-paid employees along the distribution line pale and shrink to insignificance... the "hidden taxes" that Cain is expecting business will be "unburdened of" hardly compare to the one that business will become "reburdened of".

A 9% flat corporate tax rate that allows no deductions means prices WILL GO UP. A 9% corporate flat tax rate that allows deductions to continue as they are now means that the government will go bankrupt (sales tax revenue can't possibly make up for this loss)... and it also means that businesses will be allowed to continue writing off "stuff" even as individuals will be prohibited writing off "stuff"... unless Schedule C filers (sole proprietorships) are also allowed to write-off "stuff"... in which case the flat tax will be solely for laborers.

As a general rule, if you rent and work for wages, then the 9-9-9 plan will screw you or, if you're at the top edge of the bracket, it will not make things worse for you.

[RoseMead]

43. Thank you, that makes sense

And does a good job of explaining things.