What You Should Know About 9-9-9
by Neil Daniell
1) WHAT IS 9-9-9?
Herman Cain’s 9-9-9 Economic Renewal Plan is a part of Herman Cain’s Economic Vision http://www.hermancain.com/wp-content/themes/hc/image/economicgrowth.pdf
- A 9 percent business flat tax – Gross income less all investments, all purchases from other businesses, and no double taxation of dividends
- A 9 percent individual income flat tax – Gross income less charitable deductions
- A 9 percent national sales tax – This significantly expands the tax base which helps everybody. Applies only to new items. Used items are not taxed.
2) WHAT IS THE BASIC IDEA BEHIND 9-9-9?
Watch here as Herman Cain explains the basic idea behind 9-9-9.
3) WHAT ARE THE ADVANTAGES OF 9-9-9
9/9/9 throws out the current tax code, and replaces it with a 9% income tax, a 9% corporate tax, and a 9% sales tax.
- Rates are EASY to understand….no more guessing
- It eliminates the estate tax. The estate tax is imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Currently, the rate ranges from 18 to 35 percent
- It eliminates the payroll taxes. Payroll taxes are the state and federal taxes that an employer, are required to withhold and/or to pay on behalf of employees. The combined amount is 15.3 percent.
- It will eliminate many of the future “Sneak–a-taxes.” Sneak-a-taxes are hidden, imbedded taxes such as gas guzzler taxes, alcohol taxes, travel taxes, firearm taxes, gift taxes, federal telephone excise tax, life insurance policy taxes, excise taxes on imports, cigarette taxes (if you smoke), utility taxes, etc.
“They won’t be able to pass a lot of sneak “a-taxes” like we get today, Take President Obama’s ‘jobs proposal’ that he keeps trying to sell. We went through his proposal. He has 84 “sneak a-taxes” buried in that legislation…Most Americans don’t know that they’ve been bitten by another tax (Sneak–a-tax) until they’ve been bitten, that’s what’s wrong with the current tax code.” ~ Herman Cain speaking on President Obama’s jobs proposal
- It provides simplicity in the tax code. No more complicated forms to figure out what you owe.
- It allows for deductions to charitable contributions for individuals and purchases by businesses.
- All businesses are treated the same. C-Corporation, LLC, S-Corporations will ALL pay 9% on corporate taxes. It eliminates corporate loopholes, and levels the playing field. Special tax breaks to various businesses are eliminated.
- No limits on supplemental income earned while on Social Security.
- Social Security income is not taxed.
- It’s revenue-neutral, meaning it does not raise more tax revenues.
- It decreases the costs for income tax filing and compliance. For every dollar you send to the IRS, it costs thirty cents to send it in. Currently, we as a nation spend $430 billion income tax filing and compliance.
- IRA & 401K withdrawals are included in income and the 9% tax would apply. When the money was contributed to those accounts, the deductions were calculated on much higher tax rates. However, the money will be taxed at lower rates when it is withdrawn.
- As it relates to all investors (pension fund recipients, mutual funds, 401Ks, etc.) the "999 Plan" lowers the cost of capital (by eliminating double taxation of repatriated foreign profits, dividends and capital gains) which increases the value of capital assets (i.e. stocks)
4) CAN THE 9-9-9 RATES CHANGE?
Not easily! 9-9-9 requires a 2/3 majority of Congress to change the rates.
- To address the question about…."but what if Congress changes the rates…..," let’s look at it on face value. While that could happen, it is NOT as likely that they would change significantly. The combined tax revenue from property, payroll, corporate, and personal income taxes was averaging at approximately 24% of Gross Domestic Product in 2009. However, please note that the average tax revenues have been stable within a few percentage points for DECADES. http://stats.oecd.org/Index.aspx?DataSetCode=REV
- With that said, I would point out that the Democrats had control of the House, Senate, and Presidency during the first 2 years of the Obama administration. They could have taken income tax rates higher. Did they? NO! Why? Because they knew there would be a political price to pay. Why? Simply….We the People dictate lower taxes, and Congress tends to listen very closely when it comes to the pocketbook (very similar to what they did for the Bush Tax Cuts recently). And, Congress is leery of creating a dramatic impact on the US economy.
5) DOES 9-9-9 BURDEN THE POOR?
9-9-9 is a plan from a man who rose from the roots of poverty. Does anyone actually believe he wants to unfairly burden the poor? With all due respect, their calculations are simply wrong. Let’s break 9-9-9 down some.
- It eliminates the 15.3% payroll taxes, and replaces it with a 9% national sales tax. Again, the 9% national sales tax is OPTIONAL. It only applies to the dollars you choose to spend on new items, and everyone gets an instant raise in their paycheck because we get rid of the 15.3% payroll tax.
- It eliminates the estate tax.The estate tax is imposed "on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Currently, the rate ranges from 18 to 35%.
- It eliminates some of the “sneak-a-taxes” (aka embedded taxes).
- The cost for income filing and compliance is decreased. For every dollar you send to the IRS, it costs thirty cents to send it in. Currently, we as a nation spend $430 billion income tax filing and compliance.
- The 9% national sales tax is an optional tax. If you purchased pre-owned items, you avoid paying that tax all together. Used items are not taxed. (Examples: pre-owned vehicles, used clothes, pre-owned homes, used jewelry, etc.) Currently you MUST pay tax on every purchase whether it is new or used.
- A major savings for the consumer is the reduction of the corporate rate to 9%. Right now, on average, 22% of the price we pay for everything is the corporate income tax being passed on to the consumer. When the corporate tax drops to 9%, there is room for a 13% drop in prices (which should occur within 90 days). Further, the burden of the corporate income taxes falls 2/3 to labor and 1/3 to capital in the form of lower wages and profits, respectively. With more money left in the hands of businesses and consumers, there will without a doubt be a dramatic increase in market demand, production and competition.This means that prices will DECREASE, and likely absorb most or all of the 9% sale tax. This is a MAJOR BENEFIT TO THE POOR.
- Under the current tax code, a person making $50,000 will pay roughly $10,000 in taxes. With 9-9-9, they will pay $4,500 in income taxes. If they buy all new items with the remaining difference, they will still achieve nearly $2,000 in savings.
6) DOES 9-9-9 IMPACT STATE AND LOCAL TAX
No! 9-9-9 will have no impact on state or local sales taxes.
Currently, everyone pays federal taxes on top state and local taxes. These include the payroll tax and the income tax.
- Under 9-9-9, the 15.3% payroll tax is replaced with the 9% national sales tax.
- Under 9-9-9, the income tax will be reduced to 9%, AND certain sneak-a-taxes may be eliminated to further reduce the tax burden.
8) DOES 9-9-9 HELP WITH UNEMPLOYMENT?
YES! Gary Robbins, formerly with the US Treasury, has analyzed 9-9-9, and found that 9-9-9 would produce enough jobs to cut the current unemployment rate in half!
9) REVIEWS OF 9-9-9
- Gary Robbins, Economist and former assistant to the director of the Office of Tax Analysis for the U.S. Treasury: Gary Robbins analyzed and scored the 9-9-9 plan. The analysis shows it would create enough jobs to cut unemployment in half. Read more: http://politics.blogs.foxnews.com/2011/09/22/fox-first-cain-reveals-his-economic-secret-kitchen-cabinet#ixzz1ZGLgoVsF
Stephen Moore, WSJ economist: His argument for a "9-9-9" plan puts the current income and payroll taxes in the shredder and replaces them with a 9% personal income tax with no deductions, a 9% net business income tax, and a 9% national sales tax. That would be rocket fuel for the economy…… http://online.wsj.com/article/SB10001424052970204138204576600760327683564.html
- Art Laffer, an American economist who first gained prominence during the Reagan administration as a member of Reagan’s Economic Policy Advisory Board (1981–1989) – “Herman Cain’s 9-9-9 plan would be a vast improvement over the current tax system and a boon to the U.S. economy. The goal of supply-side tax reform is always a broadening of the tax base and lowering of marginal tax rates. Mr. Cain’s plan is simple, transparent, neutral with respect to capital and labor, and savings and consumption, and also greatly decreases the hidden costs of tax compliance. There is no doubt that economic growth would surge upon implementation of 9-9-9….such a system provides the least avenues to avoid paying taxes, yet also maintains the strongest incentives for work effort, production, and investment.” http://www.humanevents.com/article.php?id=46828&s=rcme
- Rep. Paul Ryan (R-WI) said in an interview with the Daily Caller that he “loves” the 999 Plan proposed by presidential candidate Herman Cain, in which the federal tax system would be reduced to a 9% income tax, 9% corporate tax, and 9% sales tax. “We need more bold ideas like this because it is specific and credible,” Ryan said.
10) COMMONLY ASKED 9-9-9 Questions:
A) Am I paying 18%:
Many people think this means they will be paying 18%, being the 9% income tax and then the 9% sales tax, but, again, the sales tax only applies to dollars spent at the consumption level. Let’s say you earn $2,000 for the month. Currently at 15% you pay $300 in tax. With 999, you’d pay just $180, leaving $1,820. You then pay rent and bills, we’ll say $820, then save/invest $500, and then use the remaining $500 for food and shopping. The 9% sales tax only applies to the $500 spent on consumption, which is only another $45. In the end, we paid $225 total, or only 11.25% of earned income, versus $300 currently at 15%. That’s a simple example, but it illustrates the concept nicely. In addition, there is added savings. Remember, 22% of the cost of ALL goods is the corporate tax. Under 9-9-9, the corporate tax is reduced to 9%. This is a 13% savings that is passed on to the consumer through a) lower prices and/or b) higher wages in competitive markets.
B) Under 9-9-9, will I be paying more for items I buy?
Right now, on average, 22% of the price we pay for everything is the corporate income tax being passed on to the consumer. When the corporate tax drops to 9% there is room for a 13% drop in prices, which should occur within 90 days. Further, the burden of the corporate income taxes falls 2/3 to labor and 1/3 to capital in the form of lower wages and profits, respectively. With more money left in the hands of businesses and consumers, there will without a doubt be a dramatic increase in market demand, production and competition. This means that prices will decrease, and likely absorb most, all, or even more, of the 9% sale tax. With businesses having less and fewer taxes to pay themselves, they won’t have to charge as much. In the long run, economists predict that prices will decrease dramatically. Again, it’s only on the dollars you choose to spend on new items, and everyone gets an instant raise in their pay due to the elimination of the 15% payroll tax.
Difference in current price and 9-9-9 price = $1.30 – $1.18 = $0.12
C) "But, the employees only pays 7.65% of the payroll tax:”
The employees pay the employer’s 7.65% as an embedded cost of the price of goods that they buy. It’s a fairly well studied issue, and the employer’s share of the payroll tax is actually a reduction to an employee’s compensation. Under 9-9-9, the employee will benefit from reduced prices and/or an increase in hourly wages. In competitive markets, most of employer share will flow to workers in the form of higher wages and job creation.
D) “But, I pay fewer taxes with all my deductions under the current tax code:”
In the current system, EVERYONE has a tax liability that varies depending on their particular tax bracket. If you pay more taxes than needed, Uncle Sam sends you a check. If you play less than what Uncle Sam needs, you pay Uncle Sam the difference in what you paid and what you owe. This tax liability can be decreased downward until it reaches zero by using deductions (mortgage, child tax credit, etc.). If your credit is bigger than your tax liability (meaning you have a lot of deductions that count against the taxes you paid to Uncle Sam in the form of a payroll tax), your tax liability is just reduced to zero. The rest of the credit is lost. So, in other words, Uncle Sam does not pay you more than you paid him during the year (no matter how many deductions you have).
Currently, the lowest income tax bracket is 10%, reduced by the Bush Tax cuts from 15%. Under 9-9-9, the income tax will be reduced to 9%.
BASIC EXAMPLE: COMPARING CURRENT TAX STRUCTURE TO 9-9-9