Although I think an income tax system that exempts 47% of the population from paying federal income tax has big problems I don’t think Cain has the solution. There is no way around the fact that the 9-9-9 plan is very regressive.
Well, no way around it other than to stop lying about it, anyway.
When people stop pretending that the Federal Income Tax is the only tax the Federal Government takes out of the wage-earner maybe we can have a cogent discussion about taxes. The “Federal Income Tax” on individuals does not include the Payroll Tax against their wages (hidden by taking it out pre-paycheck from the employer) and it doesn’t include the Medicare / Social Security “contributions” (read: Tax) against their income that
doesn’t allow for any deductions.
The Federal Government taxes away 16% of your wages (under $100,000) before it even bothers to factor in deductions and apply your Federal Income Taxes.
The Government also taxes away an average of 22% of your consumer dollar through embedded taxation that’s hidden from your sales receipt.
9-9-9 eliminates the Payroll Tax, Social Security, and Medicare With-holdings - all taxes paid by anyone earning income that otherwise “pays no income tax.”
9-9-9 reduces the Embedded Taxes on goods made in America by reducing the rates that got embedded in the first place - like a 35% marginal rate on most businesses and the payroll tax.
9-9-9 makes transparent that the Federal Government is collecting taxes out of the sale of goods you buy by being honest about a Sales Tax.
So, to recap here:
1.) Those people with incomes under $110,000 pay a disproportionate amount of their annual income in social security taxes and medicare taxes, while their employers get to write off their payroll taxes as expenses. The existing SSI/Medicare/Payroll scheme is already “regressive”.
2.) The government already collects a hidden 22% Sales Tax because all the embedded taxes are passed down to the point of sale to the consumer.
3.) You can only read a “tax cut for the wealthy” out of this plan if you mislead people by pretending that SSI/Medicare aren’t taxes and continue to play out the farce that the Fed isn’t collecting a de facto Sales Tax under the current system.
The only real selling point for the alt. 9-9-9 (business, personal, payroll) is that people seem more comfortable paying their Federal Sales Taxes when that ball is kept safely under the shell instead of out in the open. It eliminates the regressive nature of the SSI/Medicare/Payroll scheme in place at a fair rate.
FYI, full-time minimum wage is $14,500 per year. Under the current tax code you’d pay $1100 in FICA (and your wages are reduced by the $1100 payroll tax your employer paid). Then after the $5,800 standard deduction you’d have an effective tax rate of 6% (minimum tax bracket is 10%) for another $870 in personal income taxes. The Fed’s total take of your paycheck before temporary credits and gimmicks is $1970 / $14500 or 13.6%.
Under Alt 9-9-9 the Fed taxes 4.5% from you (and 4.5% from your employer) in payroll taxes for $623 and 9% in income tax for $1305, giving a total of $1928 / $14500 or 13.3%.
Under Reg 9-9-9 the Fed taxes 9% from you (and 0% from your employer) in income tax for $1305, or 9%.
Then you’re just deciding whether you want to pay a large embedded tax (current 22%), a smaller one (alt 9-9-9), or a tiny embedded tax one with an explicit Income Tax. (Basically decide how much competitive advantage you want to give to Chinese-made products / how much more U.S. labor you want to put out of work by the smoke-and-mirrors of embedded taxes.)
