Tax Related 999 tax plan from Herman Cain

[AZ-Tax]

Mr. Cain does not elaborate but hopefully this will be on "taxable income" not AGI. I ran a sample return: 1040A, MFJ both 40 yrs of age no dependents AGI: $75K TI: $56300 Fed tax $6957 (based on 2010 Fed tax tables). $75K x 9% = $6750 OR $56300 x 9% = $5057.

Maybe he is making up the shortfall with the National 9% sales tax. One of my clients has 7 kids all within 1 to 2 yrs of each other. Assume they pay $10000 a yr for food x 9% is an additonal $900 x 5 yrs (avg # of yrs all 7 kids will still be at home) that is $4500. Hmmm, they might want to consider buying an acerage with 1 or 2 milk cows, have a few pigs, chickens, etc. put all the kids to work therefore keeping them off the streets and american will be looking more like the 20th century except for the technology.

[JohnH]

If your client finds himself needing to do this in order to survive, maybe he should have thought this all out before having 7 kids. (Just a random thought here concerning taking personal responsibility for one's decisions, etc.)

[Jiggers]

999

Per his website:

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

Individual 9%. Gross income less charitable deductions. Nothing else. But he doesn't address Schedule C, E, or F filers.
Business 9%. Gross income less investments (assets purchased?) less purchases from other businesses(utilities, office supplies, etc.?) less dividends paid to shareholders. What about rent paid, wages, benefits, etc.? Not deductible.
National Sales Tax 9%. Good? Gets those 50% + that pay no taxes at all? But what about the states, cities, counties, etc that have a sales tax. My state and city and county taxes is 8.25%. Does that get added to the 9%? On food, services?

This plan can't be implemented overnight. Takes a lot of planning, education of return preparers, businesses, taxpayers, etc.

[newbie]

No kids or seven kids - this will be devestating IMO

The INCOME tax rate is the only thing people seem to hear - not the national sales tax and that will be the killer. From what he says the new definition of "taxable income" will be net income less charitable contributions and no other deductions.

IMO the national sales tax of 9% would be an unthinkable burden on the middle and lower income taxpayers. Cain thinks companies aren't going to raise their prices to adjust for the 9% sales tax because they will be paying lower income taxes - ya right! And there will be no need for the IRS because all individuals and businesses will be accurate, true & honest in reporting all income and sales tax because after all it's only 9%!

He also makes it sound so simple like lower income people can just buy used goods which won't be subject to the sales tax. Where does a person find used necessities such as groceries and medicine.

We have a septic pumping company in town that has a slogan on the back of their pumping truck "dealer in used foods" but I'm not sure one would want to go there!

And we'd have a whole new definition of "used". That million dollar yacht I purchased was a demo model, therefore "used", therefore no sales tax.

[Jiggers]

If your client finds himself needing to do this in order to survive, maybe he should have thought this all out before having 7 kids. (Just a random thought here concerning taking personal responsibility for one's decisions, etc.)

Another case of entitlement. Many think they are entitled to those kids who entitle them to these free benefits.

But that is just my opinion.

[Jiggers]

999 simple?

Remember when a few years ago, someone suggested a simple filing system. Postcards. Just fill in your income and send in the tax. Or just let the IRS send you a bill based on the income they show (W-2's, 1099's, etc.). A postcard for this rent house, that rent house, this Schedule C, that Schedule C, this Schedule F, that Schedule F, this royalty income, that royalty income...............

And the National Sales Tax that was proposed. On everything. Who collects from these that operate out of the home or farm? A farmer sells hay or cattle. Who collects the tax? Just a total mess.

999 = 666? Mayby someone was reading the book upside down?

[Jesse]

999 = 666? Mayby someone was reading the book upside down?

One of the candidates made a similar comment that went something like upside down the 999 plan may have the devil in the details.

National Sales Tax 9%. Good? Gets those 50% + that pay no taxes at all? But what

Good? Maybe, but seems a rather harsh double whammy if all a sudden they are paying 9% on income and 9% on sales tax. Some of these non-tax paying people really are trying to make ends meet with every penny they have.

Will Social Security be considered income?

[dtlee]

Per his website:

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

Individual 9%. Gross income less charitable deductions. Nothing else. But he doesn't address Schedule C, E, or F filers.
Business 9%. Gross income less investments (assets purchased?) less purchases from other businesses(utilities, office supplies, etc.?) less dividends paid to shareholders. What about rent paid, wages, benefits, etc.? Not deductible.
National Sales Tax 9%. Good? Gets those 50% + that pay no taxes at all? But what about the states, cities, counties, etc that have a sales tax. My state and city and county taxes is 8.25%. Does that get added to the 9%? On food, services?

This plan can't be implemented overnight. Takes a lot of planning, education of return preparers, businesses, taxpayers, etc.

Interesting that he says we get to throw away the Internal Revenue Code, but that is where income is defined.

It would seem that Gross Income would have to be Gross Receipts minus at least Cost of Goods Sold even on a Schedule C. Currently, Gross Income from renting is Gross Rents. That will be a major hit on income from rental property. I have been told that they would have to continue to treat Capital Gains as Gross Proceeds minus Cost or other Basis as currently defined. However, one key will be how he intends to handle (or not handle) Capital Losses. Not sure what happens to the concept of an NOL (especially one being carried forward).

I see the national sales tax as also being a way to tax untaxed social security, tax-exempt interest, return of capital, and Roth distributions at the federal level. It will not only tax the very rich, but the very poor who spend nearly all of their income. I am anxious to see what does and does not get taxed. Food, Medicine, Clothing, Periodicals and Services are things that each state seems to decide to tax or not. Having a national sales tax will mean that there will be different rules at the federal and state level with some things taxed by both, some by the federal, some by the state, and some not at all.

[David1980]

I haven't looked at his 999 plan, hard to take it seriously. I imagine if he manages to become president he'll have as much luck pushing it through in it's simplified form as Obama has pushing, well, anything through. He may end up doing significant tax reform, but I think it would end up being much more complex than the current 999 plan he's pushing.

At any rate, the sales tax proponents I know believe by exempting food, rent, etc... what they see as your basic necessities it'll avoid hurting the lower brackets too much. Wouldn't surprise me if Cain put similar exemptions into his sales tax plan.

The charitable contributions deductions does make me giggle a little. Only reason I can think he's included that is he doesn't want to lose the religious vote, and eliminating the deduction for church contributions probably wouldn't put him in favorable light among that group.

[JohnH]

I'd be happy if he achieved the same level of success as Obama did at pushing through Health Care Reform and the first Stimulus. (Not that I agree with either of them, but there's no questioning the success of the legislative effort.)

Personally, I think the charitable contrbution deduction should be dropped, and this is coming from someone who gives regularly and has served as a church treasurer. Non-givers should not be subsidizing the giving habits of those who give to any charitable cause, any more than people who don't have children should be subsidizing the child-bearing decisions of those choosing to have large families. I'm also in favor of doing away with the mortgage deduction for much the same reason - I don't like trying to be responsible in my borrowing habits while subsidizing people who mortgage themselves to the hilt.

[kpangelinan]

Mr. Cain does not elaborate but hopefully this will be on "taxable income" not AGI. I ran a sample return: 1040A, MFJ both 40 yrs of age no dependents AGI: $75K TI: $56300 Fed tax $6957 (based on 2010 Fed tax tables). $75K x 9% = $6750 OR $56300 x 9% = $5057.

Maybe he is making up the shortfall with the National 9% sales tax. One of my clients has 7 kids all within 1 to 2 yrs of each other. Assume they pay $10000 a yr for food x 9% is an additonal $900 x 5 yrs (avg # of yrs all 7 kids will still be at home) that is $4500. Hmmm, they might want to consider buying an acerage with 1 or 2 milk cows, have a few pigs, chickens, etc. put all the kids to work therefore keeping them off the streets and american will be looking more like the 20th century except for the technology.

Cain's plan eliminates the payroll tax.

In your $75k AGI example above, did you take into consideration that there won't be any payroll tax taken out of his check each week? I did a quick check on my software also and you're right, the federal tax is $6957 but he won't have $5,298.50 withheld from his paycheck either, right?

[Dusty2004]

Cain's plan eliminates the payroll tax.

In your $75k AGI example above, did you take into consideration that there won't be any payroll tax taken out of his check each week? I did a quick check on my software also and you're right, the federal tax is $6957 but he won't have $5,298.50 withheld from his paycheck either, right?

Under Cain's plan I think they would withhold 9% of your pay - but that is just my guess.

Dusty

[kpangelinan]

Under Cain's plan I think they would withhold 9% of your pay - but that is just my guess.

Dusty

Yup, I figured that too, but I was referring to the total liability comparison:

Today's tax code $75k example above:
$6957 federal tax
+5298.50 payroll tax (I think he forgot to include this in his example is what I was saying)
= $12,255.50

Cain's 999 plan $75k example above:
$6750 federal tax
+ $4500 for a family of 9!!! 9% flat sales tax
= $11,250

$12255.50-$11250=$1,005.50 savings for that massive family, surely more for a normal size family with 1.3 kids, eh?

[kpangelinan]

His plan has a lot of questions for sure:

Internet sales?
Will we have enough for the current seniors?
Compliance?
etc, etc, etc....

But, I think what's making it popular is that people understand it.....it's simple.....I don't have to say it here, but I will: The majority of Americans do not understand our current tax code.

[Jesse]

Cain's plan eliminates the payroll tax.

In your $75k AGI example above, did you take into consideration that there won't be any payroll tax taken out of his check each week? I did a quick check on my software also and you're right, the federal tax is $6957 but he won't have $5,298.50 withheld from his paycheck either, right?

Has Cain laid out the details anywhere?

Repeatedly Cain states his 999 plan will save you more than 6% because it will eliminate the 15.3% payroll tax. The way I see it really it only "saves" the employee 7.65% concerning the payroll tax portion and the employer would save the other 7.65%.

Is this a sales pitch, does he think the employers will pay the 7.65% saved to the employee, or does he really not understand that only 1/2 of the 15.3% is paid by the employee?

Or am I just incorrect in my thinking?