mlmpetert
10-13-2011, 09:49 PM
I want to chime in a little bit because there is a lot of non-sense going on about Herman Cain’s 999 plan. Ill admit I haven’t read it in detail but I have read the jist of the idea and have heard ol’ Herm talk about it. SS33 talked about how it wont cause prices to go up. Here are some of the sausage making details worth understanding:
Payroll taxes are 15.3% of your income up to 100k, with half paid by you and half by your employer (7.65). If 999 happens everyone earning under 100k, regardless of marital status, would get a immediate 6.3% bonus (people who earn more would get less). A lot of idiots out there are attacking this and saying that since employees only pay half of the payroll tax we will end up paying more, 9% instead of half of the 15.3%. That will never ever ever happen. The fear is that greedy employers are gonna just pocket the half of the payroll tax they pay and not pass any of the savings on to you. But employers would never ever be given that option, they would be forced into giving you the full 6.3% savings (15.3 previously paid, 9% now paid = 6.3% savings).
The other major issue is that 47% percent of American households currently pay no federal income taxes because of all sorts of tax credits out there (more on this later). So the 47% who are non-federal income tax payers will now be paying 9% instead of zero BUT most of them were still paying 15.3% in payroll taxes which would now be eliminated so theyre better off and everything is good, right? Wrong! While that’s true for most of the 47% about 10% of us get so much money back through refundable credits that they effectively pay not only zero federal income tax they also pay zero payroll taxes and a very small percentage may even pocket money after all taxes are satisfied.
Im not certain but I posture that the vast majority of that 47% that pay no income taxes would still benefit from a 9% income tax when accompanied by the elimination of the payroll tax. I would also make the assumption that about 15% (my number) or so who would not directly benefit from paying a 9% income tax that coincides with the elimination of the payroll tax are primarily single parents. Although anyone single that receives financial support from others for their child may be better off since the person providing that financial support will now most likely be better off.
Additionally the 10% of households who are paying nothing, don’t actually pay nothing, until they get a refund check back. So the single mom who gets a massive refund relative to her reported income doesn’t get it over the course of the year she gets it as soon as she is able to file taxes in late January. Cain’s plan would instead give her 6.3% more each pay check to help her out but it would still be less than the windfall she otherwise get in January. But I don’t think the 10% of people who pocket money after their income and payroll taxes are satisfied, get significantly more than the 6.3% marginal amount it would take to be better off. Intuitively it doesn’t seem like they could be getting too much more but I have no idea where to look to confirm it. We may be only talking a few percent. And I think most poor people would rather have their money now and not have to wait for a refund, even if meant paying a couple percentage more.
I was raised by a single mother who no doubt was part of that 10% and truly feel for people who are just trying to make ends meet but continually fall short even with the governments help. Assistance can still be provided for people who truly need it without refunds through the current tax code. Although I believe that part of the government’s responsibility is to help the needy it should never do so if it means enabling them.
The tax code is such a monstrosity that NO ONE is capable of knowing the entire thing. Since 2001 there have been 4,428 changes to the tax code, more than 1 per day! Since the tax reform act of 1986 there has been tens of thousands!!! There is no reason any of us should be okay with that, none whatsoever. People need to think about tax credits and deductions as what they actually are; incentives to do shit. There is a incentive to buy a house, get married, have a kid out of wedlock, have more kids, buy federal and local government bonds, put money into a retirement account, raise horses, invest in qualified oil drilling programs, buy a hybrid, take out student loans, own a safety deposit box and all sorts of other crap. And the business tax code is even worse with providing these incentives (loopholes) to big companies like GE while keeping the barriers to entry high for new companies and new innovations.
Payroll taxes are 15.3% of your income up to 100k, with half paid by you and half by your employer (7.65). If 999 happens everyone earning under 100k, regardless of marital status, would get a immediate 6.3% bonus (people who earn more would get less). A lot of idiots out there are attacking this and saying that since employees only pay half of the payroll tax we will end up paying more, 9% instead of half of the 15.3%. That will never ever ever happen. The fear is that greedy employers are gonna just pocket the half of the payroll tax they pay and not pass any of the savings on to you. But employers would never ever be given that option, they would be forced into giving you the full 6.3% savings (15.3 previously paid, 9% now paid = 6.3% savings).
The other major issue is that 47% percent of American households currently pay no federal income taxes because of all sorts of tax credits out there (more on this later). So the 47% who are non-federal income tax payers will now be paying 9% instead of zero BUT most of them were still paying 15.3% in payroll taxes which would now be eliminated so theyre better off and everything is good, right? Wrong! While that’s true for most of the 47% about 10% of us get so much money back through refundable credits that they effectively pay not only zero federal income tax they also pay zero payroll taxes and a very small percentage may even pocket money after all taxes are satisfied.
Im not certain but I posture that the vast majority of that 47% that pay no income taxes would still benefit from a 9% income tax when accompanied by the elimination of the payroll tax. I would also make the assumption that about 15% (my number) or so who would not directly benefit from paying a 9% income tax that coincides with the elimination of the payroll tax are primarily single parents. Although anyone single that receives financial support from others for their child may be better off since the person providing that financial support will now most likely be better off.
Additionally the 10% of households who are paying nothing, don’t actually pay nothing, until they get a refund check back. So the single mom who gets a massive refund relative to her reported income doesn’t get it over the course of the year she gets it as soon as she is able to file taxes in late January. Cain’s plan would instead give her 6.3% more each pay check to help her out but it would still be less than the windfall she otherwise get in January. But I don’t think the 10% of people who pocket money after their income and payroll taxes are satisfied, get significantly more than the 6.3% marginal amount it would take to be better off. Intuitively it doesn’t seem like they could be getting too much more but I have no idea where to look to confirm it. We may be only talking a few percent. And I think most poor people would rather have their money now and not have to wait for a refund, even if meant paying a couple percentage more.
I was raised by a single mother who no doubt was part of that 10% and truly feel for people who are just trying to make ends meet but continually fall short even with the governments help. Assistance can still be provided for people who truly need it without refunds through the current tax code. Although I believe that part of the government’s responsibility is to help the needy it should never do so if it means enabling them.
The tax code is such a monstrosity that NO ONE is capable of knowing the entire thing. Since 2001 there have been 4,428 changes to the tax code, more than 1 per day! Since the tax reform act of 1986 there has been tens of thousands!!! There is no reason any of us should be okay with that, none whatsoever. People need to think about tax credits and deductions as what they actually are; incentives to do shit. There is a incentive to buy a house, get married, have a kid out of wedlock, have more kids, buy federal and local government bonds, put money into a retirement account, raise horses, invest in qualified oil drilling programs, buy a hybrid, take out student loans, own a safety deposit box and all sorts of other crap. And the business tax code is even worse with providing these incentives (loopholes) to big companies like GE while keeping the barriers to entry high for new companies and new innovations.