An Analysis of Herman Cain’s 9-9-9 Plan

The Republican presidential candidates, excluding Buddy Roemer, met at the Regan Presidential Library for a debate last night.

I found myself enjoying the survivor like atmosphere, the tit for tat play and general banter. What I found missing, with one exception, was a real sense of where these people would take our country if elected. On that basis, Herman Cain seemed refreshing by offering some specifics. I don’t agree with his 9-9-9 plan but at least it was a specific proposal and deserves some attention and thoughtful analysis.

Let’s start with an analysis of what a poor person pays in federal taxes today and what they would pay under Cain’s 9-9-9 plan.

Poor Peter makes $30,000 a year, has a family of 4 and rents his duplex. Using TurboTax, Peter’s taxes are as follows:

That’s right, with tax credits, the federal government actually pays Poor Peter’s family almost $7,000. So under the Cain plan what would Peter pay?

Not exactly a good deal for Poor Peter but then again Peter is really poor and gets subsides from the Federal government because of his kids. Let’s meet Average Joe and see if this plan gets any better.

Average Joe also has a family of 4 but, combined, he and his wife earn $80,000 a year.  He’s a firefighter and she’s a teacher at the local elementary school.  They own an inexpensive home but don’t pay enough in interest to itemaize their deductions and just take the standard. Again, based on TurboTax’s calculator their tax burdon looks like this:

Under Cain’s plan their taxes would look something like this:

So, it kind of sucks for Average Joe too, but not as bad. He’s only paying and extra $2,400 a year, or $200 a month, to the government.  OK, how about someone more upper middle class.  Let’s meet Well Off Willie.

Well Off Willie has a nice house in a nice neighborhood and makes about $200,000 a year, all subject to payroll tax. They are a family with 4 with kids going to a public school. He owns his house but has a sizable mortgage for which he gets a sizable deduction, $25,000 a year in intrest, and pays $8000 in local property taxes. Based on TurboTax his taxes look like this:

So how does Willie do under Cain’s plan?

Nice! Well Off Willie get’s a $15,000 a year tax cut or an extra $1,250 a month to help him “get by”. Again, to be fair, there might not be as much of a benefit to Well Off Willie if he buys a car or some other expensive item that would be subject to the sales tax. Still, if I were Willie I’d be sending a check to Cain right now! Let’s take a look at someone who makes some serious money.

Executive Eddie is a corporate hedge fund manager. He takes a yearly salary of $1,000,000 and gets ordinary dividends of $7,000,000 and qualified dividends of $3,000,000.  He has a big house and takes about $100,000 a year in deductions related to property tax. According to H&R Block’s Calculator, Eddie’s taxes look like this:

Now, to be fair, it’s very possible that Executive Eddie could have lowered his burden more, geting down to 10%-12%, it all depends on the mix between salary/dividends and qualified dividends. Regardless, based on Cain’s plan his taxes would look like this:

It’s looks like Executive Eddie just saved some money. Plus he probably didn’t have to spend as much on an accountant to do his taxes. Even if my numbers are wrong and Eddie’s effective tax rate was only 12% rather than the 19.5% I calculated he still saved $267,000 off his tax bill under Cain’s plan!

So to recap the results:

Cain calls his plan “The Fair Tax”. I’m not so sure but I guess “fair” depends on your point of view. Should the United States of America have a progressive tax system? That’s the question we’re being asked to answer when plans like a flat tax or Cain’s 999 plan come up.

To me Cain’s 999 plan feels more like a “30 minutes or less” pizza marketing slogan than a serious tax proposal. Personally, I might do better or break even under the Cain plan… It just depends on how much stuff I buy in a year. But I’m not willing to support a plan that might give me a few extra bucks at the expense of putting a family further into poverty.

Should the federal government subsidize very poor families like in the example I provided? I’m not sure, but I know that we shouldn’t raise their burdon while giving massive tax braks to the wealthy and, in that sense, I guess I’m for a progressive tax system.

RELATED: See our 9/20 post showing the same cast of characters under a “Fair Tax”

ALSO RELATED: An Overview of Cain’s Positions, Herman Cain Quotes