Says someone earning $50,000 a year will fare better under his "9-9-9" plan than under the current tax system.
Herman Cain on Wednesday, October 5th, 2011 in an interview in St. Petersburg, Fla., aboard his campaign bus
Herman Cain says someone earning $50,000 will save under his 9-9-9 tax plan
The more people learn more about Republican presidential candidate Herman Cain's "9-9-9" plan, the more questions they have.
One of the bigger ones is how it would affect poorer Americans. We had the chance to put the question to Cain directly during his recent swing through Florida.
"Most people are going to pay less in taxes," Cain, a former pizza chain executive, said Oct. 5, 2011, aboard his campaign bus stopped in St. Petersburg. "Why? Because we're expanding the base."
Cain told us he even worked out the math himself. Someone earning $50,000 a year would pay less in taxes under his 9-9-9 than they do under the current system, he said. Under the current system, a person who earns $50,000 a year "pays about $10,000 in taxes," Cain said. "A big part of that is the payroll tax." Cain then walked us through his 9-9-9 plan and said the same person would "still have $2,000 left over."
"I can't design a system for people who don't want to pay taxes," Cain added. "I can design a system so they can get a job."
Cain made a similar comment Oct. 12, 2011, during an interview with MSNBC's Chuck Todd.
"Today under the current system, ($50,000-a-year earners) will pay over $10,000 in taxes, assuming standard deductions and standard exemptions. I've gone through the math. $10,000," Cain said. "Now, with 9-9-9, they're going to pay that ... 9 percent tax on their income, so that's only $4,500. They still have $5,500 left over to apply to the sales tax fees. And if you go and look at what they -- how much of it they would probably spend on sales taxes for new goods -- not used. Used goods, they don't pay a sales tax. They are still going to have money left over."
We decided to take Cain's analysis that his plan was better for someone earning $50,000 to a trio of tax accountants.
Before we tell you the results of their analysis, here's some background on Cain's plan.
9-9-9, Cain says, is the first step to creating a national flat or "fair" tax. It would replace the current complicated tax system with 9 percent personal income tax, a 9 percent national sales tax and a 9 percent tax on businesses. Unlike the current system, Cain's plan includes relatively few opportunities for people or businesses to claim deductions or write off expenses. The personal income tax, for example, would include only two potential exemptions -- people could write off donations to charity and tax filers would get a break for living in impoverished inner cities. Cain's national sales tax would be on top of state and local sales taxes.
For this fact-check, we'll only be talking about the personal income tax and the sales tax since the business tax directly affects only business owners and corporations.
Cain set the parameters for the $50,000 experiment during our interview.
For calculating the tax burden under 9-9-9, Cain assumed that the hypothetical tax filer made no charitable deductions and was not eligible for a tax credit by living in an inner city. So Cain's taxpayer paid the full 9 percent income tax on $50,000 -- or $4,500.
Cain then assumed every other dollar was spent on something subject to his 9 percent sales tax, meaning his hypothetical taxpayer contributed an additional $4,095 to the federal government. (Cain's 9-9-9 includes no sales tax on used goods.)
That's a total tax paid of $8,595 or a tax rate of 17.19 percent.
That's the maximum someone would have to contribute under 9-9-9, unless they spent more than they took in on items subject to the sales tax. Presumably they'd pay less if they saved money or spent money on housing, which we assume wouldn't be subject to a sales tax. But again, we're using Cain's figures.
To see how that compared to the same earner under the current system, we reached out to three accountants and asked them to run the numbers. For this analysis, we're measuring the income tax and payroll taxes a worker would be asked to contribute. (Payroll taxes vanish under Cain's plan.)
Cain's assumption in this scenario, he told us, was that the taxpayer claimed the standard exemption and nothing else.
The exercise showed one thing about the current system: It's certainly more complicated than the system Cain is proposing.
For a single person, 9-9-9 is a better deal. A single person with no dependents would pay about $10,075 in combined payroll and federal income taxes, $1,480 more than that taxpayer would pay under Cain's 9-9-9. The calculation comes with one caveat: President Barack Obama and Congress temporarily have lowered the payroll tax contribution for employees 2 percentage points, whereas these figures assume the contribution rate is restored to the full 7.65 percent.
For someone married with dependents, 9-9-9 is worse. The current tax code treats married couples with children differently -- and better -- than people who are single. With dependents, the family of four will pay about $6,515 in income and payroll taxes and even less, about $4,600, if they qualify for a child income tax credit. So the family of four could end up paying anywhere from about $2,080 to $4,000 more in federal taxes under Cain's 9-9-9.
These are broad strokes that can vary based on your personal situation -- as well as other credits workers might be able to claim under the current tax system -- but they're a good rough guide in understanding Cain's plan.
The disparity between 9-9-9 and the current tax code grows as a person's income shrinks.
A single person who makes $40,000 would still pay about $334 less in federal taxes under 9-9-9. But someone making $30,000 would pay about $212 more under 9-9-9.
For families at those income levels, 9-9-9 is even worse, especially when you include potential tax credits and exemptions low-income earners are now getting that they wouldn't under Cain's plan.
"It's going to fall very, very heavily on low-income taxpayers to middle-income taxpayers," Andy Hollander, a retired federal tax agent, who studied the 9-9-9 plan for PolitiFact Florida, told us.
Yet Jonathan Kraftchick, another accountant who pored over the numbers for us, pointed out that 9-9-9 allows people to control their final tax liability based on their spending.
"Households would be much more in control of what their final tax liabilities would be since the sales tax would effectively allow them to increase/decrease their taxes at will," Kraftchick said.
None of this addresses another point. Besides what 9-9-9 might mean for you, there's also the question of what it will mean for the federal government -- namely, if it will generate enough revenue to keep the federal government in business. Cain has said the plan is meant to generate the same amount of revenue initially, but he hasn't released enough detailed information for analysts and economists to see if that's correct.
That discussion's for another day.
Here we're looking at Cain's answer when we asked how his plan would affect poorer Americans. He responded by saying that someone making $50,000 a year, which is about the median income for all U.S. households, would be better off under his plan than the current tax system.
We have two major issues with his response. First, we asked about poorer Americans and he picked an income figure of $50,000 a year, which is the median income for U.S. households. There's some cherry-picking there, since the numbers change if you select $40,000 or $30,000. Moreover, while calculating the impacts of 9-9-9 might be simple, comparing them to the current tax system is much more complicated.
Cain's assumption holds when you look at single earners, but married couples and people with children making $50,000 a year would likely pay more under 9-9-9 than the current system.
We knock the claim down one mark for cherry-picking a figure of $50,000 a year and two more because the claim itself is only half right. To us, that equals a Mostly False.
Published: Thursday, October 13th, 2011 at 2:49 p.m.
Interview with Herman Cain in St. Petersburg, Fla., Oct. 5, 2011
Herman Cain interview with MSNBC's Chuck Todd, Oct. 12, 2011, transcript provided via Nexis
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