After the debate, NBC News’ Domenico Montanaro checked one of Cain’s claims—that a family pulling in $50,000 currently pays $10,000 in taxes. As Cain would say, the problem with that analysis is that it’s incorrect. With the grab bag of deductions left in place by Bush and Obama reforms, that family pays $766 in taxes.
It's amazing how libs drop their own talking points as soon as it is convenient. Let's cut to Paul Krugman rehearsing the progressive catechism:
One is that you have to beware of the old trick of saying “taxes”, then slipping into “income taxes”. Most Americans pay more payroll than income taxes, but the reverse is true at high incomes. So focusing only on income taxes makes it seem as if the rich pay much more of the burden than they really do.
Well, fine - I may take exception to that (since Social Security taxes are tied directly to the eventual Social Security benefit and the overall program is redistributive), but whatever. For current purposes, if Herman Cain says he is eliminating the payroll tax, it might behoove NBC News and Dave Weigel to look at total taxes paid by the middle class, including the payroll tax.
Setting aside the temporary holidays, the payroll tax is at 15.3%. One might argue just how much of that is actually borne by the worker, but it is not unreasonable to argue that all of it is. In which case, our family that earned $50,000 may have paid a total of $7,650 in payroll taxes (Half of that shows up on their pay stub; the other half represents potential wages paid by the employer to the Feds rather than to the employee.)
So figure a total tax liability for this hypothetical family of $766 in income taxes and $7,650 in payroll taxes, which nets to $8,416.
Now, here is how Herman Cain estimated their liability under 9-9-9:
“Today under the current system, they will pay over $10,000 in taxes assuming standard deductions and standard exemptions,” Cain claimed. “I’ve gone through the math -- $10,000. Now, with 9-9-9, they’re going to pay that 9% personal tax on their income, so that’s only $4,500. They still have $5,500 left over to apply to the sales tax piece, and if you go and look at 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, Chuck.”
Mr. Cain's $10,000 figure for the current system presumably includes the payroll tax; he did not offer a specific estimate for the sales tax burden of the 9-9-9 plan. However, if the family spends $43,511 on goods subject to the 9% sales tax, their aggregate tax liability will equal $8,416.
Well. I have other objections to the 9-9-9 plan, since it is a real blow to retirees living off of their already-taxed savings. Let's also note that conservatives who like to engage in social engineering through the tax code (e.g., the family-friendly child credit) need to be ready to forgo that bit of weaponry.
And if I may refresh the bitterness of my youth, one of my great irritations with Bush 43 is that he failed to combine tax reform with tax cuts. Revenue neutral tax reform, as proposed by Mr. Cain, pits prospective winners against prospective losers, resulting in a political quagmire. Revenue-cutting reform can make everybody a winner; people and interest groups will still scuffle over their relative gains, but a much larger group will be committed to seeing the reform happen.
But enough of these lost opportunities - I am looking forward! And what I am looking forward to is better analysis than these comedy scripts from NBC News.
UPON FURTHER REFLECTION: My guess is that a proper analysis would still conclude that the 9-9-9 plan will represent a tax increase for the middle class. Just to create a bit of intellectual momentum, I seized these CBO reports from 2009, in which they estimate the aggregate effective Federal tax rate for five income quintiles. The mean income of the 2nd quintile was $39,400 in 2006; the third quintile mean was $60,700.
As to Federal taxation, the CBO evaluates the Federal income tax, the imputed and actual payroll tax, Federal excise taxes (e.g., gasoline) and the corporate income tax. Their effective tax rates are (again, I am stuck in 2006) 10.2% for the 2nd quintile and 14.2% for the third quintile.
I would guess that a 9% income tax and 9% sales tax would take these households closer to 18%.
I would also note that the earned income tax credit is designed as assistance to the working poor. Either this program has to die (yike!), Mr. Cain has to preserve it by way of tax complification, or it has to be treated as a separate program.
I'm stealing material from my son now, but his observation was that a German would have the best answer to 9-9-9. Whch would, of course, be Nein-nein-nein.
(OK, what my son really said was that he thought it would be great to see Herman Cain over in Europe respinding to all these bailout requests. Creative license.)