999 Plan

There are many parts of Herman Cain’s 999 plan that are still not clear. One of the most important has to do with the payroll tax. This is the money that is taken from your check to pay for social security and Medicare and the two parts amount to 7.65%. In addition the employer pays in 7.65%. The unanswered question is what happens to the employer portion. If it is given to the employee then this easily offsets the 9% national sales tax but if it is retained by the employer this makes it very close for most working people. Here is an example:
A family of four that makes $50,000 per year currently pays no income tax but does pay $3,825 per year in payroll tax (50,000 times 7.65%). In the 999 plan food is exempt from the sales tax. Food cost for families in this earning bracket are ten percent or $5,000. If you assume that the family will spend all of their income, the tax on the remaining $45,000 would be $4,050 or $225 more than the payroll tax. If the family saves 5% of their income or $2,500 there would be no change in their net income.
Poor families would be hurt because the current income tax system gives them benefits even if the pay no income tax. Right now a family of four earning $20,000 per year takes home a net of $30,000 because of benefits like the earned income credit and child tax credit. If these benefits were retained they would pay $2,700 in sales tax and save $1,530 in payroll tax unless they get the employer share in which case they would save $3,060 which is more than the sale tax they would pay.
In the case of most retired people they would pay more since their income is not subject to payroll tax but they would still pay the sales tax.
The really important part of the 999 plan is that it changes us from a consumption economy to an investment economy and in the long run this will benefit everyone.
It would cost the jobs of the estimated 2 million people who work in the tax industry but it would save individuals and companies tens of millions in tax preparation not to mention the headache