Fun with Math, or Herman Cain is a Fucking Asshole, Part 1

While there have been a number of analyses of the tax implications of Herman Cain's 9-9-9 Plan, I haven't seen one that breaks things down enough for the layperson to understand exactly what the implications will be for an average American family. So here's my humble attempt to fill that gap; it's long but I think it's pretty easy to follow. If you don't feel like working through it, a typical family of four would pay just under $3,000 more in taxes under Cain's plan, while the rich would pay lower rates on income and zero taxes on capital gains and inheritances. Cain covers this up by flat-out lying about how much an average family pays in taxes. We'll address the lying and the effects on the rich in part 2.

-Let's consider a family of four making $50,000 a year, which is pretty close to the median household income.
-Their employer must pay 6.2% of that amount in Social Security taxes and 1.45% in Medicare taxes (source), meaning that their employer really spends $53,825 to employ that person.
-Of that $50,000, the family must also pay 6.2% toward Social Security and 1.45% toward Medicare, dropping their total to $46,175.
-They must also pay income taxes. This first involves figuring out their taxable income, which depends on several factors:
Total Gross Income: $50,000
Standard Deduction in 2010 for a married couple is $11,400
So their taxable income is now $38,600
They also can claim a Personal Exemption of $3,650 per family member. $3,650 x 4 = $14,600
This drops their taxable income to $24,000
For couples filing jointly, the tax tables (massive .pdf, relevant bit on page 77) work out to a total liability of $2,766
But the family of four would get two $1,000 child credits, dropping their bill to $766
-So their take-home after payroll taxes, $46,175, minus $766 in income taxes, makes their total post-tax income $45,409.
-Their total tax bill is $4,591
-If you want to count the employer's portion of payroll taxes, which I think is totally legitimate and indeed preferred, as if there were no taxes the employer would be happy to give that cash to the family, their bill is $8,416

As shown in Table 10c of this pdf, the actual tax rate under the 9-9-9 plan would actually be 9.1%. 9's more catchy, but we'll do the calculations with the actual number of 9.1%.

Now, under Cain's plan, let's assume that same employer still wants to spend a total $53,825 to employ the employee. What will be the family's total after-tax income under Cain's plan?

-Payroll taxes go away under 9-9-9. But, employee wages/salaries, which are currently tax-deductible, are no longer so under Cain's plan. This means that the employer has to pay taxes equal to 9% of your wages before they can give the rest to you. So 0.091 x $53,825 = $4,898 is how much they pay in taxes before they give you your salary.
-The family's gross pay is thus $53,825-$4,898 = $48,927
-While Cain hasn't discussed it on the campaign trail, his calculations (.pdf, Table 6) allow for a deduction equal to the poverty rate. For our family of 4, this means they can claim a deduction of $15,006
-Their total taxable income is therefore $48,927 - $15,006 = $33,921
-Paying 9.1% of that in income taxes takes out $3,087
-Their total take-home, after corporate and income taxes but before sales taxes, is $48,927-$3087 = $45,840
-Based on the Bureau of Labor Statistics Consumer Expenditures Survey, a household with that after-tax income would be expected to spend about $41,000 each year.
-With the proposed sales tax, our family would have to pay a 9.1% sales tax on purchases. This would mean an additional $3,420 in taxes ($37,580 in spending plus 9.1% of that amount equals $41,000)

Got all that? Great, we're almost to the end!

Total tax bill under 9-9-9 = $3,087 (income tax) + $3,420 (sales tax) = $6,507
Including the employer's portion = $6,507 + $4,898 = $11,405

Currently, the family would pay $4,591 in federal taxes. Under 9-9-9, it goes up to $6,507, for an increase of $1,916. Counting the employer's contribution, which I think is really the more valid comparison, the family's tax bill increases from $8,416 to $11,405, an increase of $2,989.

For families who currently make less than $50,000, the change is proportionally worse, as they pay an even lower rate under current law, thanks to other deductions and credits like the Earned Income Tax Credit, all of which go away under 9-9-9.

As Cain points out, the plan is intended to be revenue-neutral (i.e., raises the same amount of taxes in total as the current system). So, if the average family and poorer families are paying more, that means the rich will pay less. A lot less. We'll look at just how much less in Part 2.

See what I mean about Cain being a fucking asshole?