Oct 19 2011

9-9-9 For Dummies

Published by at 8:11 am under All General Discussions

Updates Below!

OK, it seems the GOP establishment candidates are going to try an defend the current unreasonable, unfathomable, unfair and incoherent tax code in order to fend off Herman Cain. Time for a little lesson in math. Bottom line, the Feds get their money, but under 9-9-9 we decide on where to invest it, not DC.

While one can go through incredibly detailed and useless analysis of optional tax/deduction scenarios, these can be misleading because the more complex the analysis the more hidden assumptions are applied thst can skew the result. There are simple boundary checks which show how Cain’s 9-9-9 plan really is less costly to tax payers. These ‘back of the envelope’ calculation are used in engineering all the time to bound the detailed simulations, so do not dismiss the power of an enveloping analysis.

First off, compare the apples to apples. Cain is replacing the income, payroll and many other federal taxes with 9-9-9. As a marginally well off taxpayer with a middle class income,  you pay taxes on income plus payroll taxes out of your salary. Income tax rates are applied on a whacky scale, where the first $8,350 of income is not taxed (for anyone, even billionaires), then the next $25,600 is taxed at 15% (plus a $835 (10%) charge for making $8,350), then the next $48,300 is taxed at 25%, and so on. While this Rube Goldberg math looks daunting, it is easy to collapse it down to a representative individual making $82,250 in taxable income (the top of the 25% bracket).

When you do all the adding up the realized tax on $82,250 is $16,750 (20.4%).

OK, now add in the payroll taxes. The employee side is  6.2% for Social Security and 1.45% for Medicare making the payroll tax total of 7.65%.

Add the payroll and income tax together and you get 28.05, and our $82,250 income now loses $23,042 to the federal government. That’s right you started with $82,250 and ended up with $59,208.

Now, the last time I checked a 9% flat income tax is less than a 3rd of the 28% federal taxes now in place. There are no deductions that are going to drop your taxes down to a third of its pre-deduction level, so there is little reason to compute these complex scenarios – none will look better than Cain’s 9-9-9.. So on income/payroll tax alone 9-9-9 is a huge savings. Instead of $59K in disposable income you walk away with $74.8K in disposable income.

Current plan: $23K in federal tax. Cain plan: $7.4K in federal tax.

But this would also mean enormous deficits since we cannot afford to cut the tax rate by two thirds or more for those who now pay all the federal taxes on income. Note I did not say all the income taxes (a subset of the federal taxes on income. Everyone pays payroll tax, which is why it is seriously misleading to say those not paying income tax now will pay a lot more under 9-9-9.

To address this revenue shortfall Cain adds in his 9% federal sales tax. And here is his genius. We invest this money, not DC.

If you add the 9% sales tax to the 9% income tax you get 18% – and would demonstrate why you should not be a tax accountant. The 9% sales tax is applied only to the disposable income that goes to buy taxable goods. Not all of your disposable income goes to buy taxable goods! Mortgage payments are not taxable goods. There probably are exemptions for insurance, etc.

My guesstimate is 50% of the disposable income (income left after income/payroll taxes) would be applied to taxable goods – meaning the additional federal taxes for this example wage earner under 9-9-9 is around $3,370 dollars. You could spend more or less depending on your situation.

OK, the simple wrap up then is;

  • Under the current system the $82,250 in taxable income results in $59,209 in actual take home pay, giving the government $23,042 of your hard earned money
  • Under Cain’s 9-9-9 (from the perspective of the tax payer), that $82,250 in income results in $71,430 in take home pay, giving the giving the government only $10,820 of your hard earned money,

Anyone can see this middle class taxpayer is walking away with a LOT more disposable income. Which means they will be buying goods and services in greater quantities and energizing the economy.

And for all the math challenged (or deliberately misleading) GOP contenders on stage last night like Romney who tried to talk about state sales tax, note there is no change. If you paid 0-7% in sales tax before 9-9-9, you still pay 0-7%. But now you have more take home pay to spend, so you will see scenarios showing more taxes as you spend more. Like I said, DC gimmicks.

What you really get under 9-9-9 is a much lowered federal tax burden. Now I admit there are deductions that can lower your income, but you can do the  math and realize that while you will still spend money on those currently deductible items (like a mortgage), the amount Uncle Sam let’s you keep is not going to beat 9-9-9 in terms of income in your wallet to spend.

And that’s the kicker isn’t? Do you want to keep sending $23K of your salary to DC to spend, or do you want to spend most of that yourself? That is why 9-9-9 is so smart. The Feds still get their money in the end – we decide where most of it will be invested based on our personal needs. 9-9-9 wins right there. No more dumb, government trickle down projects. We spend, the economy booms, we make more money, etc.

Note: I did not factor in the 10.55% of payroll tax the employer also takes out for each employee (a cost that really comes out of their income level). Think about that as well when you realize labor is the largest cost in all goods and services.

Update: Much more here at WSJ

Major Update: One more thing about Cain’s trading off much lower income/payroll taxes for a sales tax. Income taxes come out all year long. Many of us have to file to get back much of our deductions. Payroll taxes get sucked out all the time (unless you are in the top 5% and make income above the limits).

Basically, the feds will not be confiscating as much money from us up front, but earning more than a third of it off the sales taxes.

Also, since small businesses (like ours) pay our taxes at our personal rate, we see a huge windfall in money we can now put to work on benefits, employee training, new hires, etc. If you don’t run a company the benefit of Cain’s 9-9-9 will not be immediately obvious – so therefore maybe it would not hurt to listen to us small business conservatives given our experiences and expertise?

40 responses so far

40 Responses to “9-9-9 For Dummies”

  1. gkm1959 says:

    So does this mean that a newly released Gitmo detainee will have an additional $10,820 to practice Jihad?

    Cain is a walking gaffe machine that will be torn to pieces in a general election.

  2. AJStrata says:

    Geez, they are all gaffe machines. If Cain wins the support of the people, nothing else will matter. 2008 proved as much.

  3. joe six-pack says:

    Sorry, I need to look into Cain much closer, but the 9-9-9 plan worries me. I like the first two parts. The sales tax is a loud ‘NO’!

    If I am correct, the sales tax will be a NATIONAL sales tax. I have had it up to here with taxes. ANY taxes. We need to restrain spending and the growth of government. NO, we need to reverse the spending and growth of government.

  4. gkm1959 says:


    Khalid Sheikh Mohammed is a Gitmo detainee. Is Mr. Cain even aware or that fact?

    If the Republicans play this correctly, they could pick up an additional 10 to 15 Senate seats over the next two elections plus an additional 20 to 30 in the House over that same period. That would be more than enough to keep Romney’s somewhat wavering conservative credentials in check.

    Second, a President that turns this economy around will be rewarded with a second term. If he picks the correct VP, that person will be rewarded with al least a first term in office as witnessed by Reagan and Bush the elder. What a 12 year control of the White House means in the long run is 4 to 5 Supreme Court appointments (Ginsburg (78), Breyer (73), Scalia (75), Kennedy (75)). Plus they would have the opportunity to replace over half of the Federal bench over 12 years.

    To paraphrase that scene with George C Scott in Patton . . . . .

    “We could see the coup de grace be administered to liberalism; all we need is the good sense to see it through,”


  5. kathie says:

    Cain knows he is short on information other then business. He is going to make some gaffs, I can live with that, because his record demonstrates he finds competent people to give him the information he needs. He is logically sound, his intuition is good, and there is no doubt he loves this country and will make decisions, informed, that will benefit all Americans. After Obama, I certainly live with Cain’s learning curve.

  6. AJStrata says:


    Yeah dude, we are all aware of that fact. Of course you missed Cain’s walk back of his comment. And I don’t recall him saying he would trade KSM?

    Having a bit of a fantasy fit are we? Stick with the facts and it will go a lot easier around here.

  7. AJStrata says:

    What should be a ‘no’ joe6 is income tax. If you zero anything out zero that one.

    But of course those afraid some future congress and president will raise taxes are just looking for a lame excuse to do nothing ever.

    That is out there no matter what happens today – duh!

    That is the the number 1 worse excuse not to look at 9-9-9 and is only used by people with nothing else to offer.

    All change can be undone. And we came close to liberals increasing taxes a gazillion percent under Reid, Pelosi and Obama. Want to lose support – bring out the silly hand wringing.

  8. MerlinOS2 says:

    First the sales tax portion will pick up some revenue from those that evade the income tax ,say hookers and pimps and drug dealers for example or anyone who works ‘under the table’ thus broadening the tax base.

    Sure some low income folks will end up paying via the sales tax portion but the idea that 47% pay zero taxes and some even get refunds due to all the tax credits they can claim. I would have to check but I believe there are some offsets in the plan for extreme low income people.

    Lower corporate taxes would tend to allow down movement of retail prices due to competition between business thus holding back some of the impact of the sales tax portion.

    Ebay and such will get a windfall since used products pay no sales tax.

    People will shop for a quality used car (not killed off by cash for clunkers) over buying new to avoid the tax.

    There is a provision in the plan I believe that would make it take a super majority to raise rates and they would have to suffer the ire of the voters for any attempt at that which they couldn’t justify.

    Even if some carve outs for those most impacted end up occurring it will still never reach the massive special interest deals we now see in the existing code.

    Businesses will now be more likely to make decisions on project merit instead of tax liability impacts. It will also reduce the proxy IRS role that businesses now play.

  9. Redteam says:

    I wish someone would post links to some of these claims, such as mortgage payments wouldn’t be taxed, no taxes at all for anyone under the poverty level, sales taxes only on new retail goods, etc, etc.. the Cain site does NOT provide enough details for anyone to conclude most of those claims. How would they exempt a person under the poverty level from ‘any taxes at all’? Does he carry around a ‘certified’ below povery level ID card? Is poverty level income figured on all income or just that drawn by salary? This is some info I had commented earlier:

    “I went back and looked so I can talk real numbers. first, I’m over 65, retired, don’t pay social security/medicare, but did for over 40 years and am now drawing on it. anyhow, my income was $107,682 and i used standard deductions and my taxes were $12,792. So, let’s go from there. 107,682x .09 = 9691 107682-9691=97990 97990x .09=8819 9691+8819=18510 so if I can add and subtract, my taxes would go from 12792 to $18,510 or a 44.6% increase.”

    So using your method above, I went back and made a correction, I’ll use only 50% of the 8819 or 4410. 9691+4410=14101 14101 is a 10.2% increase in my taxes.

    So, are you ok with retired persons having their taxes raised 10,2%?

    My numbers above are copied from my Turbo Tax return for last year. they are not apples or oranges but real dollars. And before you ask, I had 3 semesters of Engineering calculus at a top university so I’m not deficient in math abilities.

    There are way too many statements being made about how great the 999 plan is without any published foundation documentation. At least not any published by the Cain organization on their website.

  10. gkm1959 says:

    AJStrata says:
    October 19, 2011 at 10:14 am

    Yeah dude, we are all aware of that fact. Of course you missed Cain’s walk back of his comment. And I don’t recall him saying he would trade KSM?

    Having a bit of a fantasy fit are we? Stick with the facts and it will go a lot easier around here.



    Is that the best you can do? Yes, he walked it back 5 hours later after somebody whispered in his ear . . . . “Hey you big dummy, do you know who the detainees are at Gitmo/”

    And I belive his respone was “ALL” in a trade. I believe all includes everybody at Gitmo . . . . DUDE!!!!

    Stick to climate change posts AJ. Campaign startegy is not your strong suit.

  11. AJStrata says:


    The devil is in the details, no doubt. But if all those details are not clear and we cannot claim it is a huge windfall to taxpayers (which it is), then heaven help those with tunnel vision and don’t look beyond the sales tax impacts.

    Hate to say it, but even if you applied ALL the disposable income to the 9% sales tax – you still walk away with a saving over income+payroll.

    And that money you did not use on income/payroll you used on your needs – not DC’s stupid ideas.

    Get used ready, this has ‘win’ written all over it. They naysayers are not just grasping for straws, but now rely on partial and misinformation.

    When you have to fool people to win the argument you have lost it anyway.

  12. MerlinOS2 says:


    In the recent past, federal tax revenues from the personal and business income taxes, all payroll taxes, and the capital gains, gift and estate taxes have averaged $2.3 trillion, while gross domestic product has averaged about $14.5 trillion. The total revenue from these taxes as a share of gross domestic product averages around 16%. Sometimes it’s a good deal higher, as in the boom of the late 1990s, and sometimes its lower, as in today’s “Great Recession.” But a number in the 16%-19% range is as good as you’ll get under our current tax code.

    By contrast, the three tax bases for Mr. Cain’s 9-9-9 plan add up to about $33 trillion. But the plan exempts from any tax people below the poverty line. Using poverty tables, this exemption reduces each tax base by roughly $2.5 trillion. Thus, Mr. Cain’s 9-9-9 tax base for his business tax is $9.5 trillion, for his income tax $7.7 trillion, and for his sales tax $8.3 trillion. And there you have it! Three federal taxes at 9% that would raise roughly $2.3 trillion and replace the current income tax, corporate tax, payroll tax (employer and employee), capital gains tax and estate tax.

  13. MerlinOS2 says:

    Being cynical like I am I already see one example of a scam that will be worked to get around this system.

    A guy goes out and finds someone under the poverty level and gives them cash up front to buy a new car for him. It is a sham deal but the way it stays within the game rules is after the car is purchased the original funder buys the now ‘used’ car off of the shill giving them a profit of say 50 cents on a dollar of what the tax liability would have been.

  14. MerlinOS2 says:


    That may be totally wrong since the exemption applies only to the income tax portion.

    My bad need more coffee.


  15. crosspatch says:

    The poor spend most of their money on rent and food, those would not be taxed. So most of the working poor around here spend more than 1/2 of their take home pay in rent. That would not be taxed at all. A “rich” person spends much less of their income on rent (or mortgage payment) as a percentage of income but spends more. They would pay more tax.

    I *like* 9-9-9

    Also, Prof. Arthur Laffer likes it, too as your update link to the WSJ article shows.

    Why is it perfectly OK for a state to charge 9% sales tax (my state and local sales tax is right about 9%), collect revenues from those poor people when they buy a six-pack of beer and then use that money to offer a subsidy for a rich person to buy a Tesla Motors vehicle but it is somehow “wrong” for the federal government to do the same?

    Besides, I like the idea of hookers and drug dealers paying tax on the income they don’t report on their tax returns.

  16. […] the average DC bureaucrat not only grabs almost 30% of their income in payroll and income taxes (see here), that bureaucrat rakes in 2 and half times their […]

  17. dhunter says:

    If your retired on an income of 107,000. then you have some investments or a good pension. calculate that there are 0 cap gains taxes, 0 dividend taxes, 0 estate taxes, and the fact that your free to purchase or not purchase to pay or avoid paying the sales tax and this is an extraordinary opportunity for seniors to save, invest and pass on to their kids the fruits of their labor, a big part of the American dream. Plus all that saving and investing creates capital for further investment. The idea that we can’t do this becasue states have sales taxes or the rate on the sales tax may be raised is a red herring by thiose to lazy or illiterate to come up with a better alternative to the current method of picking winners and loosers and redistributing the wealth via the insane tax code.

  18. crosspatch says:

    And I want this to be a bottom line sales tax, not a hidden “vat” that gets added into goods in the production cycle.

    But most of all, there is a HUGE amount of income in this country that goes unreported and untaxed. The goods sold on Craig’s List and eBay rarely gets reported unless you send the seller a 1099. Illegal activity … if someone steals $100 from a cash register, they will pay tax on that illegally gotten sum when they buy something with it … welfare cheats, under the table workers, all will pay at least some tax on their ill-gotten income.

    I favor the idea of having at least some sales tax for the federal government simply to capture tax on unreported income.

  19. Redteam says:

    Here’s an analysis of 999: doesn’t look so rosy.


    I don’t want to give anyone the impression I’m against tax reform, I’m all for it. even the 999 plan might be good once actually applying true situations are done. For example, how do we determine who is below the poverty line (I could easily make 100K under the table and still be under the line.) and I don’t want to have to wear used shoes and underwear just to prevent having to pay taxes.

    someway we have to get away from income tax on earned pay and get the taxes another way. If you don’t Warren Buffet will still be complaining because he is getting away with highway robbery and I will be complaining because all I’ll have is apples and oranges (and no dollars)

    “All” was probably intended to mean all of the detainees, the backtracking was probably intended to correct an error.

    I think Newt was the most competent debater last night and if he’ll just team up with Palin, it’ll be ‘all the way’

  20. Redteam says:

    “dhunter says:
    October 19, 2011 at 12:30 pm

    “If your retired on an income of 107,000. then you have some investments or a good pension. calculate that there are 0 cap gains taxes, 0 dividend taxes, 0 estate taxes, and the fact that your free to purchase or not purchase to pay or avoid paying the sales tax”

    dhunter, I’ll give you credit for a good sense of humor. Am I really free to purchase or not purchase food? you’re right, estate taxes don’t figure in one way or the other.

    income is SS, pension, 401K. I didn’t inflate or deflate any numbers. As I said, the problems have to be worked out so my taxes DO NOT GO UP. the plan needs to be revenue neutral and I’m not in the RICH category. My taxes need to go down and the people making over 250K need to make up the difference.

    Income tax will never be equal for those being paid vs under the table, so DO AWAY with that part. and adjust the sales tax rate to make it neutral.

    I’m still seeing quotes that ‘mortgages’ won’t be taxed. Some provide a link to that fact for me (in Cain’s plan).