willbeurdaddy
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quote:
ORIGINAL: TreasureKY
quote:
ORIGINAL: DomKen
... A household making 50k would pay 2k more per year in federal taxes.
I don't really care for these figures that have been thrown around. They are a bit misleading.
Let's look at the Smith Family. Mr. Smith works making $50,000. Mrs. Smith is a stay at home mom. They have a son and a daughter, both under 18 and living at home. For the sake of simplicity, we'll assume they rent their home (all electric), have no credit cards, own two vehicles (one paid for, the other with a loan payment), no child care expenses, and had no medical expenses last year (which is good because they declined medical insurance through Mr. Smith's work).
Their monthly budget might be something like:
Rent $650
Elec $300
Water $50
Trash $20
Phone/Cable/Internet bundled $150
Cell Phone for Mr. Smith $75
Car Payment $300
Car Insurance $150 (one with liability only, the other with loan has comprehensive)
Rental Insurance $20 (required by their landlord)
Food $800
Gasoline $150 (Mr. Smith fills up once every two weeks, Mrs. Smith, once a month)
TOTAL $2665
Mr. Smith gets paid every two weeks. Under current tax laws, his take home each paycheck would be:
Gross $1923.08
Fed Income Tax Withholding* $126
FICA $108.65 (at the current combined rate of 5.65%)
Net Pay $1688.43
* Withholding based on Married - BiWeekly chart provided in IRS Publication 15, with number of withholding allowances claimed as four.
At the end of the year, Mr. Smith would have paid $3276 in Federal income tax. When he files his income tax return using standard deductions, he will receive a refund of $510.
His total Federal tax burden under the current tax laws (including SS and medicare) will have been $5591.
*****
Under the 9-9-9 plan (with the limited information we have), Mr. Smith's Federal tax witholding would be $173.08 per pay period. His new take home pay every two weeks would be $1750. There would be no deduction for social security and medicare.
Of course, he would also be paying an additional 9% sales tax on purchases, on top of his income tax. With the $800 per month the Smith's pay for groceries, that would be about $36 in sales tax every two weeks. His net pay every two weeks is still $25.57 more than under the current tax plan.
The Smith's total Federal tax burden under the 9-9-9 plan would be $5436... $155 less than our current tax plan.
Of course, with the amount of money Mr. Smith makes, and with their basic living expenses, the Smiths do have $18000 in disposable income every year. It would be unreasonable to assume they won't have any purchases to make beyond their budget. If we assume they spend every bit of it, they could see an increase in their taxes... as much as $1620.
While I can understand wanting to round that number up to $2000, it is not correct. It is doubtful that the Smiths would spend every penny they had in new consumer goods.
On the flip side, with hidden excise taxes being removed, they would see a reduction in their basic living expenses. For example, under the current tax laws, the Smiths pay around $7.56 every month in gasoline excise tax. They also pay excise taxes hidden in their utilities bills. These amounts won't significantly offset the possible additional $1620 in sales tax, but they will have an impact.
Additionally, it is Mr. Cain's assertion that the overall price of goods will drop as the taxes paid by entities throughout the manufacture process are lowered or eliminated. The question I would have is, would that actually happen? I'm not terribly trusting in that area. Then again, with healthy competition, it is possible.
Since the payroll tax reduction is only temporary the comparison should be to the full tax, not the current tax. Also you can assume that SOME portion of the employer payroll tax savings will be shared with the employees, since it is direct reduction in their compensation expense. Then there is the impact of the reduction in corporate income taxes as different companies touch a final prouct. (My understanding, at least, is that the sales tax does not apply to intermediate transactions, unlike a VAT).
Going the other way assuming a renter is too simplistic at least at higher levels of income. The mortgage deduction could easily throw the comparison the other way. As Ive said before that is a major problem for the housing market..moving from favored status to neutral status hurts housing prices, overall wealth etc. It also isnt totally neutral...it favors renters, because landlords will at least have deductions for their mortgage interest costs and can lower their rents as a result, but homeowners wont. I would expect to see new home leasing arrangements crop up that would share some of that tax benefit, but pride of ownership is a significant contributor to the economy that would be diminished.
Major tax overhaul has tons of unintended consequences. It is disingenuous to think that "Cain is elected, poof 999 is implemented and voila nothing unintended falls out"
< Message edited by willbeurdaddy -- 10/18/2011 1:40:00 PM >
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RE: Warren Buffet would likely pay no income taxes in u... - 
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