999; How does it work?

This is the BIG question isn't it? And like most big questions the answer is a matter of perspective. Because of the complexity of our current 70,000 plus page tax code any change in the system causes both cuts and increases on someone, somewhere. And like all serious ideas dealing with our tax code it isn't perfect. However, as we go through this plan I would suggest you keep as open a mind as possible because for my money (no pun intended) this is the most sweeping and comprehensive idea floated on taxation in this country in the last 98 years, since the creation of the income tax in 1913. I also want to tell you in advance, I'm not here to sell this plan, nor am I here to rip it apart, but I do intend to show you the benefits of the plan as they affect the majority of the people while showing you the warts it has as well. So let's get started.

What is income? This, believe it or not, is a taxing question in itself. Income is defined as, "Noun: Money received, esp. on a regular basis, for work or through investments", and, "Synonyms: revenue - earnings - proceeds - profit - yield - gainings". Unfortunately, the current US Tax code does not use this definition. It defines income only as money received for work. Why do I say this? Simple, the tax code separates by tax rate, money earned through labor at a job and that money made through investment vehicles. The later earnings are taxed at a very different rate known as the Capital Gains tax rate. So let's look at the effect 999 has on these two different forms of acquiring money or making income.

Income tax is based on the good old paycheck. Depending on how much money you earn through your job you are placed in any of multitude of tax rates ranging from around 10% for a person earning $8500.00 a year to about 20% for someone making $99,000.00 a year. These are based on the 2010 IRS tax tables I found at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf. Beyond $99K a year you are subject to another process beyond the simple tax tables provided with your 1040 form. These tax rates jump from the 20% range to 25, 28, 33 and 35% depending on your filing status, married, single, married but filing single, blah blah blah. So a person making $500K a year is taxed $175K that year.

The first thing that jumps out at me about our current system is a word many love to use to defend this program, "Fair Share". It appears to me that some Americans are being made to pay far more than their "Fair Share" based on percentages. The rich are paying the bulk of the taxes while the poor are paying very little. But keep in mind that this is before any deductions for mortgages, children (dependents) other taxes paid like tag on cars, sales taxes paid for large ticket items that qualify, medical bills, dry cleaning (yes you can deduct stuff like that) etc. Most of those making under $25K a year end up getting all of their income taxes back plus they get special allowances for what is called the Earned Income Credit (EIC) which basically says you should have made more so we are going to give you some out of the taxes others pay because you have a bunch of kids or a ton of "unexpected" allowances. At the end of the day with a few kids and EIC people earning at the lower end of the scale make money on taxes, paying nothing in the end and pocketing from a few hundred to several thousand. Fair Share anyone?

Under the 999 plan this ends. That person paying 10% on their $8500 a year now pays 9% or a 10% cut in income taxes leaving them with 10% more disposable income throughout the year. Our person making $99,000 a year sees their income tax drop from 20% to 9% or a 55% reduction in taxes giving them an increase of disposable income of about $11,000 a year. Our person making $500K a year and currently paying 35% in taxes would see his taxes drop to $45,000 a year and see an increase in disposable income of some $130,000. Over all, everyone is making out with a benefit. Most people making the bigger money are paying far less than the stated rates already because most have mortgages etc. that reduce what they pay by nearly half, so even though it looks like they are making out like bandits under this plan the next step makes sure they benefit nothing beyond this point, fairly, just like everyone else.

The other shoe to drop here is the deductions... They are all gone. No more Mortgage, no more dependents, no more nothing, no more medical expenses and no more dry cleaning deductions. You pay 9% on all your income period, and all of us do it. This is a real "Fair Share" approach in my book. Everyone gets a tax cut and nobody "gets" free money for nothing.

Oh, and that other type of income, Capital Gains, it would be taxed at 9% also instead of 15% as it is now. So those folks on fixed incomes like Social Security who have investments out there to supplement their SS payments (which is supposed to work the other way around) would have more disposable money as well. And yes, for the super rich this would be a tax cut as many of them only receive this type of income. When you are making a "fair share" society those who have been most taxes are bound to see the most benefit initially. Likewise those who have never paid are bound to feel they are not seeing a benefit but like we discussed even they see an increase in disposable income.

General Electric. Did you hear the story on these guys last year? They are one of a number of massive corporations that paid zero corporate income taxes last year. GE made $14.2 Billion dollars in 2010 and that puts them in the top corporate tax rate of 35%. It should have netted the United States Government $4.97 Billion in taxes in 2010. Instead, because of the tax code, the special deductions for Research and Development, the fact that much of that income was collected off shore (out of the country) and because of other special tax loopholes in our 70,000 plus page system, GE actually got a check from Uncle Sam for $3.2 Billion dollars. I guess it pays to have really good tax lawyers on staff and a tax code that affords you special treatment.

Under 999 GE would have had a tax liability of $1.278 Billion dollars. Under 999 GE would have had no deduction for R&D, off shore income side steps or anymore special dispensations and guess what they would have paid? Yep, $1.278 Billion, which would have been a gain for the government of $4.478 Billion because they would have paid out nothing to them to begin with because the tax loopholes would not have been there for them to get $3.2 Billion like they did in 2010.

For thousands of other corporate entities in this country who also play by the rules but still had to pay some taxes, (this needs to be made clear, GE did nothing that was not allowed for in our current tax code, amazing as that might sound) this would be a benefit. Many companies today pay hundred of millions in taxes at rates that are all over the place, just like personal income tax rates, their change based on how much profit they post.

Why do corporate taxes matter to you as a consumer? Well, there's an old saying, "Corporations don't pay taxes, customers do", and by and large, this is correct. Whatever tax burden corporations have is passed on to the consumer in the price of the product they manufacture or sell. This being the case, a corporation that paid $100 million in taxes under the old plan at a 35% tax rate would pay far less under a 9% tax rate. Now, while these kinds of algebraic questions don't always work out perfectly, one could reasonably assume that corporation would reduce similarly the final price to consumers commensurate to their reduction in overall production cost, of which taxes are a part. In other words, we get a tax cut and a reduction in the cost of goods we buy. Even if they don't pass all of the saving on to us, and instead put it towards their bottom line, Uncle Sam makes out because it would raise their actual tax payment to the government thus the people win on either front; A better funded government or a lower cost of living or a little of both!

This is the part of the plan many claim will unfairly move the tax burden to the poor. I disagree. I think it fairly shifts the tax burden to everyone equally as a free society of equals should. We have already covered the increase in disposable income everyone would enjoy from this plan. And we have already covered the reduction in costs for good and services that would be enjoyed by everyone. Now we will cover the increase in burden which will be felt by everyone, but when we are done, we will go over the average American's income and how it all comes out in the wash to be a benefit for the people of this country regardless of where you are on the socioeconomic scale.

A 9% sales tax, as it stands right now, would be placed on everything sold retail. So $100 worth of anything will cost you $109. Currently food is exempt from sales taxes in most states (I say most, I think it's all, but there could be one out there I'm not aware of). There is reason to believe food would be exempt in this plan also, however I have yet to find a definitive statement to this effect. On everything else you will see an increase of 9% in addition to any local or state sales taxes. But here's the kicker, if you don't want to pay 9% in sales tax, don't buy anything. This is the one tax you can control how much of you pay. Obviously you cannot avoid buying something, a car, a house, a new set of silverware, whatever, but you can make sure that you buy quality products so they last reducing your need to buy them often. This might even be an additional benefit as people look to avoid cheap crap made in China.That in turn might make American companies even more profitable...

It's a trade off, more income, lower prices and a slightly higher tax on the goods you buy, but overall, a lower cost of living with more disposable income.

So how does it shake out for the average American? According to the 2010 Census the median income per household in the US is $50233.00. Using the same tax tables we did above this means the tax liability for this family is "50,200 50,250 8,738 6,696 8,738 7,404". That's an income between 50,200 and 50,250, and a tax bill of $8738 if filing single, $6696 if filing married jointly, $8738 if filing married but separately and $7404 if filing head of household. What a mess this system is. But under 999 this family pays 9% period. That's $4520.97, so against any plan here the savings range from $2157.03 to $4217.03. That means this family has an increase of disposable income of the same amount. It's not huge but $180-$351 a month is nothing to sneeze at.

Now let's look at the cost of the things they buy. Let's say they spend 25% of their income on stuff. Considering housing, transportation and other things are accounted for at fixed costs, and the things they have to buy outright have dropped in price by a conservative 9% becaue of the reduction in taxation on the corporations (of course it could be an even bigger drop). You now add the 9% sales tax to the things they buy, this means the cost of the goods and service they buy have increased in price by??? nothing, nada, zero, goose egg, yet our theoretical family still has a very real increase in disposable income because of the lowering of their income taxes.

I'm still looking for the problem here?

Found it, those poor people who used to get money back at the end of the year on top of their rebate checks from Uncle Sam for EIC and all those deductions of children they usually have. Well, these people also saw an increase in disposable income throughout the year didn't they? They also controlled what items they bought throughout the year didn't they? And they also lived in a country where more people had more disposable income to spend on lower priced products that most likely caused a huge increase in consumerism which probably led to an increase in hiring for manufacturing jobs in this country (I say in this country because people will want o buy good stuff that lasts and that is best done here instead of China, India, Vietnam, Mexico etc) traditionally some of the best paying for non-college educated workers, and their opportunity to move up on the socioeconomic scale should have drastically increased as well. In a country where we promise the ability to become as wealthy as you want would it not be fair to assume that more opportunity would be created for these folks as well?

This is the benefit for America. A fair system fraught with opportunity for all and government funded by all the people and all the companies benefiting from the freedom and opportunity offered in it.

But there are a few things I would change in the plan. First up there are two types of income I would not tax. These are Social Security benefits and Active Military pay. For people getting SS payments and other income, that other income would still be taxed at 9% just like all other income. Those who are active military I believe deserve (I know that's a hard word for some) to get a special benefit for putting their lives on the line for our freedom. May seem like I am putting them above the rest of us and I am because again, they deserve it.

Herman Cain has said he would make, as part of these changes, a mandatory 2/3 congressional vote to increase this 9%. Well I would like to see it as a Constitutional Amendment making permanent the 9% in perpetuity so it could never go up thus forcing the US government to live within it's means. If the economy grows like I think it would under this plan, they would have plenty and even be able to pay off the national debt in a generation. And should we do that and find a surplus is left over it would fully fund future wars, Hurricane, Earthquake and Tornado rescue and recovery operations that are sure to come along.

What are the chances we eventually get the 999 plan to pass? Well if we don't elect Herman Cain I would say we have 0 (ZERO) chance of seeing it or anything remotely like it in the near future. If Herman Cain gets elected I see about a .09% chance of it getting passed in it's current form. With Herman Cain in office and modifications made to the plan like a tax free floor of 10-15K a year in income under which you pay nothing and a special 15% income tax or something on the super-rich being added to shut the left up I'd say maybe a 9% chance. However a heavily modified plan barely resembling 999 at all but still marketed under that name and massive holdout special deals for all manner of business with all kinds of R&D and other write-offs being applied and making the tax code maybe half it's current size while protecting all kinds of special groups and businesses, I'd say about a 99% chance of passage.

And wouldn't that be a shame! Of course, a President Cain might just surprise us all and be a real man of honor who might just veto such a monster and give us something closer to the current plan. Honor in Washington, now that's something we don't wee everyday... or any day.

But what would I know; I'm just an Average American.