Demystifying 9-9-9 and Other Fair Taxes

Our tax system is a source of mystery and headache for many, filled with confusing benefits and detriments, depending on whether the payer did what his political masters wanted him to do.  Even more disturbing is that most revenues have been hidden behind the sticker prices and omitted from our pay stubs.  Revenues were hidden by politicians for two reasons: to make it impossible for the payer to determine if he received value for his dollar, and so that funds could be easily misappropriated on things the payer never used or could ever use.  Herman Cain suggests that you visit his website and do your own math, but these hidden (indirect) revenues make it difficult or impossible for anyone short of a tax attorney or accountant to do the math (maybe impossible even for them as well).

First, we might review what a "fair" revenue system is.  Between 85% and 90% of Americans believe that revenues should be collected in proportion to the government services used.  For example, nearly everyone uses the weather services, and so a fair funding system might be a per capita apportioned among the States.  The military protects both property and people, and so a funding system would be a mix of a per capita tax and a flat duty on income, which is often proportional to the property owned.

What becomes clear is that the fairest revenue system will be a combination of fees, duties (assessed at flat rates), and per capita taxes.  This fairest system will be slightly regressive, since the fees, duties, and per capita would constitute a larger portion of a poor person's income.  Our current tax system is extremely progressive, in that many poor people pay nothing toward the government they consume, while wealthy people contribute greater and even greater portions as their wealth increases.  The most regressive taxes are fees and per capita taxes, while the most progressive tax is a graduated income tax.

To be revenue-neutral, people have proposed replacing the federal income tax with a flat income tax of 24.7%, or a fair sales tax of 23%.  The 9-9-9 plan finds a happy medium between the Fair and Flat taxes -- mixing a regressive tax (9% sales tax) with two progressive taxes (9% corporate and personal income taxes) to create an overall fairer, but still progressive, federal tax system.  Keep in mind that the 9-9-9 plan is a plan, with "plan" being the operative word.  There would undoubtedly be negotiations, tweaks, and changes.

The 9-9-9 plan is not a new tax, but a replacement for dozens of existing federal taxes, many of them hidden; this is the reason that it is so difficult to provide specific examples of savings and costs.  The overall effect of the 9-9-9 plan is to maintain existing revenues, but to distribute those revenues slightly more evenly among the American people.  Going from a highly progressive system to a slightly progressive system means that on average, Americans will see their tax burden increase.  The federal government spends about $11,000 for every man, woman, and child living in the U.S., but the average person pays close to nothing in exchange.  How much of the $44,000 did your family of four pay?  Probably more than you think.

Most people pay 7.65% of their paycheck to Uncle Sam and don't even know it.  This 7.65% does not appear on any pay stub, and you can never get it back in your refund, not even with the Earned Income Credit or any amount of deductions.  This 7.65% is the employer contribution to Social Security and Medicare, and your employer deducted it before your base wage.  A person earning $30,000 is actually being paid about $32,500 (or would be, if SS and MC were the only hidden taxes).  The taxes which are visible to you might be $0, but in reality, you paid $2,500.  Taking 9% of that $32,500 is $2,925, so under 9-9-9, you pay $425 more in income tax, but you make $2,500 more in income.

The sales tax is even more difficult to figure out, because there are at least 5 taxes rolled up into that sticker price.  If there are $15 of invisible taxes in every $100 of goods, then under 9-9-9, that $100 sticker price might become $90 (there will still be some invisible taxes).  They then pay only $13 in taxes instead of $15, for the same item.  So if they spend all of their money buying goods, their total (federal) taxes go from about $7,000 in invisible taxes to $5,585 in obvious, plus $1,645 in invisible taxes, for a total of $7,230.  Competition will force the wages up and the prices down.

So a single parent with one child might go from paying $7,000 in taxes to paying $7,230 in taxes -- a $230 increase -- but have $2,000 more in their pocket, and with it, buy more stuff.  Instead of buying more things, maybe she bought the same things and paid $7,000 in taxes but was able to put $2,500 into her savings account.  In a dynamic system, that $2,500 might be used to lend out $25,000 (the Fed at work), generating even more economic activity and more revenues for the government.  Optionally, the single parent is poor, so instead of buying new goods, she could have bought used goods (tax-free) and saved even more in taxes and money.

Of course, that $7,000 is nothing compared to the $22,000 the government spends on the single parent and child.  They can thank the evil corporations and those greedy people earning more than $75,000 for the difference.  Actually, the poor single parent should thank those earning over $50,000 and their children, because about $9,000 of that $22,000 was borrowed against her future worth, but that is a topic for another article.

So 84% might pay more taxes, but it is because 100% get more money in their pockets and realize greater flexibility in spending it.  This is what Cain means by "growing the base."  Best of all, the 9-9-9 plan gives us all a clear picture of government excess.  Instead of our burden being hidden, it is now out in the open.  Everyone will be able to ask the questions: does this loaf of bread really contain 9% government?  Does my salary really contain 9% government?  The only things out of luck will be the corporations, whose taxes are not readily visible to the American people.

Remember that 9-9-9 is a plan.  Even if enacted, some future generation of Democrats could always come along and screw it all up -- then again, they pretty much already did that.  The only question is how "fair" you want the tax code to be.  If you want our current, highly progressive social engineering system, go with Romney.  If you want a slightly less progressive somewhat-social engineering system, go with Perry.  If you want a slightly progressive but almost fair, government-out-of-your-business system, go with Cain.  If you believe that no one should pay any government for anything, go with Paul.

Also remember that fixing (or not) the tax system might be year 1.  What kind of president do you want for years 2, 3, and 4; a "government is the solution" or a "government is the problem" kind of president?

Our tax system is a source of mystery and headache for many, filled with confusing benefits and detriments, depending on whether the payer did what his political masters wanted him to do.  Even more disturbing is that most revenues have been hidden behind the sticker prices and omitted from our pay stubs.  Revenues were hidden by politicians for two reasons: to make it impossible for the payer to determine if he received value for his dollar, and so that funds could be easily misappropriated on things the payer never used or could ever use.  Herman Cain suggests that you visit his website and do your own math, but these hidden (indirect) revenues make it difficult or impossible for anyone short of a tax attorney or accountant to do the math (maybe impossible even for them as well).

First, we might review what a "fair" revenue system is.  Between 85% and 90% of Americans believe that revenues should be collected in proportion to the government services used.  For example, nearly everyone uses the weather services, and so a fair funding system might be a per capita apportioned among the States.  The military protects both property and people, and so a funding system would be a mix of a per capita tax and a flat duty on income, which is often proportional to the property owned.

What becomes clear is that the fairest revenue system will be a combination of fees, duties (assessed at flat rates), and per capita taxes.  This fairest system will be slightly regressive, since the fees, duties, and per capita would constitute a larger portion of a poor person's income.  Our current tax system is extremely progressive, in that many poor people pay nothing toward the government they consume, while wealthy people contribute greater and even greater portions as their wealth increases.  The most regressive taxes are fees and per capita taxes, while the most progressive tax is a graduated income tax.

To be revenue-neutral, people have proposed replacing the federal income tax with a flat income tax of 24.7%, or a fair sales tax of 23%.  The 9-9-9 plan finds a happy medium between the Fair and Flat taxes -- mixing a regressive tax (9% sales tax) with two progressive taxes (9% corporate and personal income taxes) to create an overall fairer, but still progressive, federal tax system.  Keep in mind that the 9-9-9 plan is a plan, with "plan" being the operative word.  There would undoubtedly be negotiations, tweaks, and changes.

The 9-9-9 plan is not a new tax, but a replacement for dozens of existing federal taxes, many of them hidden; this is the reason that it is so difficult to provide specific examples of savings and costs.  The overall effect of the 9-9-9 plan is to maintain existing revenues, but to distribute those revenues slightly more evenly among the American people.  Going from a highly progressive system to a slightly progressive system means that on average, Americans will see their tax burden increase.  The federal government spends about $11,000 for every man, woman, and child living in the U.S., but the average person pays close to nothing in exchange.  How much of the $44,000 did your family of four pay?  Probably more than you think.

Most people pay 7.65% of their paycheck to Uncle Sam and don't even know it.  This 7.65% does not appear on any pay stub, and you can never get it back in your refund, not even with the Earned Income Credit or any amount of deductions.  This 7.65% is the employer contribution to Social Security and Medicare, and your employer deducted it before your base wage.  A person earning $30,000 is actually being paid about $32,500 (or would be, if SS and MC were the only hidden taxes).  The taxes which are visible to you might be $0, but in reality, you paid $2,500.  Taking 9% of that $32,500 is $2,925, so under 9-9-9, you pay $425 more in income tax, but you make $2,500 more in income.

The sales tax is even more difficult to figure out, because there are at least 5 taxes rolled up into that sticker price.  If there are $15 of invisible taxes in every $100 of goods, then under 9-9-9, that $100 sticker price might become $90 (there will still be some invisible taxes).  They then pay only $13 in taxes instead of $15, for the same item.  So if they spend all of their money buying goods, their total (federal) taxes go from about $7,000 in invisible taxes to $5,585 in obvious, plus $1,645 in invisible taxes, for a total of $7,230.  Competition will force the wages up and the prices down.

So a single parent with one child might go from paying $7,000 in taxes to paying $7,230 in taxes -- a $230 increase -- but have $2,000 more in their pocket, and with it, buy more stuff.  Instead of buying more things, maybe she bought the same things and paid $7,000 in taxes but was able to put $2,500 into her savings account.  In a dynamic system, that $2,500 might be used to lend out $25,000 (the Fed at work), generating even more economic activity and more revenues for the government.  Optionally, the single parent is poor, so instead of buying new goods, she could have bought used goods (tax-free) and saved even more in taxes and money.

Of course, that $7,000 is nothing compared to the $22,000 the government spends on the single parent and child.  They can thank the evil corporations and those greedy people earning more than $75,000 for the difference.  Actually, the poor single parent should thank those earning over $50,000 and their children, because about $9,000 of that $22,000 was borrowed against her future worth, but that is a topic for another article.

So 84% might pay more taxes, but it is because 100% get more money in their pockets and realize greater flexibility in spending it.  This is what Cain means by "growing the base."  Best of all, the 9-9-9 plan gives us all a clear picture of government excess.  Instead of our burden being hidden, it is now out in the open.  Everyone will be able to ask the questions: does this loaf of bread really contain 9% government?  Does my salary really contain 9% government?  The only things out of luck will be the corporations, whose taxes are not readily visible to the American people.

Remember that 9-9-9 is a plan.  Even if enacted, some future generation of Democrats could always come along and screw it all up -- then again, they pretty much already did that.  The only question is how "fair" you want the tax code to be.  If you want our current, highly progressive social engineering system, go with Romney.  If you want a slightly less progressive somewhat-social engineering system, go with Perry.  If you want a slightly progressive but almost fair, government-out-of-your-business system, go with Cain.  If you believe that no one should pay any government for anything, go with Paul.

Also remember that fixing (or not) the tax system might be year 1.  What kind of president do you want for years 2, 3, and 4; a "government is the solution" or a "government is the problem" kind of president?