When I started to read the details concerning Herman Cain’s 999 tax reform plan, I was shocked to find how negatively it would impact seniors. Cain seems to be against social security, since the payroll tax that funds social security will be eliminated. When asked about Social Security and how he planned to protect seniors and young workers in the October 12th debate, he responded ” My proposed solution, which is the same approach used by the Galveston County, Tex., employees since 1981, is very similar to a 401k, except you have to wean people off the current system. Current seniors will not be affected. Younger workers will have the option to continue to put a portion of their Social Security contribution into the current system so we can take care of the seniors that are there. Younger workers will be able to take an increasing portion of their contribution into an individual retirement account. Seniors would have nothing to worry about.”
Well, this senior thinks there is plenty to worry about! Seniors will automatically pay more than those working by 6.2%, since workers are relieved of the 6.2% payroll tax under the 999 plan. Seniors have already paid into the system, but no longer do. So when you add up the final taxes on $70,000 for someone working and $70,000 on someone retired, the working person comes out ahead. To add injury to insult, seniors will be putting that extra 6.2 % into the same general fund from which their social security would now be paid. In effect, they are once again paying into their own social security.
When you calculate what a retired married couple with an income of $70,000 would pay under current code to what they would pay under Cain’s plan, it is a huge difference. Using the Tax Foundation’s calculator a senior couple would pay $2,000 under current tax code. Under the 999 plan the same senior couple would pay $6,282 in income tax. The new federal sales tax would tack on an additional $2250 for $25,000 worth of taxable goods for the year. So total taxes would amount to $8532, and increase of $6532.
The 999 plan is basically unfair to anyone who has to spend a large percentage of their income on goods. In other words, the effective tax rate goes down as you spend less of your income and up as you spend more of your income. Therefore, the poorest who must spend almost all of their income are hit the hardest. Most seniors are in this group of those who live off of a very limited income and have to spend most of their annual income.
I can only conclude that this plan would be a disaster for seniors. Try doing some calculations on your own by going to the Tax Foundation’s calculator, then going to Herman Cain’s 999 calculator. You may not like the results.