Skip to comments.Truth-O-Meter: Herman Cain said workers now pay 15.3% in payroll taxes (How accrate is this?)
Posted on 10/17/2011 1:52:25 PM PDT by SeekAndFind
Herman Cains 9-9-9 plan was the talk of the debate held Oct. 11, 2011, in Hanover, N.H., with Cains Republican opponents for the presidential nomination assailing the plan as unworkable.
At one point, moderator Charlie Rose warned other candidates that mentioning the plan meant more rebuttal time for Cain. "If you keep mentioning 9-9-9 and Herman Cain, I'm going to have to go back to him every other question," Rose said.
Basically, Cains plan would replace the existing laws on income taxes, payroll taxes and corporate taxes with flat tax rates of 9 percent -- a 9 percent income tax, a 9 percent national sales tax and a 9 percent corporate tax.
Cains opponents focused on the proposed new sales tax. "We're not going to give the federal government, Nancy Pelosi, a new pipeline, a 9 percent sales tax for consumers to get hammered by the federal government," said Rick Santorum, a former senator from Pennsylvania. "How many people believe that we'll keep the income tax at 9 percent? Anybody?"
Cains plan seems to have struck a chord with some voters because it appears easy to understand, particularly compared with the current tax code and its mish-mash of different rates, deductions, credits and loopholes.
But would voters be better off? The day after the debate, Cain was grilled by NBCs Chuck Todd, who wanted to know how the plan would affect working people. Todd quoted an analysis by economist Bruce Bartlett that said, "At a minimum, the Cain plan is a distributional monstrosity. The poor would pay more while the rich would have their taxes cut."
"First of all, the fact that I got attacked so much and my plan got attacked so much last night, that's a good thing," Cain said. "Because it gives me an opportunity to correct some of those misperceptions.
"For example, here's what a lot of people missed, including Bruce Bartlett. ...Start with the 9-9-9 and the fact that every worker pays 15.3 percent payroll tax. Now they're going to pay 9 percent, okay? That's a 6 percentage point difference. The 9-9-9 plan replaces payroll tax, capital gains tax, corporate income tax, personal income tax and the death tax. So, five taxes we replace with those three. We start with throwing out the current tax code."
Cain is suggesting that the new national sales tax would be a smaller percentage than todays payroll taxes. But the 15.3-percent number he mentioned didnt sound quite right to us, so we decided to check it out.
What we found is that Cain is counting both worker and employer contributions to payroll taxes to arrive at the 15.3 percent number.
First, heres a quick primer on how payroll taxes work: If you work for an employer, the employer deducts payroll taxes before you get your paycheck and then sends the money on to the federal government. The taxes pay for Social Security and Medicare; it's listed as FICA on your pay stub. Typically, workers pay 6.2 percent of their first $106,800 in earnings for Social Security taxes, and they pay 1.45 percent on all their earnings for Medicare hospital coverage. Thats a total of 7.65 percent in payroll taxes for workers making less than $106,800.
But the employer also has to match those taxes, bringing total contributions on behalf of an individual to 12.4 percent for Social Security and 2.9 percent for Medicare. That means total payroll taxes for each worker reach 15.3 percent, the number Cain mentioned.
So most workers see only about half the amount Cain mentioned deducted from their paychecks.
(And for every tax rule now in place, it seems like there are exceptions. The exception in this case is on the self-employed. They are required to pay the workers share of payroll taxes and the employer share. So that group would be paying the 15.3 percent Cain mentioned.)
Also in Cains defense, many economists believe that if the government were to end payroll taxes, it would mean higher pay for workers -- maybe not immediately, but at least over the long run, because its part of the cost of labor.
Still, theres no rule or law that would require employers to give workers a raise equal to the employer's share of payroll taxes previously paid to the government. The taxes paid now are not considered part of workers wages in any formal or legal sense.
We have to add one other note of explanation thats particular to the current economic downturn. In 2010, President Barack Obama and Congress knocked 2 percentage points off Social Security taxes for workers, as an economic stimulus measure. So this year, most workers are paying 4.2 percent while employers pay 6.2 percent. That means the current overall number isnt 15.3 percent, but 13.3 percent.
One final note on the 9-9-9 plan itself: In our review of the commentary on Cains tax plan, we saw that economic analysts have said the Cain campaign needs to release more detailed information on the plan so that it can be properly modeled, to find out how much revenue it would generate and how it would affect taxpayers of different income levels. Cain said in the interview with Todd that he intended to release more information on the plan soon.
Cain said, "Every worker pays 15.3 percent payroll tax." That's not accurate. Workers only pay half that, with the exception of the self-employed, as we mentioned above. The worker contribution is normally 7.65 percent, and thanks to the payroll tax rollback of 2010, the number this year is 5.65 percent. You can reach that number only by including the half of the tax that employers pay. Some economists say that if the employers half of payroll taxes were ended, workers would see a proportional rise in wages over the long run. But whatever the case, Cain was talking about the reality today. Workers don't pay a 15.3 percent payroll tax, so we rate Cain's statement Mostly False.
Dear God are these fools delusional! The employer 7.5% is wages directly out of the employees compensation!
just because the tax in hidden doesn’t mean it doesn’t exist.
This is like saying since you don’t actually get the money before having it deducted for social security and medicare that you were never actually taxed.
The self-employed pay this much. For example, let’s say yer a tradesman,fill out a Schedule C, that’s what you have to pony up. If yer an employee you pay half this, the employer pays the other half.
Because the employer magically makes the other half appear out of nowhere... good grief. It also didn’t account for the fact the 9% replaces both payroll and income tax..
But when Obama says that 80% of Americans support his jobs bill, it is accepted without doubt.
just to clarify and no I don’;t want to hear from those who oppose or support and come out with lies, just straight answers please.
Does this mean the child tax credit which went up under Bush will be gone?
Does this mean all deductions will be taken away?
Does this mean 9% will go on top of existing sales state tax therefore 8% will not be added to the new 9% therefore 17% is added on what you buy similar to a VAT?
I’m under the impression that if you make less than 20 grand then you pay 5.75% tax but this will go up to 9%?
Just yes or no please as the last time I saw these threads it turns into accusations, arguments etc and I can’;t be bothered right now with arguing .
semantics...Obama’s rollback is temporary.
nothing like being stretch arsmstrong to try and prove some one is wrong.
The employer is paying half of the social security on behalf of the employee. i.e. if the employer did not have to pay FICA they could pay the employee that amount instead, with no increase in their total compensation for the employee. It was an attempt to make the bit on the employee not look as large as it is.
I do not like that FICA and Medicare are referred to as payroll taxes.
At one point, moderator Charlie Rose warned other candidates that mentioning the plan meant more rebuttal time for Cain. “If you keep mentioning 9-9-9 and Herman Cain, I’m going to have to go back to him every other question,” Rose said.
At what point did any moderator say about romney or Perry?
I guess Cain is not their pick.
If nothing else, the 999 plan will get more people to understand what a clustermug the current tax code is, and how many hidden taxes there are, and that will be a good thing.
Another freeper spreading liberal lies about Cain?
Why are yu doing this?
Another freeper spreading liberal lies about Cain?
Why are yu doing this?
Can you help us out by computing what a person with an income of $40,000 will pay in taxes under 9-9-9 and under the current tax code?
Say this person has 2 children and a mortgage, under current tax laws, he probably pays NOTHING in taxes.
How much would he pay in taxes under 9-9-9?
On another note regarding the 9-9-9 plan. When taxes are pushed to the consumption side from the production side, they are not as easy to hide. Politicians won't be able to hide behind withholding increases every time they want to raise taxes. When you pay it out of your pocket every time you make a purchase, you will question what the government is doing with your money. Perhaps that is what is needed to keep so many people from being apathetic. I've always thought that if you made every citizen write a check every April 15th, you would see pitchforks running toward Washington. This does the same. Raising it wont be easy for politicians because the impact on the electorate will be immediate and universal.
When I was in high school (40 years ago) I posed the idea that the employer payroll taxes really came out of the employee paycheck since it was a cost of employment.
My very liberal poly sci teacher argued with me. He had been the president of the local AFT. I shot back at him: If a employment taxes were axed tomorrow, wouldn’t you be on strike the very next day in order to get “your” share of that money? (I realized that these taxes are different for teachers, but I put him in the general case.)
Conclusion of the article: “Cain said, “Every worker pays 15.3 percent payroll tax.” That’s not accurate. Workers only pay half that, with the exception of the self-employed, as we mentioned above. The worker contribution is normally 7.65 percent, and thanks to the payroll tax rollback of 2010, the number this year is 5.65 percent. You can reach that number only by including the half of the tax that employers pay. Some economists say that if the employers half of payroll taxes were ended, workers would see a proportional rise in wages over the long run. But whatever the case, Cain was talking about the reality today. Workers don’t pay a 15.3 percent payroll tax, so we rate Cain’s statement Mostly False.”
Complete crap - it’s all a matter of interpretation. Since the employer is paying you your whole paycheck, and is also paying the FICA and Medicare match, you could make a better case that the employer is paying the entire 15.3%
Your income tax (well, at least my freakin’ income tax) is deducted from my check, via the employer. Does that mean my employer is paying my income tax? I don’t think so.
This whole “employee pays half / employer pays half” Social Security scam is a ruse to minimize the impact of that ill-designed system from the sheeple. These idiots are willing dupes in perpetuating that fraud.
“Ends nearly all deductions and special interest favors”
would that depend on what state they reside, for instance NH does not have a state tax where as NY does.
It could depend considerably I suppose on where they live.
Not really. If you have self-employment tax you get an adjustment on the front side of 1040 for half the amount you enter on Schedule C.
The situation described in the article is correct...to an extent. The following is from Circular E.
"The 2011 employee tax rate for social security is 4.2%. The 2011 employer tax rate for social security is 6.2% (10.4% total). The 2011 wage base limit is $106,800, unchanged from 2010. The 2011 employee tax rate for Medicare is 1.45%. The 2011 employer tax rate is also 1.45% (2.9% total). There is no wage limit for Medicare tax; all covered wages are subject to Medicare tax."
Thus, he is not quite correct. The employee total contribution is capped at $ 4,485.60 for SS with no cap for Medicare (1.45%). So, how much is the combination? Depends.
You pay half and your employer pays half.
If your employer didn’t have to pay it, you would receive it in wages.
For TY2012 FICA is 12.4% (both halves) and Medicare is 2.9%, total 15.3% for payroll. For a self-employed plumber in California who earns $70K, if you include all combined payroll and income taxes (FICA, Medicare, state, federal), the effective marginal income tax rate is 12.4%+2.9%+10.3%+28% = 53.6%.
“Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees’ wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG). The second kind is a tax that is paid from the employer’s own funds and that is directly related to employing a worker, which can consist of a fixed charge or be proportionally linked to an employee’s pay.” wikijunk
Correct. But it doesn’t amount to much off the total pain. And it’s one of a bazillion weird IRS adjustments, isn’t it?
The Current Tax Code vs. Herman Cain’s 999 Plan
Now = $40000
999 = $40000
Amount spent on non-taxable items = $15000
Amount not spent (put in savings) = $3000
Amount donated to charity = $1000
999 sales tax rate = 9%
999 income tax rate = 9%
Sales tax = $1444
Income tax = $3510
Total federal taxes = $4954
999 after tax income = $35046
999 effective tax rate = 12.39%
The 15.3% payroll tax is eliminated under the 999 plan. If you get a paycheck from an employer, then your employer pays half of your payroll taxes behind the scenes. It’s part of your pay that’s hidden from you in the current system. It is possible that your take home pay will go up under the 9-9-9 plan by 7.65%. If you checked yes on the calculator, it was added to your current income number (which is why the 999 income number is higher).
Remember, that money spent on things like a mortgage payment, rent, utilities, etc are not taxed as a sale. So, money you do not spend on over the counter purchases DO NOT incur the 9% sales tax, just the 9% earnings tax.
are you tring to freez a picture at an instant in time of what one would pay now and immediately under 999?
999 is not just an immediate proposal it is phase 1 of 2 phase plan. One must consider not just how much someone would pay in taxes, but how far what they had left would go. So if you spend every cent you make you will pay a federal (and in most states a state tax) for purchases of new items or services. (used are exempt) If you save for the future, you dont pay a federal sales tax only and income tax.
here is acalculator that might give a little info-caveat i dont know its veracity. I do know immediate taxes paid is only a small part of the plan, the economy will take off there will be 6 million new jobs your children will have a better prospects for a prosperous future than under current socialistic plans. If no changes are made do you think SS will be there for you and your children? This plan replaces the hidden taxes and increases the number of taxpayers from 50% to 100% . Yes some on the lower income levels may have to pay a little taxes, but consumer goods prices should come down also. Isnt it fairer to all that all pay something? It also takes the power away form Congress and gives it to the people where it belongs.
It seems that 15.3% figure is not far from the mark.
In this case, they won't allow Cain to include the employer's share of FICA and Medicare payroll tax in the cost of employment.
It costs the employer 107.65% of the employee's salary to pay salary and payroll tax for the employee. 7.65% of the salary goes straight to the government as the employer's share. The employer deducts another 7.65% of the salary for the employee's share of payroll taxes. Then deductions are made for income tax, medical insurance, 401k’s, etc., leaving quite a hole in the original salary. But 15.3% of the salary goes to the government.
Politifact is not a reliable source for determining truth.
RE: Amount spent on non-taxable items = $15000
What are these non-taxable items that a family making $40,000 in income would be spending $15,000 on? Could you give us some examples?
What items are NON-TAXABLE?
Did Cain give us any indication of what they are?
>>So most workers see only about half the amount Cain mentioned deducted from their paychecks.
And that is the problem! People actually believe that employers pay their payroll taxes and other benefits out of the goodness of their hearts. All of that is COMPENSATION....for your WORK (i.e. hours of your life that you will NEVER get back!). The FedGov has created a nation of fools who believe that a tax refund is like found money and that money deducted from your check was never yours to begin with.
We need a tax where everyone pays and everyone can see the full amount they pay so they can be mad, really freaking’ MAD, when they see how much of their life is spent paying for stupid “programs” and giveaways for political cronies and enemy nations.
Politifact is the demon spawn of the commie rag the St. Petersburg Times, or Pravda West as we like to call it.
They practically swallow their tongues any time they have to rate a Conservative FACT.
But for the temporary vote buying scheme reducing them by 2% this year, the payroll tax is indeed 15%.
ObamaCare calls for the TY2013 Medicare Insurance Tax top rate to go to 3.8%.
The kicker is that the new 3.8% rate includes not just payroll but all income, including all investment income.
Rent, a mortgage, utility bills, a car payment, school tuition, daycare, the list goes on.
RE: Another freeper spreading liberal lies about Cain?
Another FReeper who does not differentiate someone posting an article for discussion/debate/refutation and education purposes and someone who allegedly support liberal lies.
Listen, if you want to refute the so called lies, please do it, that’s the reason why I posted the article in the first palce.
Please don’t get personal with posters.
But Cain is a mathematician and rocket scientist . . . in an alternative universe.
Or maybe he's actually a virtual candidate visiting us from Sim City where the default tax rate is 9-9-9 and the pizzas all have extra toppings.
Or the employer could just keep it. As the article states, there's nothing that will compel them to pass that money along, and when they suddenly enjoy a windfall to their bottom line that comes from having their payroll costs go down by several percent, it's going to be hard for them to give it up.
It's similar to the offshoring of manufacturing. A hiking boot company changed their production from Italy to China a few years ago. Their labor costs dropped considerably. Has the customer reaped any benefit? Just the opposite: the price has remained the same while the quality has suffered. Eventually the brand equity they built up over years will erode, but in the meantime their stockholders and senior executives will cash in.
RE: Rent, a mortgage, utility bills, a car payment, school tuition, daycare, the list goes on.
Are you certain that these items are deductible from our taxes under 9-9-9? I thought 9-9-9 was supposed to SIMPLIFY the tax code.
If you’re going to include all these items as deductible from your taxable income then the only difference between 9-9-9 and the current tax code is the tax rate and nothing else.
I am not sure if you are correct in your understanding of 9-9-9 at all.
What reliable source tells you that these items you enumerated are deductible under 9-9-9? They can’t be because if they are, then the advantage of SIMPLIFYING our tax code in order for government not to interfere with our lifestyle goes out the window.
and if the employee is a good employee - guess what? the next employer vying for his labor will increase his wages to attact him!
Geez! are you people so ignorant of free market economics not to grasp this?
I agree, Years ago I worked in NYC and payroll taxes were defined as all the taxes taken out of your paycheck.
FICA - Fed Tax - Medicare - State Tax - City of New York Tax
All of those were called payroll taxes
6.2% OASDI payment (SS), 1.45% Medicare, paid by employee
6.2% OASDI Payment (SS), 1.45% Medicare, paid by employer FOR employee.
If this didn’t exist, there would be 6.2 + 1.45 % extra he could offer the employee in salary. As it is that amount is a benefit that is mandatory.
All in all it’s about 15.3%....self employeds have to pay it all.
There are no deductions from your tax bill - they go away. Sales tax is applied to over the counter sales, as it is today. You don’t pay sales tax on your mortgage or car payment or utility bill (you may pay some universal access taxes, but that is a different animal).
Employers also pay SUI and FUI out of their pocket. I would assume that SUI would continue but FUI would drop off. Several states also have to deduct for City Earnings Tax so that if you live in one state but work across the border in another, you pay this tax in the state where you are working. In some states each taxing entity - County, City, State - requires payment from the employer for each and multiple taxing entity reports are filed and paid at the end of the year. This has gotten absolutely ridiculous for the employer.
15.3% is what I pay.
They are not deductible. They just aren't a sale where sales tax would apply. Let's say you put $4000 annually into a savings account - you don't incur a sales tax on that money because no sale took place. This is the reason that it is completely absurd for people to whine about paying 18% on their entire income. It is not going to be the case - you don't spend all of your income in over the counter transactions, and those items don't incur the sales tax.
Correct me if I’m wrong, but aren’t the SS/Medicare deductions counted in taxable income?
In other words, If you make $50,000 and pay the 7.65%, or $3,825, isn’t that included in your total pay, making it $50,000. I believe that’s the case.
If so, assuming a, say, 20% income tax on the $50,000 (which would be lower on the primary earner, but higher on the second earner in a family) then wages are lowered not only to $46,175, but also by the $765 income taxes paid on the $46,175 (at 20%). This makes the employee share of total taxes equal to $3,825 + $765, or $4,585, or 9.7% of the original $50,000.
Adding the 7.65% employer share yields a total tax of 17.35% of the $50,000, not the 15.3% we’ve been using. Again, this is because the SS/Medicare tax we pay is also considered taxable income (I think.)
However, Employers are smart enough to figure the “cost” of the employee it is
Wages, Salaries +
Employee Payroll Taxes +
Health Care (in some cases) +
If for example, you remove BOTH 7.5 then the employer can raise the wage, and/or the employee negoitiate a higher rate.
For example the first year it's implemented, i would expect a 7.5% rasise, at least. If not, I would look for another employer (change jobs) for the increase.
That's the way COMPETITION works. It’s called Capitalism, it works every time. Big Government does not. Now the question is -- do we believe in Free Enterprise and the Capitalist system or Socialism and Big Government?