Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
I have some bad news for the Occupy Wall Street crowd. Americans are angrier with the politicians in Washington D.C. than they are with Wall Street fat cats who are supposedly destroying the middle class. This was evidenced by the lively discussion on my recent post explaining Herman Cain’s ‘999′ tax plan, while my warning about excessive mutual fund fees prompted a whopping three responses.
So I dug deeper to determine what Cain’s plan would mean for you. My team of accounting and finance experts compared the likely tax burdens for various taxpayers under the current system and the “999″ proposal. We used the following assumptions:
Based on our number crunching, the Cain plan would benefit the majority of working people. Most single-filers earning $25,000 or more would pay fewer federal taxes under the plan. Most working families would also pay less. The exception: low-income households that currently pay little or no federal tax. If you currently don’t pay taxes… even one dollar classifies as more.
Here’s how it breaks down by household income level, assuming you are working with one dependent:
For retirees, Cain’s plan is a mixed bag. Single filers with less than $57,000 in annual income (including Social Security) would likely pay more tax under “999.” Same thing for married retirees whose income is less than $91,000. If you have income above those levels, you would pay less.
So even though there is no tax on social security under Cain’s plan, it still may not be advantageous for some low-income retirees due to the 9 percent on consumption of “new goods.” Most retirees are in a lower tax bracket than they may think. For instance, a retired couple living on $50,000 (of which $20,000 comes from Social Security) is currently taxed at a 2.6 percent federal rate. The same couple earning $74,200 pays 5.4 percent. Under the 999 plan, these rates would rise to approximately 10.5 percent and 9.6 percent, respectively.
Herman Cain’s tax plan is like any other –- it has winners and losers. If you are a working person with a good income, you should be rooting for “999.” If you’re a retiree of moderate means, maybe not so much. (As of last Friday, Cain’s camp intended to adjust the plan to make it more palatable for retirees and very low income households.)
I’ll keep you up-to-date if significant changes unfold. But for now, where do you stand on “999?”
– By Wes Moss, for Atlanta Bargain Hunter