Will Herman Cain's 9-9-9 Plan Put a 9% Sales Tax on New Houses?

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

9-9-9 is getting a lot of play lately.  Last night at the Republican debates in New Hampshire Herman Cain was getting it from all sides.

I've been trying to research the details to find out more specifics to see what it's all about.  I have to assume that under this plan, new houses and new cars will have the new 9% national sales tax imposed on them.  So now, in order to buy a new home, let's say $200,000, I not only have to come up with a down payment and closing costs for the loan, I will have to pay $18,000 in a sales tax?  How's that going to work? 

The big thing that I see is that it creates a new Federal sales tax without eliminating the income tax.  Someone asked him yesterday how he can ensure people that the 9-9-9 plan wouldn't become a 15-15-15 plan.  One of his responses was that as president, he would veto any attempt to raise the rates.  That's great, but what happens when he's not president? 

From his webpage on the plan , he says that this 9-9-9 plan gets us a step closer to Phase two, which is the Fair Tax.  It's funny that I haven't heard him talk about Phase Two when he explains the 9-9-9 Plan.   I guess the Fair Tax is a tough sell to many.  People hear about a 23% sales tax and they immediately reject it.  But isn't that a bit deceptive?  If you want to eventually get the Fair Tax implemented, why not be bold enough to come out and tell people what your intent is?  Why disguise it in some clever marketing? 

I'm for the Fair Tax.  I like it because it would abolish the income tax and it would abolish the IRS.  But trying to sneak it through incrementally leaves a bad taste in my mouth.  Creating a new sales tax while still having the income tax and IRS around makes me uneasy. 

I also can't see how it will be revenue neutral.  Herman Cain says that low income and middle income people will pay less in taxes.  So who is going to pay more in taxes?  The rich?  How does that happen?  If they pay 9% in income taxes and then spend all of their money, highly unlikely, the most they'll pay is 18%.  I'm pretty sure that millionaires are currently paying much more than 18% income tax.  So if everyone is paying less, how does it collect the same amount of money?   I'm sure there are various assumptions that they have plugged into some kind of computer models to make the numbers all add up but my simple common sense doesn't see how all the numbers add up.   I can only guess that maybe the extra revenue comes from big ticket items such as new houses being taxed. 

To me, this 9-9-9 plan is a gimmick to try to get to the Fair Tax  without having to educate the masses.  The Fair Tax is too easy to demagogue so they sell it in a different package.  Isn't that how they sold the people on the income tax?  Didn't they start the income tax at only 1%? 

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About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.

 

Along with blogging on ActiveRain, he provides one of the best real estate websites in Atlanta at www.HomeAtlanta.com .

 

His proprietary  "Maitski Line Reports" chart out the absorption rates over the past 14 years in 37 different market areas.  Know when it's a good time to buy or a good time to sell.    

 

His online Property Tax Calculator allows you to compare property taxes in many counties and cities around the Atlanta area.  He provides the Atlanta MLS Power Search Tool that allows searches of homes using over 35 specific criteria.

 

Over the years, Tim has optimized his business so that he now can offer a huge 50% commission rebate to his buyers.  The more experience one gets, the easier the job becomes.

 

Tim also has a "Five Days to Sold" System that uses an intensive marketing blitz to create a showing frenzy that creates urgency and offers.

 

Tim is always looking to LinkIn with anyone who is interested in building their social network.

 

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Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Everything should be on the table, but the pre-eminent thing is someone needs to be tough, and they need to cut spending.  That's the most critical item that needs to be addressed.  I wouldn't want 9% on homes... who would?

Oct 12, 2011 05:09 AM #1
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

I don't see why a home would be taxed under this plan, cars? sure...but they've always had sales tax associated with them, houses have not. I doubt this would change

Oct 12, 2011 05:13 AM #2
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Karen,  Since the 9-9-9 plan is phase one to get to the Fair Tax, I'm assuming that the sales tax part is going to be the same as the Fair Tax.  Under the Fair Tax it looks like new homes are taxes.  They go into long explanations on how in the long run it will actually be better for most buyers, but they do tax new homes at the full 23%.  Let me know if you find out something different.

Larry, You're right about cutting spending.  If we didn't spend as much, we wouldn't need to tax as much.  So until reduce the size and scope of government, all of these tax plans are just figuring out who pays most of the tab. 

Oct 12, 2011 05:23 AM #3
Rainmaker
647,193
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

Taxing a home purchase is not going to help stablize the housing market.

Oct 12, 2011 05:41 AM #4
Rainmaker
125,653
Iran Watson
Georgia Elite Realty - Marietta, GA
Marietta Real Estate Agent - Photographer

What a lot of people fail to realize is that there are already imbedded taxes in everything we buy.  In essence we are laready paying a tax on homes, its just not in the form of a sales tax but rather worked into the price of the home.  I too am for the fair tax and for some reason that key component always seems to get left out of the equation.

Oct 12, 2011 06:48 PM #5
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Iran,  I agree that taxes are already embedded in everything. But that is the system that everything has developed around, including financing.  I just wonder how you deal with the 23% Fair Tax on new houses?  They say the prices will go down due to the embedded taxes being squeezed out of the current system.  But you still will have to deal with that 23% sales tax at closing.  Will lenders agree to finance that as part of the mortgage?  Like I said, I like the Fair Tax but I don't like deceptive advertising.  Be bold and make your case for the Fair Tax and let it stand on it's merits.  But don't disguise it in some clever packaging in order to get people to buy into something that isn't what they think they are buying into.  It's what they are doing with ObamaCare.  They sell you on one thing and then you end up with something else that you never would have voted for upfront.

Oct 13, 2011 03:51 AM #6
Rainmaker
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Ron Marshall
Marshall Enterprises - Saint Michael, MN
Birdhouse Builder Extraordinaire

It will not only put a 9 percent tax on new houses.  It will put a 9 percent tax on services.....like brokerage fees.  Goodbye, realtors. 

Oct 13, 2011 06:41 AM #7
Rainmaker
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Ron Marshall
Marshall Enterprises - Saint Michael, MN
Birdhouse Builder Extraordinaire

Oh, and this national sales tax is on TOP of any local or state taxes.  Think about that.

Oct 13, 2011 06:43 AM #8
Rainmaker
560,561
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Ron,  It's amazing to me how few details Cain has released about his plan.  Like you bring up, are services taxed with a sales tax?  I went to try to look that up and I can't find that detail.  I found a story from yesterday that his economic advisor set Bloomberg News an analysis of his plan in an email to them.  He quickly lashes out at people and says that they are misrepresenting his plan and using bad assumptions but then he doesn't have the details out there for all to see.  It's a complete joke.

I really think that this will be his downfall.  When he's forced to put the details about his plan out there it's going to be seen as a deceptive piece of marketing and he'll come off looking like a snake oil salesman.

Oct 13, 2011 08:12 AM #9
Rainmaker
560,561
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

I found more information.  Apparently he is just leaking out minimal details about his plan, probably because he's just winging it right now. But here's the latest.

Mr. Cain made it clear Wednesday his plan remained a work in progress. Visiting Concord, N.H., he added several new wrinkles. He would preserve the deduction for charitable donations, making the flat income tax not so flat; he would exempt any used goods, including previously owned homes and cars, from the national sales tax; and

he would allow businesses to deduct new equipment purchases from their 9% corporate income tax, as long as the goods were U.S.-made.

Asked how that would apply to a computer designed domestically but containing Malaysian components and assembled in China, he replied, “I have no idea.

So if used cars and houses are exempted, one would have to deduct the new homes and cars will have the 9% sales tax on them.

 

Here's some details about services and business wages.

Cain’s tax plan consists of three different 9 percent taxes — one on wage income (investment income is exempt), one on sales of goods and services (including food, housing, and medicine), and one on business income (investments and purchases from other businesses are deductible; wages, however, are not). But most Americans will end up paying all three of those taxes, for a combined tax rate of 27 percent of their income.

Take note that the sales tax is not only on goods, but services also.  So does that mean that a seller paying a listing agent a commission for their real estate services will have to pay a 9% sales tax on top of that?  Will the Realtor have to collect that sales tax and submit it to the IRS? 

Also notice that business won't be able to subtract out the cost of wages that they pay.  Right now, if a business makes $300 and pays an employee $100 in wages, he pays taxes on the net profit of $200 (revenue minus the cost of wages).  But now the employer will pay tax on the whole $300 of revenue.  So that's an extra $9 in taxes for the employer and therefore he will only be able to pay the employee $91 in wages.  So in effect, the employee will actually be paying the corporation's 9% tax.  Either that or the corportation will have to raise the price of the product.  

Think about if you hire an assistant to help you do the office work.  Think this through.  To make is simple, what if you paid your assistant $50,000 and ended up making only $50,000 in commissions.  Your profit is zero. So you would think that you wouldn't pay any tax.  But you will have to pay 9% of $50,000 revenue, or $4500.  Since $50,000 is all the cash that came in, you are going to only be able to pay your assistant $45,500 instead of the $50,000 that you thought she was worth.  So who's really paying your 9% business tax?  It's your employee.  Then your employee gets to pay 9% on their income of $45,500 ($4095) which leaves them with $41,405.  If they spend this all they'll pay the 9% sales tax which is $3726.  Add it altogether and it comes out to $12,321 which is 27% of the $45,500 that your employee sees in their paycheck. 

The Washington Post did a "Fact Checker" on this plan and it gives some interesting analysis of it 

Herman Cain revealed that the brains behind his 999 plan is Rich Lowrie.  He said "He is an economist, and he has worked in the business of wealth creation most of his career."  Here is Lowrie's linked in profile .  He has a BS in Accountancy.  There's no degree in economics.  It sounds like he works for Wells Fargo as some kind of business financial planner.  It seems like a little puffery is going on here.

Oct 13, 2011 09:38 AM #10
Rainmaker
925,849
Ron Marshall
Marshall Enterprises - Saint Michael, MN
Birdhouse Builder Extraordinaire

His cracker-jack economics adviser is a bank manager from the local branch of his bank.  THE LOCAL BRANCH.  And, he doesn't have a degree in economics according to his own admission. 
They interviewed him last night on one of the channels.

Oct 14, 2011 06:53 AM #11
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