9-9-9 Plan Will Impose Sales Tax on New Houses and on Real Estate Services

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

Before getting too excited about Herman Cain's bold 9-9-9 tax plan, you might want to think through the consequences of how it will affect your real estate business and the industry as a whole.

Do your own research and let me know if you find my analysis to be off.

First, the 9-9-9 plan imposes a new 9% federal sales tax on all new goods and services.  Herman Cain's webpage explaining the 9-9-9 plan doesn't exactly say "goods and services", it doesn't say much at all unfortunately.  But his plan is to eventually transition to the Fair Tax. So on the Fair Tax site it does say "new goods and services".

That's a 9% sales tax on a new home.  How's that going to be handled?  If you buy a new $300,000 home you now will have to come up with an additional $27,000 along with your down payment and closing costs.  Sure they say that there is embedded tax already in everything that we purchase and over time, new house prices will come down.  That's fine if it eventually happens, but until it all works through the system, that 9% sales tax is going to be  a huge tax at current pricing.

Many people are used to paying a sales tax on physical goods only.  But this 9% federal sales tax is also imposed on services.  Isn't what we do as real estate agents a service.  So now a seller not only will pay an agent commission, but will have to pay a 9% sales tax on top of that commission.  For a $300,000  home at a 6% commission, the 9% sales tax on the  $18,000 commission would be $1620.  The seller can raise the price of the home by that much and make the buyer pay or the agent can reduce their commission by that amount in order to keep the commission the same.

Another very important detail about the 9% business tax is that wages are not deducted from the taxable income.  Even if you don't make a profit, you will have to pay the 9% on your revenue.  For example.  Let's say you have an assistant who you are paying $50,000/year.  Let's say that times are tough and you only bring in $50,000 in commissions.  So your profit is zero.  But wait.  You don't get to subtract out wages from your taxable revenue.  Even though you didn't make a profit, you have to somehow come up with $4,500 to pay the 9% business tax on your $50,000 business income.  What are you going to do?  You'll have to reduce your assistant's pay by the $4,500 tax you have to pay in taxes, so your assistant will only be paid $45,500.  So in effect, your employee is paying the 9% business tax.

Your employee will then have to pay 9% income tax on the $45,500 which will be $4095.  If the employee spends what's left, $41,405, they will only be able to spend $37,986 in order to have enough to pay the 9% sales tax ($3,419).

So when all is said and done, your $50,000 that you pay your employee leaves them only $37,986 after paying $12,014 in total taxes.  That works out to a tax rate of 24% for the employee. 

Under the current tax system, a family of four would pay $1963 in income taxes and $7357 in payroll taxes for a total of $9320 in taxes which works out to be 18.6% of $50,000.

Herman Cain has said that his plan has been analyzed by the experts who have confirmed that it will work.  So I naively thought that it would be a simple thing to pull up all the details of his plan so I could take a close look at the details to see how it will affect me and my real estate business.  Guess what?  He really hasn't put out a detailed plan yet so it's really hard to know much about it. 

He does have the basics outlined on his website.  I found it interesting that he says that the 9-9-9 plan is just phase one on the way to the Fair Tax, a 23% national sales tax.  I'm a political junkie.  I watch all of the debates.  I don't think I have ever heard him say that his 9-9-9 plan was the first step on the road to the Fair Tax.  Is it because the 23% sales tax of the Fair Tax is too much for people to swallow? 

The day after the Tuesday debate he finally released some new details about his plan to the media.  Unfortunately it was in an email to a reporter and not made public on his website. So one has to rely on the stories in the news and hope that they are reporting it correctly.  I don't understand why he can't post the details on his website for all to analyze.

But look this stuff up yourself and let me know if I'm off base here and you know something different.

Here's a good article from FactCheck.org that verifies my findings that there just aren't enough details out there to figure out exactly how this 9-9-9 plan will affect various people.  It is far from transparent.

Post Fact Checker.  Some good links to other analysis.

Another big thing to realize is that the 9% sales tax is a one time hit to all current savings.  All the money that you earned and paid taxes on already and have stashed away for future consumption, will now get an additional 9% tax on it when you go to spend it.  Let's say you saved $40,000 of taxed income over the past few years and now want to buy a new car.  Here comes an additional 9% federal sales tax on the income that you spend.  Savers get screwed again.

Herman Cain is a nice guy.  People seem to love the way he comes across as a straight shooter who's not afraid to say how he feels.  But unfortunately, his plan sounds good on the surface, but when you start looking at the details, it turns out to be a lot different than he portrays it to be. I'm all for tax simplification, this just doesn't seem good to me. 

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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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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

It's never going to happen anyway....but if it did, we handle it and I don't think that 9% on a new home (and that doesn't mean resale) is that big a deal. I would save a fortune by only paying 9% income tax

Oct 14, 2011 07:57 AM #1
Rainer
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Juan Bassett
Long & Foster - Germantown, MD
GRI

I tend to agree with Karen. I do thank you for your point of view.

Oct 14, 2011 08:03 AM #2
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Karen, it seems like many people think that they would end up paying a lot less taxes.  But if it's revenue neutral, if so many are saving, who ends up paying more?  Right now the top 10% of income earners pay most of the taxes.  So their taxes will definately go down because they are paying much more than 9% income tax and whatever the 9% sales tax would be.  It just doesn't seem to add up. 

Oct 14, 2011 08:05 AM #3
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Juan,  You don't see a problem with someone having to come up with another 9% when buying a new home? 

Oct 14, 2011 08:07 AM #4
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Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
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Tim,

Even if 9-9-9 thing was ideal, it sounds more like a marketing piece than economics. Simply because it is so symmetrical, that it is difficult to imagine it to be also working. At least, if it works, that would be not by design, but by surprise

Oct 14, 2011 10:48 AM #5
Rainmaker
125,653
Iran Watson
Georgia Elite Realty - Marietta, GA
Marietta Real Estate Agent - Photographer

Tim, 

I hope for all of our sake you are just reading into this...  Although I can't dispute you raise some very interesting questions.  Bottom line, Cain said himself that 999 expands the tax base.  In other words, people that are not paying taxes now will start paying taxes.  Am I for tax increases?  Nope.  Am I for a tax code that everyone can actually understand?  You bet, especially if it is just a stepping stone to the Fair Tax.  But there is more to it than that.  Freeing businesses up to start hiring and expanding again will, in theory, create new jobs and advance exiting ones.  So even though there will be those that will have to start paying taxes they should then be able to find a job to do so.  That is horribly simplifying it, I know.  The point being that with a healthy, growing economy with a transparent and simplified tax code, more jobs and more money for those that work isn't such a leap in logic.  

As far as real estate is concerned, we are only talking about new houses.  Once the shift makes its way through the standing inventory, who's to say builders won't just throw that in like they do closing costs, or upgrades, or other incentives they always market?  If in fact their embedded costs do go down, this shouldn't be that big of an issue.  As an agent that primarily sells resales anyway, I'm not overly concerned with this.

Something has to be done.  Our current system is broken and Cain is the only one proposing a fundamental change to this country's tax code.  You could take 100% of 'rich' people's money and still not stop the bleeding current spending and deficits are causing.  From what I understand some people will be paying more in taxes, but the offset is that a revived economy will provide them the means to do so. How else can you solve this problem?

Oct 15, 2011 05:32 PM #6
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Iran,  First of all, I do think the Fair Tax would be good.  I love the idea of getting rid of the income tax and the IRS.

Second, as I pointed out, this 999 plan is short on details.  It's presented like it has been all layed out and analyzed, but those details are no where to be found.  The most simple explanation for that is because they probably haven't thought through  many of the details yet.  They came up with and catchy name and now are trying to create the product behind it.  I am not reading anything into it more than what others who have seen more details have. I have provided links to my sources for you to delve into for yourself.  Please tell me where I am wrong with anything I have presented and I will be more than happy to be educated and make sure the truth is out there.

There's just no way that the majority of people are going to buy into a 23% national sales tax.  When that's presented to them, I think most people think that it's nuts.  All the 999 plan does is disguise it and make it sound better. 

If people get hoodwinked into doing this 999 plan and then balk at the next step, The Fair Tax, guess what?  We'll then be stuck with the income tax along with a new national sales tax.  And when that doesn't generate enough money it will be increased up and up. So if you want the Fair Tax, promote the Fair Tax on it's merits and let the people decide whether they want that or not.  Don't disguise it.  I think that's deceptive. Like Cain says, let's be bold.

This is how Herman Cain will get destroyed.  All that another candidate or Obama has to do is show people that the 999 plan is just a preliminary step to the 23% national sales tax.  I really don't think people realize that right now.  They just hear 999 and they think it sounds like really low taxes.

So when people push back and say they don't believe that the 999 plan is the road to a 23% national sales tax, all anyone has to do is point them to Cain's own website where he says that crystal clear.  That will be  a shock to most and they won't be able to trust another word he says.

But taxes isn't the major problem.  Spending is the problem that has to be dealt with.  If we cut government spending to balance the budget, then we can get the Fair Tax rate down to maybe 10%.  I think most people would take 10% national sales tax in a heart beat.  So if you need 23% to be revenue neutral, then cutting the government spending in half would get to close to the 10% mark.  All we need to do is get back to the spending levels of 2001. Give me a candidate who is bold enough to show people how he would cut govenment spending in half or at least balance the budget.  Then we can tinker with how we want to change the tax system. 

Oct 16, 2011 03:46 AM #7
Rainmaker
125,653
Iran Watson
Georgia Elite Realty - Marietta, GA
Marietta Real Estate Agent - Photographer

Well it seems among the things we do agree on, the fair tax is the way to go.  It's unfortunate that we can't get right to it, but we both know how incredibly easy it is to demagogue that plan.  Honestly, the jury is still out with me on Cain's 999 plan.  I see what he is getting at and he hasn't given me any reason to not trust him, yet.  

As far as cutting the budget, I'm with you on that one as well.  The problem there is the majority of the U.S. budget is spent on the military,Medicaid/Medicare and Social Security.  Cutting spending in half will mean massive defunding for these programs.  Go to cut anyone of those and the opponents pounce on you, especially Medicare and SS.  Its the proverbial 'rock and a hard place'.  Growing the economic pie truely is the only thing no one is against.  From what I'm told, 999 has a chance of doing that...   

Oct 16, 2011 06:21 PM #8
Rainmaker
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Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

Iran,  On the surface, it looks like Herman Cain can be trusted.  But when you follow things closely, you pick up on things that most others might never recognize because they haven't been following closely.

One big example is at last week's debate when Ron Paul asked him a question about the Federal Reserve.  First thing out of Cain's mouth is that Ron Paul misquoted him.  That seems to be is standard defense.  Cain said that he never called Paul or his followers "ignorant" and brushed everything else off because of this misquote.  Cain might not have called them "ignorant" but he did call them "stupid" and thought that the "stupid" questions about wanting to audit the Federal Reserve was a complete waste of time.   So you tell me, is that honest and trustworthy?  It's a tyical politician's response.

Here's the video.  http://youtu.be/brzhfkFFm_Q

Get his book and see where he calls Ron Paul supporters annoying because they keep asking stupid questions about auditing the Federal Reserve.

Herman Cain was all for the TARP bailouts.  Now he says that he didn't know that the way the TARP would be implemented would be so bad.  It shows you that he doesn't understand how Washington works.  You might say that he is naive when it comes to Washington.

He said in 2006 that there was no housing bubble and people are stupid to be worried about it.  Same thing in Sept 2008 before the current financial crisis.  Now he says that he will have good economic people around him giving him better advice.  Watch this video.  Look up Cain's articles to see how arrogant he was about his incorrect views at the time.  http://youtu.be/im1SANTdqA8

 

Oct 17, 2011 01:36 AM #9
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Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
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Thanks for the assessment Tim.  On the surface, I was quite excited by Herman's proposal.  Perhaps that because I'm also for simplifying the Tax Code or maybe because at least he had a different and somewhat new idea.  What you outlined here does make sense and is a shot in the arm to those who may think this idea will makes sense, let alone be better than the current system.  I like that his plan at least changed the conversation from just a conversation to folks coming out with ideas.  The more, the merrier.  I hope Obama also tackles this subject with his own ideas sooner rather than later as well. 

Oct 25, 2011 11:39 AM #10
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