If you have never heard about the FairTax then I strongly encourage you to go to www.fairtax.org or to buy The FairTax Book by John Linder and Neal Boortz, in the meantime, if you read on you will learn the basic’s of it. Before I get started, I am admittedly a huge supporter of the FairTax, but in no way am I being paid to propagate it. I am merely a very vocal supporter and believer in the FairTax, which has the ability to not only turn our economy around instantly, but also put us back were we belong in the global economy-as it’s leader.
The FairTax (known as H.R. 25 in Congressional lingo) is a plan currently before Congress which replaces the current system of taxation in
To properly understand the beauty of the FairTax you have to understand 2 things first: free market capitalism and the fundamentals of our current system of taxes.
In free market capitalism the consumer (i.e. purchaser or buyer) dictates the success and failure of goods and services, as such this ideology puts you, as the purchaser/buyer, in a position of power. Unfortunately, most American’s either do not realize this or are incapable of accepting it as a supposed “leadership” role they do not want. Either way, whether you think it or not, as an American buyer, you have power in our economy, which is a great thing.
The current system of taxation in
At first, the American “Income tax” was set as a simple percentage where by American’s took how much they made each year, multiplied it by a set percentage and wrote the Fed a check for that amount. However it wasn’t long before Politicians discovered how vastly so “simple” a system of taxing incomes could be manipulated and once the idea of “withholding” came into being the current 60,000 or so pages of I.R.S. codes and regulations that we know of today were well on its way to reality.
What this has to do with you and the FairTax is quite simple really. You see, everyone-and every business and corporation-is taxed in some way by our Federal Government. Businesses-both large and small-consider taxes an expense and, like all expenses, they are incorporated into the cost of the goods and services that we, the consumers and purchasers, eventually pay for. Now, the people who have been working on the FairTax for the last 20 years or so have hired many an economist (of both a republican and democratic political ideology) to find out exactly how much of the price of goods we pay is in these embedded taxes prior to paying a state sales tax. The number they came up with varied depending on the industry from 22-26%, of which, the writer and supporters of H.R. 25-the FairTax bill-settled on 23%. (When thinking of this number, keep in mind the vast amount of taxes a business pays. Not only do they pay taxes on their incomes, but they also pay payroll taxes, workers compensation taxes and matching social security taxes to name a few other taxes that they have to pay, which is one big reason why it's so hard to start and stay in business in America).
What the FairTax does is this: it rewrites our tax code and removes all of these embedded taxes which you and I, as consumers, pay for anyways, and replaces them with the FairTax. What would happen is that, at the point of sale, the price we pay for goods and services would be cheaper before the FairTax (and your state sales taxes) are added to it. Because that 23% of previously embedded taxes has now been removed from the cost of what you are buying, the price you pay ends up being the same after the fair tax is added back on (in some cases it will be cheaper). One of the neat things is, that your receipt of sale or bill of goods will reflect this price and how much tax you paid to the Federal Government.
So what does it mean for you and I, the consumers? A lot; it means no more filling out of tax forms and filing a return every year. It means no more taxes on “interest earned” or “capital gains. It means that if you make $500 bucks a week, you keep $500 bucks a week. It means that, individually, we have control over how much in taxes we contribute to our Federal Government each year (not owe) because the tax we pay is based on our spending habits and not on our income. In a nutshell, it means real freedom for you and I.
For businesses it means even more (which means more for you and I as well).
For them it means no more payroll and corporate taxes, which would make it very desirable for companies to establish their regional and global headquarters in
Of course this is a very scaled down analysis of the FairTax and I’m sure you have many more questions about it, for which I would direct you to www.fairtax.org or The FairTax Book for answers…Hopefully you will become as vocal a supporter of the FairTax as I am, and help to make it reality so that we can take back control of our money from the government.
39 comments:
Your price analysis is dead wrong! You don't seem to understand that the 225 embedded costs include employee income taxes and employee payroll contributions (FICA). Those costs belong to the employee and won't be used to reduce business costs (payroll) for fairness and contractual reasons.
The best you can hope for is a 10% reduction in business costs by removing business income taxes, business share of FICA, and business compliance costs. After reducing costs by 10% and adding the 30% sales tax, prices have to rise by 17%. Simple math.
You are guilty of repeating a mcommon Fairtax myth, and you need to reconsider your position.
Mr. Dutchman has obviously never read the book and fails to understand how the FairTax works.
To Mr. Dutchman: YOUR analysis is the wrong one. The FairTax replaces 100% of ALL income taxes on individuals (this includes earned incomes on interest and dividend as well as Cap gains amongst others) AND businesses and corporations. If you had read the book, you would understand this. These taxes represent 22-26% of the cost of goods and service's that we pay at the point of sale, hence the 23% set rate of the FairTax.
Further Mr. Dutchman failed to notice that this post is simply about the basics and nothing more. However, either way, Mr. Dutchman is the wrong one on this issue as he, just like all those against the FairTax, refuse to believe not only the simplicity of how it works, but exactly what and which taxes it replaces.
Sorry Ryles, but you are dead wrong. Had you stuck to the "basics", I would not have commented. But, you tried to make a case that retail prices would remain about the same. That is not correct, and you now have demonstrated you have no idea how the 22% embedded costs were calculated, nor do you understand hopw the 235 sales tax rate was calculated.
For the latter, you need to read the 2006 Kotlikoff/BHI study entitled "Taxing Sales under the Fairtax--What rate work?" You can find a link by going to fairtaxblog.com and selecting Research, scroll down to Tuerck and find that study report. By the way, there has never been a study supporting the 235 rate contained in HR25.
As for embedded costs, the source is a 1998 study done for AFFT by Dale Jorgenson. He concluded that there was an average of 225 in costs due to the income tax system. He included both employee and employer tax costs in his 22%. However, he did not include tax compliance costs.
Employee income tax and payroll contributions are deducted from an employees gross pay, and belong to the employee. Those costs represent 60% of the embedded costs and will not be used by the employer to reduce costs for fairness and contractual reasons. Would you be willing to give up your withheld amounts in the hopes that prices would not rise? I don't think so! And neither would the unions! The most likely scenario is that workers would keep their current gross pay, and businesses would be able to reduce their costs by a max of 10%. After adding the 30% sales tax, retail prices would rise by 17%. (1.00 x .9 x 1.30 = 1.17). Simple math.
Your increased take home pay plus the prebate should offset any price increase, so "real" prices won't change much. Unfortunately, this would not be true for lower income retirees who pay no income tax or payroll tax, so their take home pay wouldn't be affected. The prebate wouold not be enough to offset the price increase in that case, and seniors would be hit hard by the Fairtax.
By the way, I have read and discussed both books on the Fairtax as well as all the research on the blog I referenced. Reading a couple of marketing comic books written by a radio talk jock and an obscure Georgia Congressman doesn't make anyone an expert on the Fairtax. I suggest you do your homework before trying to explain the details of the Fairtax. Specifically, you need to read HR25, the Fairtax legislation. You might be surprised at some of the details.
Dutch...
You and the formers of your quoted report continue to make the same mistake relative to the FairTax, and since we are not getting deep into this discussion, i will stop attempting to recommend that you read the book and address this myself with you.
There is fundamental to our tax system which you and those who wrote the report conveniently fail to recognize. In your case, i am not sure why you continue to blatantly miss it-you appear to be a well thought out person who has an interest in this issue but can't get over it's simplicity which i understand because it took me 2 years of research before finally buying the book and "getting it".
Your problem, as i see it, is simple from the standpoint of the FairTax, but complicated from yours. That problem is this: the tax system which are using as a basis for debating against the FairTax is REPLACED by the FairTax.
A fundamental part of the FairTax is in repealing the 16th amendment which is what gives our Federal Government the right to tax us to begin with (if you read the Anti Federalist papers you would know that our Founding Fathers were dead set against this during peace time).
Once the 16th amendment goes away, ALL of the taxes which you imply the FairTax cannot replace go away too.
Now, as for your debate on the % to which the FairTax is figured... If you go the website and look for the "white papers" you will find the studies conducted which figured out what that percentage should be.
You also said that my price analysis was wrong because i failed to understand that part of the embedded costs of retail goods includes the business/corporate payment of income and payroll contributions. It so happens that i understand these issues completely, and much more simply, apparently, than you do. These taxes are INCOME taxes. To a business, these are considered an expense, to an individual they are considered a lot of things from thievery on the part of our Federal Government to the "cost" of having a job in America (a ridiculous notion in my opinion).
Dutch, i am guilty of nothing except taking the time to help you understand the FairTax. You are guilty of buying into those who attempt to tear it down by using "fuzzy math" to make something that is rather simple, look over complicated. TRUE, our current system of taxation is very complicated-to the tune of 60,000 plus pages-but the FairTax is not, nor is it intended to be.
Again, i encourage to buy the book. It cost's 15 bucks and is very well written and a fast read (it only took me 3 total hours to get through it). However, if you choose to not buy the book, i will always be willing to help you too understand the simplicity of the FairTax and answer any questions you may have on it.
My only request is that you ASK questions and allow me to reply before attempting to debate me on them :)...
Thanks,
RR
RR,
The report I quoted as the basis for the Fairtax rate was paid for by AFFT, and the AFFT Director of Research participated in the study. Are you suggesting that the Kotlikoff/BHI report does not represent the Fairtax position?
I never suggested that the Fairtax wouldn't replace many taxes in place today. That's not at issue. The questions I raised were questions about your claim that prices would remain about the same. They won't! Not unless you state clearly that you would be willing to take a gross pay cut in the amount of your current income tax and payroll contribution amounts. Employee withholding was included in the 1998 Jorgenson embedded cost study which was the basis for concluding that, on average, the embedded costs are 22%. If you are willing to take a gross pay cut, then all the embedded costs go away, and retail prices would rise by only 1.4%.(1.00 x .78 x 1.30 = 1.014). And if that is fuzzy math to you, I'll be happy to explain further.
Please tell me that you understand that business taxes will be removed, but employee payroll withholding will not. The cost of business payroll will be unchanged (except for the employer share of FICA) unless you think we all will give up a substantial portion of our gross pay. If you just don't believe that Jorgenson included employee taxes in his 22% study, I can refer you to an email he sent years ago confirming his position.
As for repealing the 16th Amendment, don't hold your breath. That is a rocky road to follow. And,you might consider that all 50 State Governors are opposed to a national sales tax such as the Fairtax. And, HR25 lays a tax on State and Local consumption which is inappropriate, if not unconstitutional, under our republican form of government. Are you aware of the fact that 15% of the revenue needed to fund the federal government would be hidden in higher State and Local taxes? Is that really so transparent?
I'll say again that I own both books, and read and reread them. You don't seem to recognize that the books are marketing attempts that don't begin to tell both sides of the story. I told you where to find a good data bank of research, both pro and con Fairtax.
Cheers!
Dutch...
My apologies on my reply to you of earlier-i failed to take my own advice lol...(Before i get into this with you i can't believe you brought up that ridiculous 30% argument, and you say you have read the books?)
In proper response to your last posting: i have looked over HR 25 briefly, perhaps i will look over it in more detail later. However, how reading the book by the man who wrote the bill could be a negative i do not know.
Regardless, i have done much of the same research that you have, and will steadfastly disagree with you due to the following: 1) all of your statistical data is based on our current system of taxation which is flawed at best which leads us to 2) the FairTax replacing the 16th Amendment. This is why all the fancy lingo is needed in HR 25. There are thousands of little things in our current tax codes which you and i don't even know about and there are also import and export taxes to consider (which the FairTax DOES NOT replace). None of this language i have a problem with, and i don't see why you would either. But again, i honestly have not THOROUGHLY read HR 25.
3) i wonder how well you understand the fundamentals of FREE MARKET Capitalism. i say it as thus because far too many people fail to believe that in Free Market Capitalism you and i, as the Consumers, dictate prices. Under the FairTax, the real winners are the so called "mom and pop" shops which will easily be able to undercut those big box store prices because they will be more interested in capturing a bigger share of the market place. Even those big box stores may take this stance in an effort to take business from their competitors.
One think i think you and i can agree on is the possibility of laissez faire capitalism taking root here, but this possibility easily enough curbed under the FairTax.
i see several holes in your arguments Dutch which you are either afraid to address, or just don't possess the knowledge on. The first of which is the aforementioned impacts of Free Market Capitalism when all of the chains which hold it back are removed (i.e. taxes); 2ndly, your only attack seems to be based on the percentage which the FairTax is assessed. You claim that i don't understand how that number came to being just how deep it goes (at least that is how i take your argument's against me and my stance for the FairTax). On the contrary, i understand all too well that 23% could very well be much LESS than the actual amount of embedded taxes we pay for at the retail level. Further your stance is based on what is so obviously faulty math that i can't believe someone of your apparent intellect would fall for it. Regardless, as for the % they came up with, you and i could pay for a million such studies and most likely come up with a million different answers because our current tax system is so convoluted. What i do know is that FairTax.org spent $millions in the mid 1990's to find out what this % is and they hired groups from all over the political spectrum to find out. But again, i point to CHOICE to use a study which puts forth a faulty %. (Btw, i do appreciate your attempt to show how they came up with that number, it looks impressive, but how they actually came up with that number is by making the taxes embedded in the cost of goods and services relative to the price it cost to make them. For example, something cost's a $1 to buy; 23% of it is in taxes. 23% of a $1 is 23 cents. what is left is 77 cents. To those who are against the FairTax 23 cents of 77 cents is roughly 30%, hence the number they are coming up with, but again, if you have read the books and done the research as you said you have then i would think that you would have understood this difference already).
Anyways, there are many aspects of the FairTax which are positive and yet you fail to see them-such as the obvious job creation, the return of control over our own paychecks and spending habits, the blatantly more money in our pockets every payday etc, etc... But i will leave those for another discussion with you, if you are up for it that is :).
RR,
I'm up for discussions on any Fairtax issues you may want to bring up.
Let's start with your comments about my buying in to the 30% argument. Do you understand that retail merchants, after reducing their costs by possibly as much as their current income and payroll taxes, plus their compliance costs, must add 30% to arrive at their final after tax retail price? Many like you seem to believe that 22% in embedded costs come out and 23% goes in. Wrong on two counts. 22% doesn't come out unless everyone is willing to taske a gross pay cut as I explained. And 30% must be added after reducing costs in order to arrive at an inclusive price. Don't take my word for it, just go to the AFFT site and read the FAQ that is fourth from the bottom. Case closed!
I'd be happy to debate issues such as jobs, control over our money, and choices as to how much tax to pay, all of which border on Fairtax myths. But first, here is a short quiz which may determine how much you really know about the Fairtax:
The following are some Fairtax statements I have heard or read over the last five years. You are probably familiar with most of them already. Please read each of them and consider whether they are true or false.
(1) HR25 abolishes the IRS and the IRC.
(2) There are about 67,000 pages in the Internal Revenue Code and supporting Regulations.
(3) A sales tax inclusive rate of 23% would be revenue neutral.
(4) The after tax price of retail purchases will be about the same.
(5) The “prebate” is a tax refund paid in advance.
(6) Your dollars will purchase more under the Fairtax.
(7) You choose when and how much tax to pay.
(8) Everyone will be economically better off under the Fairtax.
(9) Interest bearing investment and debt instruments are not taxed.
(10) There is $10-$15 trillion of US owned assets in offshore accounts.
(11) Buying “used” goods, (tax previously paid), eliminates the tax costs from the sales price.
(12) A national sales tax would have no impact on State and Local governments.
(13) FICA payroll deductions are a tax.
(14) The Fairtax will save Social Security.
(15) The Fairtax is progressive.
Good luck!
You challenge me to give you a true or false to 15 items which are true under the FairTax with the obvious notion that you have some sort of magic hat response which will say otherwise. That is very sad Dutch, and here i thought you possessed some intellect. You see, anyone can come up with a negative about anything. Heck, if i were a liberal (which i am assuming at this point that you are) i could tell you about how bad breathing air is right now thanks to all the pollution we have pumped into our atmosphere over the last 300 years or so. So, using that sort of irrational mindset, what you did was take the one and only negative report on the FairTax-which the organization who supports it and the writers of the bill were honest enough to make public on their OWN website and latch onto it because you don't like the FairTax for whatever reasons i do not know, but i can sure guess at them.
i'll leave that where it is for now and address your continued supposition that 30% and NOT 23% must be added.
*sigh* You are either a very poor business man; a very greedy business man; or a lobbyist fearing like hell for their job because you will be out of one if the FairTax gets passed, in which case i sympathize with you, but if it is either of the former that is your tough luck.
You are utilizing illogical mathematics to support your argument that businesses will 'must take a pay cut'-how, and why? We are talking about TAXES here, NOT the real cost it takes to produce and distribute goods and services in America. Anyone who owns a business-myself included-knows that the taxes that they and i pay are an EXPENSE that i must equate into not only the price of what we/i sell my goods and services at, but the value for which i can assess to my employees. Once i don't have to equate the cost of taxes into both my employees and the price at which i value my goods and services, my prices will naturally drop-as will my competitions, unless of course i am a greedy son of a bitch and prefer to pocket them instead. The resulting price drop is therefore passed down to the price you and i, as consumers, would pay at the cash register. i am obviously not going to go any further on this issue because, despite your thinking otherwise, i understand exactly what you say, and unlike you, i get that your argument has NO bearing on the issue of taxes. What you are talking about is the cost of production and distribution of goods and services BEFORE the addition of taxes are included, which is your ignorance, and not mine, showing through. That you have chosen to think this way, i cannot help, but that is your choice and not mine. i own a business by which i deal with business owners every single day who love the FairTax because they understand what it means to the cost of their conducting business-it drops by between 20-25% depending on the business for which they are in.
(continued)
You have stated something to the effect that unless businesses are willing to take what you have called a 'gross pay cut' then all those taxes that a business has to pay go away. That which you call a 'pay cut' is not being a business owner to begin with, so this argument holds no merit as well as you are trying to compare apples and oranges on this particular issue.
You also seem to be under the delusion that the FairTax would NOT eliminate withholding taxes related to employees. Where you get this notion i do not. Such taxes are a result of the 16th amendment and the legality of being able to tax individuals and businesses on INCOMES and earnings. Once this system is replaced with the FairTax these taxes will of course go away. How you can see them as existing after wards i do not know, but that is your problem not mine.
Again, your failure to understand very simple things related to this issue is your downfall. You assume that there is something more to this than meets the eye because you have made the conscious decision to embrace the ONE report which the makers and supporters of the FairTax fairly and openly grant you access too so has to have a balanced opinion of it and it isn't even balanced because it is the ONLY such negative report to be found.
Now, just for fun, i will address a couple of your 15 silly's at the end of your last post:
#1 Of course it does. Both of these bodies are necessary for 2 reasons: one, they are based on taxing incomes and 2 they are needed to verify all those 'returns' and 'forms' we must fill out at the end of each year (which all go away under the FairTax). Will there be a need for a regulatory body to make sure that businesses are turning over their collected tax on behalf of the Fed under the FairTax? Of course, but it will not cost our nation billions a year to fund, $100's of billions to comply with and employ 100's of 1000's of people.
#3 Actually, in the long run, when everything is equated, that rate, if it stays, would generate a profit.
#9 Since they are excluded by the FairTax-DUH of course they won't be.
#10 Is easily provable and, i dont know about you, but as someone who has personally spent more than an hour or 2 in the presence of more than one Billionaire and many many dozens of people worth 10's-100's of $millions and has spoken with and heard them all complain that they hate having to keep the bulk of their money in off shore accounts because our tax system punishes them for being wealthy...
#11 Since the FairTax clearly states that it is collected on new goods and services, i fail to see your point...
And the rest i leave unmentioned because of time restraints at the moment, but i'll finish with...
#7 Are businesses with higher priced goods going to force me to buy their products, thereby forcing me to pay more in taxes? i think not. This is a stupid point raised by someone who is refusing to think logically and rationally about a simple concept on something they disagree with.
No offense Dutch, but you have failed in your arguments against the FairTax because they are all based on closed minded and faulty suppositions relative to it.
RR
RR,
I am a conservative, Republican New England Yankee, an MIT alumnus, and spent 20 years as an Air Force officer and pilot, 20 years working Government Affairs for a major aerospace firm, and the last five years spending many hours daily in retirement studying, reading about and discussing the Fairtax. A Liberal I am not!!!
As for the 30% added to a business cost to arrive at an inclusive price, you must be mathematically challenged? I showed you where the Fairtax experts wrote that 30% is correct, but you don't seem to get it. The fact remains that if the retail business adds only 23% to their costs, they would go out of business very quickly when they have to send 30% in taxes off to the Treasury. Check it out with a math major and maybe you will understand?
You wrote "Once i don't have to equate the cost of taxes into both my employees and the price at which i value my goods and services, my prices will naturally drop-" From this, am I to assume that you would reduce all your employees gross pay by the amount they pay in income and payroll taxes? Because that is what it sounds like. If so, you are in a small minority who believe they can ignore employment contracts and other fairness issues, and reduce their entire payroll costs at the expense of your employees. The vast majority of Fairtax advocates believe that gross pay will remain the same, prices will rise, and "real" prices will be about the same due to the added income from the prebate and the elimination of tax withholding. The original Fairtax myth about keepin all your pay and prices remaining about the same has been clearly refuted. There is no "free lunch"!
Your claim that business costs might drop 20-25% can not be true. I can only deal with averages across all businesses, because you are right, each business is different. However, using 2007 data, businesses paid $435 billion in their FICA share, $291 billion in corporate taxes, and $265 billion in compliance costs. With retail sales of $9.5 trillion, on average across 20 million businesses, FICA contributions were 4.5% of sales, income taxes were 3%, and compliance costs were 2.5%. Add them up and you will see that businesses actually paid 10% of sales in taxes on average. You may have business owner friends who think they could save 20-25%, but that isn't true across the whole spectrum of businesses. The numbers don't lie!
I certainly don't understand your calling the Kotlikoff/BHI report "negative"? It was bought and paid for by the Houston Fairtax team, and is the basis for many of their positions. You want negative reports, I can recommend several from the list I referred you to on fairtaxblog.com. But Kotlikoff is one of the biggest Fairtax supporters. Do your homework!!
As for my quiz, all those claims about the Fairtax are false, so if you believe all are true, you have a rough journey ahead as you learn about the Fairtax details. I'll handle them in a separate post.
Cheers!
RR, sad to say you don't seem to know very much about the Fairtax and HR25. I would have thought you would be unwilling to just drink the Kool-Aide, but it seems you are willing to accept claims from a marketing book without challenging any of them. Here are the facts.
(1) HR25 abolishes the IRS, but the IRC remains intact after removing four of the eleven Titles and substituting the Fairtax Titles. Forgive me for what might be considered a trick question?
(3) There is not one study anywhere that supports the claim that 23% would be revenue neutral. Most independent studies show the rate would be at least 30% inclusive and higher. If you have a study reference that claims otherwise, I'd like to have it.
(7) Your ability to choose when and how much tax to pay is severely limited by the need to stay alive. In a typical family budget, half of the spending is for services, and there are no used services. There are no used groceries, no used restaurant meals, no used gas or heating oil, no used stuff at Wal-Mart, etc. etc. Used purchases are limited to buying a used car, boat or house, and possibly used clothing and small appliances. But the key here is that when you buy used, no tax goes to the Fed, but you won't save any extra cash over what you might save by buying used today. Used good prices will quickly adjust to the new/used relationship existing today. Think about it as the "embedded costs of the Fairtax".
(9) You need to read HR25, Section 801-806 and learn about the implicit tax provisions. Depending on the applicable Treasury rate when compared to the rate paid for debt instruments or investment instruments, the implicit tax penalty would be quite significant. I can provide examples of both if the language in the bill is confusing.
(10) There is not one shred of evidence that $trillions in American owned assets are parked offshore to avoid taxes. This is a Fairtax myth of the first order. According to the Tax Justice Network, a group that tracks offshore holdings, there is $11 trillion in offshore wealth, but it is not owned by US citizens. Only $1.6 trillion is owned by North Americans, and there are 23 sovereign countries in NA. The best estimate for US owned wealth is less than $1 trillion, and much of that wealth is not easily relocated. In 2004, a tax amnesty program was offered in an attempt to lure some of this wealth back to the US, but little came of it. If you can locate a reference for the $13 trillion, I'd like to see it.
(11) See the answer to #7. Do you really believe that a buyer of a new car that has a 30% tax cost would just forget about the sales tax when he goes to resell the car? Not hardly! As I wrote, I call it the embedded cost of the Fairtax. Buyers of used goods will, in effect, be helping to pay the original sales tax. Yes, the Fed won't get any new tax revenue, but no, you won't get any windfall savings. If you want to buy used underwear from Goodwill, be my guest, but you won't save any additional money from the situation in effect today.
Any other questions on the remaining nine items?
Dutch...
*sigh* Sad to see all of your education go to waste. You continue to cling to a percentage which i have already proven faulty to you and yet you fail to see it.
i have shown you that the one and only report you cling to for your defense is an island unto itself, and yet that has no impression on you...
Dutch, i am sorry, but i can no longer continue this conversation with you. Your logic may be sound, but it is based on skewed numbers from the only report out there which says that the 23% required for tax neutrality would actually have to be 30% (which, as i've shown repeated, is false).
You say you want me to point you towards those reports which say otherwise then do as i have and go to www.fairtax.org, find the white papers and you will find every single report that the American's for fair taxation paid for out of their own pockets in the mid 1990's.
As for me "drinking the koolaid"...How you can think that i do not know, you have read my blog beyond this post i am sure, so how could you possibly think that i didn't thoroughly research the FairTax before ascribing to it? As an FYI, i did nearly 2 years of research and listening before i even bought the book, which was only very recently because there was a common sense thing i kept missing because, like you, i was reading much more into the FairTax and HR25 than was necessary.
It's simple, and a business owner myself i know why and how it will work.
(continued)
As for your rebuttals...
#1 The IRC remains intact ONLY if the 16th amendment isn't repealed. In which case i would assume that the IRC would take over collection duties of the FairTax
#3 Again, read the white papers, there are several reports which, if you can drudge through them, give varying degrees of a 20 something % of embedded taxes in the cost of goods and services.
#7 Wow, you really proved how faulty your logic is here Dutch, it's almost embarrassing to have to do this to you, but: A) this is what the prebate is design to cover; B) Every specificity which you mention in here would be cheaper at the point of sale under the FairTax, but you don't see that b/c you are stuck on that stupid 30% number which is a falsity based on relativity and not the real numbers.
#9 i will read HR25 thoroughly and don't worry i will be able to understand all of the lingo :).
#10 Actually there are plenty of ways to find this out, but personally i have already stated some experiences which point to the fact that the most wealthy of us put their money in off shore accounts to avoid the tax burden. However, i'm sure that the World Bank or the IMF has some statistics on this that are least close to the real numbers.
#11 Actually yes i do, but it will take time. Why do i think this? Because used car dealers will not reimburse you for that tax b/c they will have no way to collect it. This will in turn reset the bar on the value of popularly resold items. Is this a good thing? We won't know for years if it will be or if it won't be, but Capitalism has a way of working these things out in time, which is one of the great things about it.
Dutch, let me take a wild guess: you would prefer more of a Freidmanesque type of change to our tax system wouldn't you?
RR,
I agree that our exchanges may have to come to an end. Frankly, many of your comments are condescending, insulting and ignorant in that order. Reinforces my long held belief that youth is indeed wasted on the young!
Before parting, I'm going to try one last time to convince you that retail merchants have to add 30% to their costs (plus profits) in order to arrive at a 23% inclusive retail price. You don't seem to want to accept the input from the Fairtax experts in their response to a FAQ on this issue. So, lets see what happens if you add 23% to your costs.
Let's assume that you and all other businesses reduce your employees gross pay by an amount equal to their income taxes and payroll contributions. (Ain't going to happen, but for this exercise it doesn't matter.) Starting with a $100 widget which you sell today, you can reduce your costs 22% by removing employer and employee related taxes. Your new cost is $78.00. Now you insist that you add 23% to your costs to determine the retail tax inclusive price. So, the selling price including tax is $78 x 1.23 = $96(rounded). You collect $18 and send it off to your State Treasurer.
Now, that $18 is supposed to represent a 23% inclusive tax. That means that the $18 should be 23% of the retail price of $96. But, dividing $18 by $96 results in an inclusive rate of only 18.7% Oops, you didn't collect enough tax revenue. That letter in the mail to you from the State Treasurer is to inform you that you owe them an additional 4.3% of sales in taxes. There goes your retirement plans!
Just to double check the math, let's go back to that $78 cost for the widget and add a 30% sales tax. Your selling price is now $101.40 and you collected $23.40 in tax revenue. Now, divide $23.40 by $101.40 and you will get a 23% inclusive rate. And the State Treasurer is happy.
I hope this helps you to understand what has to happen at the cash register. Ignorance may be bliss, but in your case, ignorance is bankruptcy.
Cheers!
Dutch...
You know what is funny, your little math exercise above was the very first thing about the FairTax which i came up with to try and knock it down, but, it doesn't hold up to me personally for 2 reasons.
The first is that age old theory about relativity, and i for one like the way John Linder words it: "Whether you want to say it's 30% of the cost to produce it or 23% of the retail price it's still the same amount of tax you have to pay". In sum, no offense, but get over it :).
My 2nd reason relates to the way in which this simple math formula is applied, but again, no offense, but i'm just too lazy at the moment to get into it.
As for my comments...i will admit to some condescending remarks on my part because i am frankly shocked that someone of your apparent intelligence would take the stance on the FairTax which you are, and then using the methods which you are to support your position.
As for insulting or being ignorant- it could have been all to easy for me to be very insulting to you, but i wasn't. The ignorance you perceive is simply a matter of relativity to our differences of opinion on this issue.
As such i will sum it up this way: The FairTax is simple, will cost us NOTHING more as tax payers, to implement or pay; it will produce 100's of 1000's, if not millions, of jobs in its first year of implentation; will save our nation nearly half a $trillion annually in compliance costs; will permanently stabilize our economy; will bring power back to the people and accountability back to our nationally elected leaders; and will make the USA a tax haven for millions of people around the world.
All of these are benefits to the FairTax, and if you can find me another system which will provide so many pluses then i would be happy to hear it. Otherwise, i am happy to be a vocal supporter of the FairTax and will be more than happy to pay it every time i CHOOSE to buy something :).
RR,
I couldn't care less about the 23/30% arguments. You are right in that it is the same amount of tax revenue. But what we were discussing was your insistence that a retail business would add only 23% to his costs in order to arrive at the tax inclusive retail price. That just isn't true, and I have shown you repeatedly why. I will "get over it" when you freely agree that the right percent to add is 30%. That is just not debatable and is consistent with the quote you attributed to John Linder. What say you?
Let's discuss the millions of jobs you predict in the first year. You may be right, but there is an opposing view to consider. If you agree that whatever one taxes, you get less of it, then why doesn't taxing consumption reduce consumption? And reduced consumption means reduced production, which means fewer, not more, jobs. Just a thought.
As for the USA becoming a tax haven, I need to remind you again about Sec. 905 which taxes foreign businesses, and Sec. 801 which taxes both investment and debt instruments. Have you read and understood those two key Sections?
Good luck in choosing how much tax to pay. I checked my last years budget and couldn't find one single "used" purchase. How about sharing your used purchase history with me? And don't forget, buying used stuff under the Fairtax doesn't save you one thin dime over the current new/used relationship. Repeat after me, it's called the "embedded cost of the Fairtax"!!!
We have had a pretty good exchange, so I want to leave you with an alternate plan, just so you won't continue to believe that I'm just an old nay sayer.
I call it Fairtax-Lite and it is based on fixing all the Fairtax isses that I discovered over the last five years. Fairtax-Lite is a 12% national sales tax with no exemptions, no prebate but retains the EITC at a fraction of the prebate cost, no inventory tax credits, no taxation of government consumption, retains the payroll tax as well as the gift/estate taxes, and phases in over five years. If you really want to get rid of the IRS, my plan has a much better chance of Congressional approval. Try it, you may like it!
Cheers!
Dutch...
On this 23/30% debate we are having: in no way am i going to give up my stance. Why? Because the rate is assessed as 23% of the RETAIL PRICE. This means a lot of things, but, most importantly, it's not my problem-its the retail establishments problem. They are the ones who have to report their revenues to the Fed and turn over the tax they have collected for them.
Your 2nd point is a bad one because under our current system of taxation we are taxed on our abilities to produce-i.e. the more we make (produce) the more we pay. Additionally, taxes are embedded in every level of economy. No, i'm not implying we have a VAT, but seeing as how the company who mined the ore is taxed, the company who bought that ore and manufactures it into something is taxed, the company who distributes that product is taxed, the broker who arranges the deal between the manufacture and retail outlet is taxed, and of course the retail outlet is taxed, i'd say that system creates much less value out of our producing ability. To look at this another way: the more ability we have to produce, the more jobs we will create and the more money we can make.
On the Tax Haven issue: your argument relies on corporations, specifically, keeping their HQ's overseas. If we had the FairTax how many would relocate here to save on their Corp tax burden's? A conservative estimate would be dozens in the first 2-3 years (in my opinion). For evidence we have to look no further than Ireland which has the lowest Corp tax rate on the planet and is the only country on the planet who hasn't suffered near double digit losses in GDP's during the current global recession.
As for your FairTax-Lite idea...
One of the biggest problems with our current tax system is that it taxes EVERY manner of acquiring wealth-from inheritance to capital gains to being a good producer. Base logic should tell you that this bad economic policy. No offense, but i wouldn't go for your FairTax "Lite" idea because, to begin with, it isn't across the board "fair" :).
As for finding that % rate under the FairTax, i addressed that at the beginning of this reply, and this is where i think your personal stumbling point is with the FairTax.
The rate is assessed as a % of what you and i would pay AT THE POINT OF SALE. Of course this means that stores could set their prices however they wanted, so long as they gave 23% of the price back to the Fed. Of course, if you choose to take the "half empty" view of this, then businesses will try to rape you and i at the cash register, but with all of embedded taxes removed from production costs, the chains which restrict free market capitalism will have been removed and this will allow those who sell their goods and services for the lowest price-so long as they are still of comparable quality-to steal large shares of the marketplace from those who try to over price them.
As for that Congressional approval you mentioned. You are right in that it is a tough haul for the FairTax, but i have said so during our discourse and i will say it again: the fundamental flaw that our Congressional leaders have with the FairTax is that it forces accountability back on them-something they have fought hard to prevent since the 16th and 17th amendments helped create the political and economic mess we are in. And, just an FYI, these are not talking points i'm stealing from Boortz. It just so happens he has been voicing them for years while i have been doing my own research into some of the causes for the way America is the way it is today relative to where it was when we were still considered THE greatest nation on the planet :),
RR
RR,
You still don't get it! 23% of the retail price is the same as 30% of the business cost. If you can't understand that simple math, I give up! Retailers have to add 30% to their costs in order to have the tax be 23% of the retail price as required by HR25. Ask any 5th grader, and you will understand that I'm right.
You clearly haven't read and understood Jorgenson's 1998 embedded cost of the income tax study. Had you done so, you would realize that Jorgenson assumed that employee gross pay would be reduced to the current net after tax withholding. That assumption has been rejected by almost every economist who has looked at the Fairtax. There are just too many contractual and fairness issues associated with cutting the gross pay of employees. I've asked you before, would you reduce your employees gross pay in order to possibly reduce your costs? Do you think the unions would agree? What would you do about the obvious conflict with minimum wage laws? The most likely scenario is that gross pay will stay the same, prices will rise on average 17%. and the prebate and increase in take home pay would make everyone whole with the higher prices. What that scenario means is that all the embedded costs won't be removed as you seem to believe, just an average of 40% of Jorgenson's base.
Companies relocate some of their operations overseas for a variety of reasons, tax avoidance being the least important, imho. Access to markets, access to raw materials, access to lower cost labor, and the necessity to provide offsets which are an increasingly important element in international trade, all are legitimate reasons to locate out of the US. I don't look for any tidal wave of US businesses returning to the US. Time will tell!!
What do you find unfair about Fairtax-Lite? Just curious.
Dutch...
Actually i completely understand your argument based on Jorgenson's study. What i am saying is that i disagree b/c both his and your math is faulty in 2 primary ways in which i've already pointed out simply and logically to you, how you and Jorgenson can possibly see it the way in which you do, i fail to understand b/c it is an illogical approach to the mathematics of being in business. This again points to my assumption that you (or Jorgenson for that matter) have ever owned a business or employed someone. i DO own a business, and although i don't employ anyone but myself, i deal with other business owners every day who DO have employees. Those who have heard of the FairTax and studied all agree: the FairTax not only decreases their cost to do business, but it also levels the playing field between them and their corporate competition.
The people whom i speak have done their own research; have looked at all the good AND bad studies and have run their own numbers and this is what they KNOW will happen.
As i have continued to state, the report you base your beliefs about the FairTax on is based on faulty math and faulty logic.
The math, as all math, is easily worked in either of our favors. The fault of the logic is obvious: you and Jorgenson continue to operate under the illusion that the FairTax would be a business EXPENSE. This is not true, and once you drop this line of logic you will see what i have been trying to tell you and i am still trying to explain to you.
Today, our current tax system-one based on incomes-is considered a business EXPENSE. As an expense it has to be equated into the COST OF conducting a business. Once this COST is removed how does it in anyway relate to being an expense at the business level? It doesn't because it is no longer an expense that businesses have to account for.
Another point of logic where your argument fails is in that it is based, in part, on our current tax system-which is replaced with the FairTax, so any math utilizing our current system to knock down the FairTax fails right there...
(cont)
As for why i find your "lite" version unfair; that is simple-it still taxes earnings in some way, which i am fundamentally against. Whether it's an inheritance tax or a tax on "gifting", a tax on anything that is a plus to someone is counterproductive and that is proven, i think, but capitalism :),
RR
RR,
(1) Please identify the report which you claim I base my understanding of the Fairtax on?
(2) Please explain just why the Fairtax isn't an expense? Sending a 30% sales tax off to the State treasury sure seems like an expense to me?
(3) I agree that the Fairtax will lower your business friend's costs. But what do they think is going to happen to their retail prices?
(4) What are the two primary ways that you believe Jorgenson and I are mistaken?
I assume you are not stupid, and I have been trying to figure out why you continue to deny the obvious. Something you wrote gave me a clue which I'd like to explore. All of my arguments about what tax rate should be used were based on the assumption that all businesses would want to retain the current status quo with regard to profits. However, you correctly wrote that it's up to the business owner as to what price to charge.
Looking at the HR25 mandatory sales receipt, you will notice that it shows the item cost, the tax paid, and the tax inclusive percentage (23%). If a business owner decided to try to eliminate the competition, he could understate the cost, send off 30% of the revised lower cost to the Treasury, and price his item lower than the competition.
For this reason, I can forsee total chaos in our business world as the "rich" businesses try to eliminate tha marginal businesses. Obviously, no retail business can price at less than cost for long, but given a healthy bank account, they could make short work of any of the weaker competition. The resulting chaos would mean significant job losses and unemployment in the short run, and much higher prices in the long run as the survivors try to recoup their "investment".
You might want to ask your retail business owner friends if such a scenario is likely, and if they would want to play that game?
If this isn't the reason you cling to the position that business owners don't have to add 30% to their costs, then I have to assume you are mathematically challenged? There can't be any other rational reason, imho.
Ugh, Dutch, you continue to show, to me at least, that you fail to understand what i am trying to explain.
1) Jorgenson's report.
3) As the book and formula proves, their prices will stay the same.
2&4) i'm not going to repeat myself Dutch, i've already explained both of these. The FairTax IS NOT an expense, as our current taxes are. And how you can construe that it is, i know not b/c THEY DO NOT HAVE TO PAY IT and this is where you and Jorgenson miss the proverbial boat. All that retail outlets do, as the FairTax is concerned, is COLLECT it and then turn it over to the Fed. Until you can rationalize this simple, but albeit important, fact about the FairTax, you will continue to believe as you do about it and i will be continuing to beat my head against a wall to convince you otherwise lol,
RR
RR,
I think you have completely lost it. The idea that businesses don't have to pay the sales tax is just crazy. All businesses will have to have sent 30% of their gross sales to the government as a tax. And be able to prove it to the appropriate sales tax agency inspectors. No, they don't "pay it", presumably the consumer does unless the retail owner wants to try to cut the competition as I suggested.. But the retail business owner has to collect the 30% tax and pay it or go directly to jail.
If you are going to continue to state that prices will remain the same, then have the courtesy to also admit that you and your friends are planning to reduce all employees gross pay to their current net. Otherwise, your position makes no sense. The only way to reduce employer embedded costs other than their own income taxes, payroll contributions and compliance costs, is to reduce their payroll by an amount of current withholding. Again, you have a right to take that minority position, but have the guts to say so! Otherwise, business costs can be reduced a max of 10%, and prices will rise by 17%.
Jorgenson's report is indeed the basis for everyone's understanding of the embedded cost of the income tax system. If you have any other studies on the subject, please tell me where they are? What is there about his study that you disagree with Be specific, because you are talking in circles lately it seems to me. Have you even read his report? I doubt it!
Dutch,
A. It's 23% not 30%, no matter how you choose to view it, H.R. 25 makes it very plain that the percentage assessed is 23%.
B. i do not know what your major at MIT was, but you obviously are not a business owner so therefor have no understanding of cost/expense ratio's as it pertains to establishing price criteria for the product or services you sell. However, i refuse to repeat myself a third time on this issue. You can think i have lost it all you want, but as a business owner whose business it is to deal with other business owners the FairTax has ZERO affect on wages in the negative, and your support for saying so-that businesses will be forced to lower wages to cover the loss of withholding makes no logical sense. Yes, you and i could spin those numbers to say so, but the real, practical world of business proves otherwise. And again, you are basing this logic on a system which will not exist under the FairTax as it replaces all of these systems.
Dutch, you continue to miss a basic principal of the FairTax and your arguments to support your stance are what is causing this circular conversation. By assuming that 'withholding', of any form, exists after the implementation of the FairTax is causing this misconception by you. You are either unwilling, or logically unable, to comprehend the basic notion that the tax system currently in place which produces the situations which you are trying to predict under the FairTax, simply will not exist b/c the FairTax replaces all taxes on incomes of any kind as well as payroll and FICA contributions (which, again, are only made possible by our current system of taxes).
Dutch, i'm sorry, but you have no point to stand on in this regard b/c the basis of your argument simply would not exist under the FairTax.
RR
RR,
You are correct. In the context I used it, the percentage should have been 23%, not 30%. My mistake.
I did not say that businesses would be forced to lower wages to offset the loss of withholding. That makes no sense. What I said is that businesses would have to either lower wages or raise prices in order to offset the sales tax. As I understand your argument, you don't believe Jorgenson's embedded cost study results, and I recall you claimed that businesses embedded costs would be around 20-25%, which when removed would be replaced by the 23% Fairtax.
For your business or the businesses run by your contacts, that is certainly possible. But national averages do not support your claim as I previously explained. To repeat the simple facts, using 2007 data, retail sales were $9.5 trillion, business income taxes paid in 2007were $291 billion or 3% of sales; the business share of FICA was $435 billion or 4.5% of sales; and compliance costs were $265 billion or 2.5% of sales. Add them up and the embedded costs of the income tax system comes to 10% of sales on average across 20 million businesses. It doesn't matter what your personal experience was, the nationwide numbers don't lie.
The 10% of sales average tax burden means that either prices have to rise by 17% to cover the 30% sales tax, or costs have to be further reduced (for payroll, for example) in order to stay in business. As a business owner, surely you can understand that? How else could you send 23% of sales off to the Government without going bust?
Dutch,
You also forget payroll taxes and matching Social Security contributions in your run down, regardless...
i've been avoiding using the business math in this argument but after thinking hard about where you (and the report you use for the basis of your stance) get this assumed 17% price increase, i see that i have no choice; so here goes :): for the sake of saying, i own a store than sells nothing but 20oz bottles of coke. Under our current tax system i pay $1.10 for EACH bottle of coke and then turn around and sell that bottle of coke for $1.39 (these numbers are actually pretty close to the real thing). That 29 cent price difference by me is my profit margin and it includes ALL of my expenses and the profit i like to make on each bottle i sell-in this case we will say i like to make 10 cents a piece b/c i'm greedy lol. This is the price i am forced to sell at to cover ALL my expenses and to make my desired profit due to our current system of taxation.
Under the FairTax this all changes.
Under the FairTax, those bottles of Coke aren't going to cost me $1.10, they are going to cost me closer to 90 cents a piece instead. On top of this cost savings of purchase of my goods MY costs have also decreased, so that the 29 cents which i had to add to the price of bottle i sell also shrinks (by probably close to a dime). Admittedly, these numbers are in way exact, but i know that they would be close, so lets do the math: the new retail price of my bottles of soda is .90+.10(the amount i pocket for each bottle)+..15(my new adjusted expenses incorporated into each bottle. This number is probably higher than it really will be, but i'm being safe for your sake)=1.15. 1.15 x 1.23 (the amount of the FairTax the Fed COLLECTS at the point of sale) and you get 1.41-just 2 cents higher than the price i had to sell them at BEFORE the FairTax.
This is how the FairTax works. By now, you may be saying to yourself that my math looks very similar to your math, but my math comes out in the favor of the FairTax, and yet, i didn't "skew" any of the numbers in my favor, so, why?
It is simple, really, and it is something i've been trying to logically explain to you for the last 3 days w/out having to resort to the math lol.
i've stated all along that it is obvious to me that you and Jorgenson have never owned or ran a business and this is why: because the math that you have been using (which i have assumed you achieved from his report) comes up with businesses needing to either increase prices by 17% or cut cost's elsewhere by an equal amount, to cover this increase in taxes passed down to the consumer, but it has been obvious from the beginning of this conversation that both you and Mr. Jorgenson weren't equating the tax savings at BOTH ENDS of the retail establishment: the savings they now get when they buy their product, AND the savings they can pass down to the consumer due to the changes in their embedded costs they added before putting it on the shelf. Specifically, your math appeared to me to be forgetting the savings on the profit margin side-the amount that the retail establishment added before selling it to you and i...
(cont)
Now, of course, there are several other factors to consider into this. For example, coke and pepsi may collude to pocket the savings they could otherwise pass down to me at the retail level, therefore forcing me to buy at 1.10, only allowing me to pass the savings of what i save thanks to the FairTax down to the consumer. But if this happens, then i am going to look for a cheaper brand of comparable product (something which many other retailers would most likely do), so coke and pepsi aren't very likely to do this.
On the plus side is the greed factor incorporated into each bottle of coke i sold. In my case, i choose to make .10 cents a bottle because even i got taxed on my income so that for me to make what i wanted i had to put a higher number in than i actually would have liked too b/c i'm a nice guy and love my customers. So, now, with the FairTax not taxing my incomes, i'm more than happy to only put 5 or 6 cents per bottle of profit into my pocket because my lifestyle stays the same, thereby allowing me to lower my price further and to perhaps under price my competition thereby creating a larger market share and more $$ in my pocket anyways.
Dutch, if you can't understand that this is how the FairTax works, then i can't help you. This is as plain as i can make it and this is exactly how those who own businesses or run large corporations know it will affect them and it's why so many of us love the idea and are very vocal supporters of it.
RR,
On the contrary my friend, I did not ignore FICA contributions as you claimed. Please read my factual explanation about how the max business cost reduction is 10% on average across 20 million businesses. Payroll contributions were included.
Turning to your Coke example,
(1) I doubt that you can drive 20% out of your costs, a percentage that is double the national average. But even if you could, that doesn't change the clear fact that average cost reductions are 10% based on actual 2007 tax revenue data. I can't argue with your anecdotal scenario, but it doesn't matter. At this point, we can only deal with averages, not specifics. And (2) While I don't expect you to agree, you can't add 23% to your revised costs and get a 23% tax inclusive price. One last time, the simple math is that you have to add 30% to your costs in order to arrive at a 23% inclusive price. You really need to come to grips with that simple concept. Of course, if you would simply scrap the inclusive sales tax baloney, then 300 million Americans wouldn't need to reeducated about sales taxes.
In reading your comments, I think you are approaching another Fairtax myth called cascading embedded taxes. Once Fairtax folks discovered that the most likely scenario was for employees to keep their gross pay and businesses raise prices, they took a new tack. I began to read that the 22-25% embedded costs savings were due to the business costs only, which cascaded upward through the various levels of production
.
Now, pay attention. Dollar cost savings do accumulate at each level of production, but cost reduction percentages do not. The simple reason for that is that the tax is only applied to the value added at each level. It doesn't matter if there is one or ten levels of production, the percentage cost savings remains the same. And, based on the 2007 actuals, that percentage is 10%.
Forgive me if that wasn't the direction you were headed, but it seemed that way to me.
Just a footnote, but if the 20 million businesses are as enchanted with the Fairtax as you claim, where on earth are they? I have seen little or no Fairtax support coming from the business community. Could it be that business don't much care because they simply pass tax burdens along to consumers? Just wondering where businesses are?
RR,
My arguments about the 30% are not based on the current tax system, but simple math that is not debateable. For the last time, if you sell a widget that costs $1.00, and add $.23 in tax as you insist, does the resulting price of $1.23 represent a 23% inclusive price? Absolutely not. For God's sake, just get out your hand held calculator and divide 0.23 by 1.23. The result is an 18.7% inclusive price. Add a 30%tax to the $1.00 cost and you will see that that results in a 23% inclusive price as required by HR25. You don't seem to have any idea how to come up with inclusive prices, and any advice you might give to fellow business owners is false. Retail merchants have to add 30% to their costs in order to get a 23% inclusive price. Period!
Adios!
Dutch,
i must apologize...i had to delete my last too replies to you because after reading them this morning they made no sense to me-that's what i get for trying to reply to you while doing multiple other things at once. What i was thinking i have no clue, but i learned a tough lesson that's for sure. Anyways, now that i am focused to the task at hand and paying closer attention to what i am doing allow me to address your post (properly) of yesterday afternoon. Again, i am sorry for my brashness and bad logic of those posts-it is embarrassing. Anyways, moving on...
A. you are right about the inclusive way in which to apply the math, this is my fault and i apologize (again, i was multitasking and paying much more attention to the other things i was doing at the time). Regardless, it's a 23% tax.
B.Driving out nearly 20% of the costs of retail goods as a result of taxes is rather easy. But, before i get into that, what you essentially described was a VAT-which we do not have, and no, this is not how tax is applied through the various economic streams (i.e. different sectors of our economy)-at least not the 3-4 that i have experience with. In America, the tax i pay at one level, i pass down as an expense as part of my "mark up" to the next level. The next business then adds their mark up to the price i charged them and so on and so forth until it gets to the retail levels. Generally speaking, because distributors deal with large quantities and sell to multiple customers their markup is composed of proportionately more business expenses than at the retail level. As such there is very little "value" added to the product as it flows towards the retail outlet because they are making their profit based on quantity.
As a business man this is something which i understand and something that you and Jorgenson obviously do not. Once equated into the formula (very difficult to do, i'm aware, but possible) the cost reduction can easily equate to the 23% inclusive tax which HR 25 creates. (Again, here i point to the many taxes you are not aware which all businesses must pay and which all businesses incorporate into their pricing structure-this includes taxes on the businesses income as well).
This, in turn, leads me too you saying that the 22-25% reduction is "baloney" as it is derived from business costs. Again, this is where it becomes obvious that you are not a businessman. Taxes are considered an expense, i.e. COST of doing business. They are equated into the price of everything bought throughout the economic stream as well as what you and i buy at the retail level. So, all those reports which you read which described the 22-25% reduction in prices this way did was too support the FairTax properly and show the ignorance of the writers relative to what business costs and expenses really are.
If you come back later, i will properly reply to your last point of this particular post: that cost reductions do not accumulate up stream, but right now i must get some other work done,
RR
RR,
Now it's my turn to apologise to you for a dumb mistake I made in a previous post. I've been discussing Value Added Taxes on another blog, and my mind got off track when I wrote to you about cascading embedded costs. The key sentence with the error is this one: "The simple reason for that is that the tax is only applied to the value added at each level." It should have read that the cost savings at any level can only be applied to the value added at that level. That is why dollar cost savings do accumulate or cascade, but percentage cost savings do not. Sorry about the confusion!
No problem Dutch, but you must understand that you are still wrong in this regard because due to fact that each level of the economic stream adds its own costs before selling the product to the next level, and that part of those costs are the taxes they must pay as a business, then taxes are being taxed just like with things such as Social Security pay outs (which are taxed) and unemployment pay outs (which are also taxed).
i've thought hard about how i can help you understand why the 23% which the FairTax is assessed at is legitimate and unfortunately the only way i can help you is to do something which i didn't want to do, but obviously i must. So, here goes...
Using my business model again where i sell 20oz coke's, let's say that one of my employees makes $400 GROSS a week. I happen to know that more than 10% of my mark up on products is in taxes, but i will use that 10% because that is what you believe. That means that in a week, i have a $40 tax burden for this ONE employee (knowing that i have a %7.65 matching SS tax on him, i know 10% is way less than what it is but i'll roll with this for your sake).
Remember my sale price is $1.39 and 29 cents is my markup on each bottle i sell. IF this employee which i have a $40 a week tax burden on can sell 1000 bottles of coke a week, the percentage of MY markup that is represented by HIS tax burden that I have to pay for is 12% PER bottle (4/29...you get it).
Now let's expand this a little bit and say that my TOTAL payroll for a week is $2500. 10% of that is $250 of which i have to equate into my mark at point of sale to cover my tax burden for my employees. Too keep that % at %12 i have to sell 625 bottles of coke. IF i sell fewer bottles, then the % of my tax burden as part of each mark up must be higher.
i'm hoping that at this point you begin to see the complexity of just how involved equating how much embedded taxes we already pay as part of the cost of what we buy is. When you are dealing with a retail or service business, such as a restaurant or CVS, you will have to spread the tax burden of 60-75 employees across all the products you carry-many of which don't sell but once a week or month (in the case of a drug store).
What i'm getting at is that your 10% works just fine-if you are operating on a 1 to 1 ratio and with product that moves consistently. But in the business world this is not the case.
Many businesses carry products which they may only sell one of once a week while other products move at 100's per day. The mark up's on these products are, of course, very different, but the point is that the Tax Burden is NOT spread evenly at 10% amongst them. In fact, in doing a little research to explain this too you (fortunately i dont have to deal with taxes and their cost relationships in what i do) greater %'s of tax burden are equated into the costs of more commonly bought items b/c that is where it is most likely recouped by the retailer.
(cont)
This same problem applies at all levels of the economic stream: In the case of distributors, many of hundred's of employees and therefore 10's of thousands of dollars a WEEK in tax burden to pass down to the businesses they distribute too. To get to a fair % of their mark up they must move 100's of thousands of product a month just to stay competitive. However, b/c the tax rates they have to pay are fixed, businesses either have to either lay off employees or cut profit's to stay in business and/or stay competitive, which is where the FairTax wins hands down.
By removing all these taxes from the system, and making the consumers pay them, Capitalism is allowed to work freely without the Laissez Faire model which lovers of that crack pot Milton Friedman espouse.
Now THIS is the best i can do to help you understand how the FairTax works in the practical business world: mark ups from each level of the economic stream have the tax burdens of these businesses embedded into them; this leads to taxes being taxed as the product moves through the economic stream; these taxes, combined with the taxes that all retail business owners must pay should make it very easy for you to see how that 10% you keep carrying on about is unrealistic and how the 23% which the FairTax claims is much more so.
RR
RR,
Sorry about the delay in responding, but my security system has a problem with your site. I'm ignoring it and I don't know if it is your problem or mine. Hope I don't crash and burn?
Nice story you fabricated to try to explain why business embedded tax costs are 22-23%(?) rather than my 10%. The problem with your analysis is that it doesn't hold up under careful scrutiny. Using the 2007 federal tax revenue data, businesses paid $291 billion in business/corporate income taxes, $435 billion in matching FICA contributions, and compliance costs in 2007 were reported to be $265 billion, not all of which is business costs, but I'm not able to split those costs between individuals and businesses, so for this discussion, the whole $265 billion applies to businesses only. Retail sales, including durable goods, non durable goods, and services amounted to $9.5 trillion in 2007. As I have repeatedly noted, the simple math shows that the total business federal tax burden for those three tax costs was 10% of sales. Unless you can identify significantly more business taxes that are to be replaced by the Fairtax, there is no way that the business tax burden can be 23% as you tried to show. Your story makes no sense!
If business federal tax costs were 23%, then the fed should have received .23 x $9.5 trillion or $2.185 trillion in 2007. Actual revenue added up to $991 billion, less than half as much as your analysis would show.
On average, business costs might be reduced by as much as 10% and prices have to rise by 17% after adding the 30% exclusive sales tax. If you want to adopt a position that you and every other business owner in America would reduce employee gross pay by the amount of their current withholding, then the retail price rise would be less than
2%. But, that is a very unlikely scenario based on labor contracts and fairness reasons which I have mentioned previously.
Do the simple math and I think you will have to agree that business tax costs on average are 10% of sales, not 23%.
Linda and I are one and the same!
Dutch,
My math is fine, your's is not: you are referencing retail sales of a business to the tax they pay, which again points to the fact you have never had or run a business.
The ONLY taxes pertaining to retail sales which businesses have to pay are state sales taxes.
All payroll, income, FICA, SS and unemployment contributions have no correlation to the amount of "sales" a business does, but to the total payroll and amount of INCOME a business makes.
As such, if you are going to take the taxes businesses pay as proportions and %'s of taxes or %'s of national retail sales, then you have to do so relative to THEIR earnings or to the % of the overall tax collections of the Fed (i.e. including personal incomes).
Also, i think you are forgetting that the Fed reports 2 tax numbers: the one BEFORE deductions and one the after.
RR
RR,
Another condescending and blindingly ignorant post. Do you even read the nonsense you put forth?
Taxes as a percent of sales is the only legitimate method you can use to determine what cost reductions might be made when the taxes at issue are removed. And the taxes at issue are business income taxes and business payroll contributions. The additional cost of compliance is also an important cost which would be removed.
I have shown you how in 2007, business taxes and compliance costs were 10% of sales. The only way you might increase that cost percentage is by reducing payroll rather than letting your employees keep their gross pay.
By the way, I have owned and operated a yacht leasing business, which has nothing to do with anything. If you can't grasp the basic math involved here, then sign off and we are finished!
Good luck!
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