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Posted on 09/07/2005 5:15:28 PM PDT by Man50D
NEW YORK (Money magazine) - If you don't care much for talk radio, or you don't live in the South, the name Neal Boortz might not ring a bell.
But pay attention: Around 4 million people nationwide catch his radio show. It's No. 1 in Boortz's home market of Atlanta and ranks first or second in numerous smaller cities in red states.
His 180-page polemic for radical tax reform, The FairTax Book, made its debut at No. 1 on the New York Times' bestseller list in August.
When Boortz came to Jacksonville for a book signing at a downtown hotel on a sticky, sweltering Thursday night last month, close to 1,000 people turned out for a chance to meet him -- and to bask in his rage at the Internal Revenue Service.
"How many of you want the federal government out of your paycheck?" asks Boortz from the hotel's ballroom stage. Wooo-hooo! roars the crowd. Boortz's wife Donna, standing at the back of the room, looks on in amazement.
"This is for taxes," she says. "This is not sex and violence we're talking about."
No kidding. Everybody likes a tax cut, but fundamental tax reform is one of those issues that's generally as boring as it is important. Who wants to waste an evening thinking about marginal rates? But the plan Boortz is selling is disarmingly simple: Just eliminate most federal taxes -- income tax, Social Security tax, corporate tax, what's left of the estate tax -- and replace them with a big, fat national sales tax.
(Excerpt) Read more at money.cnn.com ...
I like parts of the fair tax and parts of the flat tax.
However there is one group that the fair tax ruins.
These are the people that have saved their money, bought stocks,mutual funds,Roth IRA's, have paid taxes on that money and appreciation all along and then will have to pay 23+% on anything they buy with that money.
Double taxation.
And that is a large percentage of the population.
Another point, I think a 23+% tax on a car or home will present a 'sticker shock' that will kill retail sales, esp. in the short run.
It would certainly drive up the price of used items since they would be tax free. ( supply and demand)
Especially when you consider the fairtax includes taxing services, which is really a tax directly on the fruits of ones labor. Hardly something a Judge in 1800's would have gone along with as Constitutional.
Actually you raise some legitimate concerns, but don't expect a fairtaxer to admit it.
There's less sticker shock than you imagine since used cars or homes are no taxed.
In addition, the prices of taxable items will actually decrease with the FairTax as the cascading, embedded tax costs which artificially raise prices presently will be removed with the FairTax causing prices to go down before any tax is applied. Overall prices probably won't change much.
Right now under the income tax, these artificially raised prices will be paid on anything and everything you spend money for which affects all of us while under he FairTax you have some things not taxed and can at least control the timing of your consumption.
Presently many savers are hit with different types of taxes even before they spend any money in addition the the "hidden taxes" of the raised prices. Used items are typically cheaper now than new ones so it's hard to see a reason why this would not coninue with the FairTax.
And which economists are you basing that bold prediction???? Jorgenson?????
I did.
Unless you read a different fairtax bill and also have a different definition of a VAT.
There is also a book that has been written about the fairtax and the model for the bill.
Exactly. The demand for used items will skyrocket as will their price. No one wants to pay the 'fair tax'.
Can you imagine paying 23+% on a $200k home?? Or even a $35k auto?
I wouldn't. New home and auto sales will die.
In addition, the prices of taxable items will actually decrease with the FairTax as the cascading, embedded tax costs which artificially raise prices presently will be removed with the FairTax causing prices to go down before any tax is applied. Overall prices probably won't change much.
Were you around during the 'sugar crisis' circa early '70s?
The price of sugar skyrocketed. Soft drink makers raised the price of soft drinks, a lot.
But guess what? They raised the price of artificial drinks also. Even though they don't contain sugar.
Depending on industry to drop their prices because they have come into a tax-less windfall is... I won't count on it.
Define 'embedded taxes'. Are these only corporate taxes? Do they include individual income taxes? This is an area where much fudging occurs. Taxes paid by businesses are only a fraction of total revenues. Most taxes paid directly by individuals.
May I direct you to this thread?
http://www.freerepublic.com/focus/f-news/1483320/posts
It is concerned with gas prices and who is making the excess profits.
Gas and oil prices are something we all can follow, ie., price /barrel, gas futures.
How are we going to keep track as to whether a mfgr. has lowered their price for an item when we have no idea of the savings?
Believe me, any savings will not be passed on to the consumer. Maybe a small portion to keep the 'masses' quiet.
Exactly, but you ought to read the article, because the article finds a huge discrepency in what fairtaxers say and what their researcher says. Fairtaxers misrespresent these embedded taxes by some $1.3 Trillion. Boortz says he'll 'fix' this in later revisions. There is nothing in this book I haven't heard 100 times.
Actually (looking at your original post on the subject again) it sounds as though we are really saying the same thing - the FairTax is not a VAT and cannot be morphed into one.
And that was specifically designed that way due to the difficulties associated with the VAT plans.
Most people realize that the present tax system causes prices to be inflated by what are called cascaded, embedded tax costs which increase with each level throughout the production/distribution chain. These costs are composed largely of business income taxes (not just corporate income taxes as some of you have claimed) and compliance costs. To show how this inflating of prices works, let's take a couple of examples originally given by one of the SQLers with the claim that:
"Here's the way one really calculates embedded (cascading, hidden, pick-your-favorite-term) taxes."
While that is hardly true and my original example was simpler, we'll use the more complex example to illustrate just what happens. Let's take two examples, one with an income tax rate used by Scubhapter C corporations in 2001 (34.4% marginal rate) even though the example applies to a business in general and not just a corporation. In addition, we are not considering any payroll/withholding taxes or compliance costs ... merely business income taxes.
level 1 2 3 4 5 6
initial cost revenue $2.01 $4.05 $8.15 $16.40 $33.01 $66.44
$1.00 cost $1.00 $2.01 $4.05 $8.15 $16.40 $33.01
tax rate profit before tax $1.01 $2.04 $4.10 $8.25 $16.61 $33.43
34.40% tax $0.35 $0.70 $1.41 $2.84 $5.71 $11.50
net profit $0.66 $1.34 $2.69 $5.41 $10.90 $21.93
net profit % 33.00% 33.00% 33.00% 33.00% 33.00% 33.00%
accumulated $0.35 $1.05 $2.46 $5.30 $11.01 $22.51
tax paid
tax cost as 17.31% 25.91% 30.18% 32.30% 33.36% 33.88%
% of revenueNote that in this example the intention is to get a 33% net profit and see how the "tax cost as % of revenue" builds up in only a few levels. In addition, let's say the example represents the classical "bread" example with: L1 = Farmer, L2 = Miller, L3 = Baker, L4 = Distributor, L5 = Grocer, L6 = Consumer. As can be seen, by the time we reach L6, the embedded tax ("tax cost as % of revenue")has reached 33.88%. This would mean that the consumer is paying a very healthy step-up in the price of bread due solely to embedded tax costs.
At any rate, taking the example and setting the net profit to 10% and using the very common (and perhaps even low) tax rate of 25%, you STILL end up with something like 14.4% tax costs as a % of sell price at Level 6.
level 1 2 3 4 5 6
initial cost revenue $1.15 $1.33 $1.54 $1.77 $2.04 $2.36
$1.00 cost $1.00 $1.15 $1.33 $1.54 $1.77 $2.04
tax rate profit before tax $0.15 $0.18 $0.20 $0.24 $0.27 $0.31
25.00% tax $0.04 $0.04 $0.05 $0.06 $0.07 $0.08
net profit $0.12 $0.13 $0.15 $0.18 $0.20 $0.24
net profit % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
accumulated $0.04 $0.08 $0.13 $0.19 $0.26 $0.34
tax paid
tax cost as 3.33% 6.22% 8.72% 10.89% 12.77% 14.40%
% of revenueIf we take the commonly-described "bread" example you can still easily see that bread would be a good bit cheaper for the consumer - not even counting compliance savings - were it not for these caxcading, embedded taxes.
This is really what the embedded taxes discussion is all about and it has nothing at all to do with income taxes on wages. So to pretend that a single economist was making such rash conclusions or that he was the only one used for economic information by the FairTax folks is simply not true. As can be seen here, there is certainly room within the business income tax area for a good bit of price reductions particularly when compliance costs are included as well.
????? what are you talking about? The lie goes on.
Just what part of this statement do you fail to understand?
"What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed."
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