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Well, Looey, in a word - NO!! That's not what Jorgenson said at all. That's what the SQLers CLAIMED he said. There's a big difference. All the economist did was reduce wages by the amount of income tax to simplify his model. Nowhere did he say that this was the source for a 22% (or any other) price reduction.

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 revenue

Note 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 revenue

If 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.

Nowhere did he say that this was the source for a 22% (or any other) price reduction.

????? what are you talking about? The lie goes on.

Nowhere did he say that this was the source for a 22% (or any other) price reduction.

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."

Pigdog,

I noticed these clowns have to lie in order to fight this fair tax. They know this thing has stream, or they would not be fighting that hard to put it down.

Just so, pigdog.

The point is that the "tax cost of government" (which includes far, far more costs than just the taxes withheld FRom wages), when squeezed out of retail prices on domestic goods and services is likely to be offset exactly by the Fair Tax.

I still maintain that a $100 retail item in the progressive income tax environment will be a $100 retail item (tax inclusive) in the Fair Tax environment.

That's not what Jorgenson said at all.
You're the Fairtax spokesman, is there some reason you keep pretending you know what he didn't say but haven't posted what it was exactly he did say?...

If you know what he didn't say, you have to know what he did say, what is it? Wouldn't that be easier than constantly calling everyone (who really does know) a liar?

I like it when you post something other than your childish names, acronyms (no one else knows the meaning of) and name calling because everything else you post makes you look even more stupid...especially your off the wall charts...BWAHAHAHAHAHA!