Posted on 02/11/2006 8:54:52 AM PST by Eaglewatcher
Recent letters have expressed concern that the poor or middle class might be harmed by adoption of the FairTax (www.FairTax.org) based on a deep misunderstanding of both the FairTax and the current system. We cannot assess the effects of the FairTax without comparing it to the reality of our current income and payroll tax system.
One cannot buy a loaf of bread without paying the income taxes of the baker. The price of that loaf of bread contains the cost of the flour, and the income of the baker, but it also contains the taxes the baker pays. After all, the baker does not have a money tree from which to pluck dollars to pay his taxes, he must get those funds from his customers, like any other business.
Further, the price of that loaf of bread contains the taxes of the miller, the farmer, the trucker and the grocer and those of all their employees. Those income and payroll taxes cascade through the production process and eventually make up more of the cost of that loaf of bread than the profits of any of those who worked to produce that bread.
Those many layers of taxes on productive work make up the embedded tax component of the price of bread or any other goods or services we buy. On average, that embedded tax component is 22.4 percent of the price of everything we buy, from a loaf of bread to brain surgery. So, the true tax burden on the working poor is 28.4 percent, (their FICA tax of 7.65 plus plus 22.4 percent of their remaining take-home pay, which goes to pay the embedded taxes hidden in the price of everything they buy).
Even if the poor paid the entire 23 percent FairTax, they would be better off than now, but they don't. The FairTax provides a rebate of all tax paid on spending up to the federal poverty line to everybody. This cancels out all taxes for those living at or below the poverty line, $25,660 a year for a married couple and two children.
For the same family earning twice the poverty line ($51,320), half their taxes are rebated, yielding an effective rate of 11.5 percent. And even at triple the poverty level, $76,980, their effective rate is only 15.3 percent, still far better than the 28.4 percent the poorest of the poor pay now.
So, who loses? The idle rich, illegal aliens, criminals, "off-book" workers and others who escape the current system through evasion or legal loopholes. Tax lawyers and lobbyists who make their livings from the complexity of the current system will also come up short. Foreign goods sold in the U.S. will no longer get a free ride while production of American-made goods and services bear the whole tax burden.
But those of us who work for a living, or who get by on a fixed income, will be far better off.
Tabor, of Chesapeake, is co-state director for FairTax.org in Virginia.
Sorry, you'll get used to me showing up late to all the good threads...
The point which I haven't seen discussed yet is that right now, the business owner agrees to pay the worker X per year. Of this, the business owner pays S salary which the worker sees, and puts T into the bank or whatever, to be sent to the government; and S + T = X.
Under the proposed Fair Tax, the business owner would still have S + T leaving his hands, but the worker would initially get to take home S + T. The amount paid by the worker to the government would depend on the worker's income and on the level of non-deductible expenditures the worker makes.
Could pay less than now, could pay more. But "initially" the worker has more money to spend, which will increase the velocity of money through the economy, which I guess is supposed to soup up the economy.
On paper it *sounds* like it works, but for two things which seem important to me. I'm no expert, so maybe I'm wrong:
a) the taxes are taken out at the point of purchase--so goods are more expensive, the worker has no intrinsic increase in purchasing power for any one item
b) with the initial spate of increased money, wouldn't that be *inflationary* ?
And, oh, yes, the other good part is that people who are richer can *voluntarily* pay less in taxes by cutting back on the number of things they buy, or shift to less expensive goods (Toyota instead of Lexus, say).
But that would tend to counteract the faster flow of money through the economy, wouldn't it? (You can cut your taxes, but only by not spending your money. Well, I guess the money could always go to savings and investment, so maybe that's not all bad.)
Cheers!
And did the study you quote include elimination of payroll taxes?.........
2004 IRS COLLECTIONS source: IRS Publication
TOTAL IRS COLLECTIONS $2,018,502,103
INDIVIDUAL INCOME TAXES $990,248,760
TOTAL PAYROLL TAXES $717,247,296
TOTAL INCOME & PAYROLL $1,707,496,056 (84.6% of taxes collected)
TOTAL CORPORATE TAXES $230,619,359 (11.4%)
TOTAL ESTATE TAXES $24,130,143 (1.2%)
TOTAL GIFT TAXES $1,449,319 (0%)
TOTAL EXCISE TAXES $54,807,225 (2.7%)
Great Point!
I'm not saying I agree with you, but assuming such... did Jorgenson include the elimination of said payroll taxes in the study you love to quote?
Second attempt to get you to answer....
yes, payroll and income taxes are both included in Jorgenson's (and now also Boortz's) estimation of embedded taxes.
I think this new guy DoNotDivide is making a claim for that roll, making the most imbecilic posts. Pigdog at least every once in a sprinkles his insults with a point.
Both sides? ...better check.
No poster on this board has a more focused agenda than pigdog.Maybe his "agenda" is the problem.
I have always agreed that the business half of FICA would be a savings to the business. This is 7.65% of payroll up to the first $94k per employee. This is by far the biggest savings to business if wage earners get their "full paycheck". That, coupled with corporate taxes on profits which represent a miniscule fraction of most companies margin, and compliance cost savings is where I come up with 8-10% savings. But you already know that because you have been present on the threads where this has been discussed many times before.
His tweaking isn't the problem-- it is his total inability to grasp simple economic issues. His head in the sand approach, which was once the approach of Boortz as well, is the thinking that has ruined the chances of passage.
Only an honest and truthful debate are going to result in a win for your plan. That means acknowledging that people will NOT keep 100% of their current gross pay. Failure to acknowledge that in selling the plan is a recipe for failure once the truth if finally revealed.
And I don't think that the method of collecting the taxes is "evil", what is evil is the amount they collect which needs to be dealt with first.
Maybe with a smaller, more Contitutional spending pattern something like the FairTax could work.
Talk about dishonesty.
I am not of the position that prices will fall the full amount AND wages will rise the full potential. Some have mistaken me as such. I don't know that you are one of them - perhaps it is only Always Right.
That being said, I am of the position that there will be a combination of wage changes and price changes dictated by the market such that purchasing power remains constant (for the first year or two).
IMO it is disingenuous to reject a proposal based solely on its explanation by non experts. Your reason for rejection is otherwise. After all, you're being dishonest yourself when you claim all day that "payroll taxes are included" in the Jorgenson model you cite - when you know that only half of them are included.
So by your logic, your rejection of the proposal is based on a fairy tale.
It is rare to see the more rabid fairtax proponents post on other issues. I am all over the forum posting on all kinds of issues. It just tells me many of the proponents may not be as conservative as they lead on. More so than any other group on this forum, most of the proponents are solely one-issue. Especially the ones with the cult-like mentality.
You stand alone in this position. Withholding and business taxes hide the true cost of government to individuals. That's why the method of collection is the fundamental problem.
If we could change that method to one that emphasized the individual's tax burden, then the gov't spending battle would be won. It is that folks don't realize/feel/perceive the tax bite that allows unbounded growth of government.
Just a simple elimination of withholding replaced by tax payments made in cash monthly - even though it would be revenue neutral - would have a major impact on government spending because it would make/force folks to see how much gov't costs them. THe money to pay for gov't would have to leave our wallets/bank accounts in cash.
Do you really think the method of collection has nothing to do with gov't growth, or are you just lobbying for spending cuts first because you know it won't happen?
I don't know about this - I haven't checked. But I mostly hit tax threads because the topic interests me. I hit other threads to be sure. I noticed I got over ten thousand posts recently - that was pretty kewl.
Anyway, I'm not sure that exclusively posting in tax threads is reason enough to discount any posts made.
No he does not. I have stated many times, spending is the much bigger problem. Ron Paul also says, "the real issue is total spending by government, not tax reform."
This is nothing fair about allowing the government to confiscate 23 percent of the value of every new good and service.
So the study only included half of payroll taxes.IIRC, the study uses both halves in the "cost of labor" to businesses. When the income/payroll taxes are repealed, the cost of labor goes down by the full amount of payroll taxes (both halves) and the personal income taxes the employee was paying.
Talk about dishonesty.Dishonesty? Isn't this the study FairTaxers have been misrepresenting for about 8 years?
I forgot how to check. I know I am over 30K, may be close to 40K.
Anyway, I'm not sure that exclusively posting in tax threads is reason enough to discount any posts made.
It doesn't discount the post any, it just shows the mentality of the poster. Tax reform is not the end all solution to all our problems, despite what some posters think.
Yes it is. This is like when the Democrats get catch doing something evil, they make the issue how the evil Republicans are using the issue in a mean partisan way to hurt the poor Democrats.
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