Posted on 09/15/2006 12:01:47 PM PDT by pigdog
When members of the real estate industry first hear of the specter of a national sales tax plan to replace the current income tax system, their initial reaction is often mixed. On one hand, they are excited about the prospects of no income tax on sales commissions. But they also wonder about the consequences of the home mortgage interest deduction (MID), the taxation of tax real estate, and the impact on real estate prices and sales.
Fortunately, many economists and industry leaders believe that the sales tax plan is a win-win for members of the industry, actually making homeownership more affordable, stimulating the sale of more homes, and accelerating home buying decisions.
A national sales tax -- like the FairTax plan promoted by the Americans for Fair Taxation (AFT)-- would eliminate every Federal income based tax. No more personal income taxes. No corporate taxes (now buried in the prices of all the goods and services we buy). No payroll and self-employment taxes. No death taxes. No capital gain taxes. Business-to-business transactions would be exempted. No tax on saving, investing or earning. Each of us could keep our entire paychecks. In fact, since the tax it is only collected by retailers (who are already collect sales tax in 46 states), it would exempt 115 million Americans from ever filing a return or dealing with tax authorities. Complexity would vanish and with it the more than $250 billion we waste on compliance every year.
(Excerpt) Read more at frogpond.com ...
More drivel and wishful thinking.
Unfortunately these same economist have their heads firmly up their anus. Explain how adding 20% to the cost of a new home is a 'win-win' for home-builders? Oh wait, I know, give me a link to what these paid for whores have to say at the fairytax website.
Four years old. Can't y'all find anything new? What happened to all that momentum?
Wouldn't this basically put every, or most CPAs, accountants and bookkeepers OUT of work? They would overnight become obsolete, most no longer needed, like buggy whip makers.
That would be HUGH blow to the economy, no?
Not to mention the 367 gazillion dimwit gubmint slugs who 'work' at the IRS, but screw 'em. Back to Mickey D's for them.
The 'everyone is wrong but me' syndrome raises its ugly head again.
Change iRs to iNs and put them on the border.
I don't know how you missed it, but even H&R Block favors the FairTax. So do many accountants and CPAs. Without the income tax they can put their talents to use growing a business rather than trying to keep it safe from the IRS.
Accounting to keep the IRS happy is a drag on the economy, not a boon, but there will always been a need for proper book keeping so it's not that one day we will wake up to roving gangs of CPAs looking for food.
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
Indeed so!!
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this ends up being about a 20% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
A good read indeed.
If anyone would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all federal income, SS/Medicare payroll, and gift/estate taxes outright replacing them with with a national retail sales tax administered by the states.
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
And your self-serving posts to "boogers and poo" are exactly what?
They'll still be needed to figure cost of goods, do the books, P&L, and certifying quarterly 10-Qs.
Not to mention the 367 gazillion dimwit gubmint slugs who 'work' at the IRS, but screw 'em.
You say that like it's a bad thing ...
I will second the motion that CPAs can do much better by being CFOs and other such financial work in a fast growing economy than they can do by filling out tax returns, which is really done now mostly by computers anyway.
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