Posted on 07/07/2004 9:34:29 PM PDT by Remember_Salamis
How the FairTax Will Renew America
By Remember_Salamis (My Name Removed) Citizens for a New Contract with America
We must replace the income tax with a national retail sales tax (NRST), also known as the FairTax. This can be accomplished by passing the Fair Tax Act of 2003, known in the House as HR 25 and in the Senate as S 1493. The FairTax would replace all income and payroll taxes for both individuals and businesses with a tax-inclusive 23% NRST. Only goods and services purchased at the retail level would be taxed, while all goods and services purchased by businesses would not be. Because taxes will only be collected at the sales counter, there will no longer be any capital gains taxes on savings and investment. In order to ensure that we don’t end up with an income tax and a NRST, we must also repeal the 16th Amendment.
Manufacturing
The US is the only nation in the world, other than Libya, that taxes businesses at home and abroad. As a result, the US is losing millions of manufacturing jobs per year. While “outsourcing” is natural (and needed) to a certain degree in a free-market/free-trade system, we are hemorrhaging excess jobs. On top of that, American manufacturers are unable to compete with cheap, untaxed imports at home. Under the FairTax, however, the US will become the most attractive industrialized manufacturing country in the world and our rusting industrial base shall be revitalized.
As stated earlier, 20 -30% of the price of goods is due to imbedded or “cascaded” income, payroll, and corporate taxes. After elimination of these taxes, the cost of US goods will drop accordingly, making US-manufactured products much cheaper. While at home these items would be subject to the new 23% sales tax, making them roughly the same price they were before the implementation of the NRST. When those items are sold overseas, however, there is no such NRST. As a result, our goods are 20 - 30% cheaper. American manufacturers would have a huge advantage over our “peer” competitors, namely Canada, Western Europe, Japan, and to a certain extent South Korea.
Domestically, American manufacturers would gain a massive advantage over imports. Since the US would be the first nation on earth to eliminate income, payroll, corporate, and similar taxes (also known as value-added taxes, or VATs), foreign goods sold in the US would suffer an unofficial 23% tariff from the FairTax. While the price of US-manufactured goods would drop 20-30%, foreign goods would not.
Capital investment in the US would skyrocket due to the elimination of the Capital gains tax. Foreigners would find the tax-free US capital market as the #1 place for investment dollars as well.
bump for thread #2!
re: Taxes vs. Wages
[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]
John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25, S.1493
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: http://www.fairtax.org & http://www.salestax.org
Under the FairTax, however, the US will become the most attractive industrialized manufacturing country in the world and our rusting industrial base shall be revitalized.
Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
August 12, 1996
This is how we should sell the FairTax!
bump
20-30% of the price of goods is due to imbedded or “cascaded” income, payroll, and corporate taxes.
For most products, 20-30% would be understating the cascading effect of payroll taxation on the prices.
When we were building our home, I remember hearing several times that 60% of the cost of a house is labor. For a $100k home, that would be $60k for construction, and 20-30% of that 60k would surely be payroll taxes on that labor. That works out about right.
But then when you start looking at the materials, the lumber had to be cut, loaded, transported to the mill, milled and otherwise processed, stacked, sold, loaded and transported again, before becoming input material for the construction project. Every dollar of labor involved in the above steps had to be taxed at 20-30%, which had to be added to the cost of the material.
The same hidden taxes factor into the cost, at every stage of production, of the concrete, nails, insulation, pipe, wire, drywall, flooring and roofing material, etc. The actual list of materials was several pages long.
The final prices of all those items reflected many, many layers of hidden taxes.
If people consider all the processes involved in the creation and delivery of their goods, they can easily see why our tax on income is killing our economy.
No argument from me and that alone makes it worth doing.
Of course the "Fair Tax" would "cascade" on property taxes, gasoline taxes, and other taxes paid by businesses. A flat income tax (which in many respects is the economic equivalent to a sales tax) would not. This is one of the many reasons the flat tax is superior.
If I buy a bottle of Coke today for $1, everyone involved in producing that bottle of Coke (bottler, retailer, truck driver, sugar farmer, etc) gets a cut of that $1.
Sales tax propenents claim that prices wouldn't increase under a sales tax. I could still buy my $1 bottle of Coke for $1. But if that is the case, the government gets 23 cents and the producers get to divide only 77 cents. Producers' incomes must decline under this scenario.
The alternative is that prices go up by the amount of the tax. My bottle of Coke now costs $1.30. The government gets 30 cents and the producers get to divide the remaining $1.
The Flat TAx WOULD cascade taxes, far more than the NRST. Ancient_Geezer knows much more on that than I do, so I'll let him answer that one.
What is your point?
Yes, that is true. Maybe I should have included Coca-Cola and Kroger shareholders in my list of everyone associated with producing and delivering a bottle of Coke.
I use the economic definition of income (Hall-Rabushka define it best). I understand your observation, though. The current tax code defines a lot of things as income that are not. That is why we should support a flat income tax.
|
A destination-based tax could induce a move to surplus in the short-term trade balance; however, in the long run, relative price adjustments to equalize prices of foreign and domestically produced goods in world and U.S. markets, along with appreciation of the U.S. dollar, will offset these changes. Net exports of capital-intensive goods will increase relative to those of labor-intensive goods. The overall effect on the trade balance is ambiguous. Changes in the trade pattern induced by changes in the relative prices of capital- versus labor-intensive goods depend on the sensitivity of wages and capital costs to tax changes. Border price adjustments resulting from a destination-basis tax are not expected to have a long-run effect on the trade balance. |
This is one of the many reasons the flat tax is superior.
Sorry but the Armey/Shelby & Hall Rubushka Flat Tax proposal fails horrendously in comparison to a National Retail Sales Tax, in there overall measures:
Several studies have been done comparing the two systems and others over the years. There is no doubt that both the Flat Tax and the NRST come out ahead of all others in what they do for the economy. But the NRST comes out way ahead of FT proposals.
First of all the Flat Tax is a VAT plus a progessive income tax on employee wages.
In regards testimony about concerning the Armey/Shelby Flat Tax:
http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm
"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"
"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
| Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive. To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following: Total revenue from sales of goods and services less purchases of inputs from other firms less wages, salaries, and pensions paid to workers less purchases of plant and equipment The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances. |
The business VAT side cascades on itself down the entire chain of production from raw material to final retail sale, ultimately passing the entire tax burden plus all the business costs of tax compliance that that go along with a VAT onto the consumer hidden within the price of goods and services out of the view of the voter.
Definition [ http://www.encyclopedia.com/articles/13330.html ]:
value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.
As can be see here the Flat Tax, as far as business is concerned, is anything but efficient where costs of compliance goes, the tax preparation industry is salivating at the prospects:
Flat Tax as Seen by a Tax Preparer
by Vern Hoven
On the individual side of the Flat Tax, the progressive wage tax, The Armey Shelby Flat Tax exempts the first $36,000 dollars of wage income for a family of four for example, from even participating in the tax system. In that, it is worse than the current income tax as it removes even more voters from participating and perceiving the burdens imposed by government as a consequence of ever growing largess and inflated public programs. With the VAT side hidden from view, and generous exemption we have a real problem where electorate is concerned:
The Honorable James DeMint (R-SC)
United States House of Representatives
APRIL 5, 2001
- "There has been a shift in the relationship between individuals and government, he argues, such that fewer and fewer are paying taxes at the same time that more and more are receiving increasingly generous benefits. If it becomes the case that most voters do not bear a financial burden for this largess, then there will be little to restrain--and significant political incentives to encourage--the continued growth of government.
As Walter Williams has so quaintly put it:
"So many Americans paying little or no federal taxes makes for a natural spending constituency. It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"
Ontop of the19-17% tax on wages laid by the Flat Tax, the SS/Medicare wage taxes on both business and the individual remain for an addition 15.3% burden on wage income right up to the SS cap now at 85k & rising. None of that goes away with any of the Flat Tax proposal
The NRST on the other hand repeals all income & wage taxes, is levied only at the point of retail sale and is entirely visible to every voter at the same percentage of their expenditures.
As a consequence of full visibility and universal participation the NRST allows the voter/consumer to react where it counts by holding government responsible for ever higher levels of taxation, as opposed to blaming business for apparent price inflation that actually is a consequence of government impositions.
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