Posted on 08/26/2004 11:05:33 PM PDT by n-tres-ted
Retailers would actually be reimbursed their costs of compliance under the Fair Tax. A world of difference between costs to undergo an IRS audit in that circumstance as compared to an income tax audit today.
I ignore nothing when I make my prognostications. The great and all knowing OZ takes all things into concideration when speculating about future events.
For starters, the consensus to my knowledge of economic analysts is that the average small business spends $700 in compliance costs for every $100 of federal income tax paid(Tax Foundation says $724 per $100:Small business, not business. In 2002 the Tax Foundation stated compliance costs businesses $102 billion.
Prota,
I need that prediction, so I'll purchase your service. Do you plan to pay your income tax on that $100 of income, or will you avoid paying the tax? So, I will be paying you $100 but you will really only make $77. Now, suppose the NRST is passed and you no longer pay income tax on the $100 service you provide. You have a choice, you can reduce your price per super bowl prognostication to $77, or you can keep it at the $100 range.
Now, assume you keep it at $100. Principled comes along and offers me the same service for $77 because he realizes he can still make a profit and cover his costs. Which service provider do you think I would chose? Now, the true cost to me for your service is $123, but the cost to me for Principled's service is $95. How many of your previous customers will pay the penalty of $28 to remain loyal to your service?
The dynamics of the free market will force your SB Prognasitication service fee to go down after the NRST is passed, or your SBProg Inc. will die from being uncompetitive.
I bury my money in the back yard when I know the thieves are coming.
Email me for the address, when I receive the dough, cash please, I'll let you know the name of the team.
I tend to think that individuals spend their own money more wisely than "the government" spends it. The Fair Tax would achieve that approach to a much greater extent than our present tax system, which picks favored parties and expenditures in many cases. Your comments primarily describe situations that would occur only if people do not change their attitudes in light of changed circumstances. Prices will change and people will change their conduct based on this radically improved tax system, and we will all be better off for it.
Now, assume you keep it at $100. Principled comes along and offers me the same service for $77 because he realizes he can still make a profit and cover his costs. Which service provider do you think I would chose? Now, the true cost to me for your service is $123, but the cost to me for Principled's service is $95. How many of your previous customers will pay the penalty of $28 to remain loyal to your service?How has the cost of prognostication gone down 22%? Is Principled going to pay his prognosticators 22% less?
ALL of the ones who get the correct answer.
There are many different possible scenarios, none of which lead to a long-term decrease in purchasing power for individuals.
In both competitive and non-competitive markets, you will see price adjustments -- basic economic principles show that this is inevitable -- it is only the amount of the price adjustment that is in question. In a competitive market, companies cannot simply take the tax savings as extra profit: too high of a profit margin allows existing competitors to increase market share by undercuting you in price and/or encourages new competitrs to enter the market. In a non-competitive market, the price is set to maximize the sales vs. profit/unit curve -- if the addition of taxes affects sales, prices will be modified to restablish that optimal point.
So my concern is not the affect of taxes on prices -- prices will, in general, drop by close to the amount of the embedded taxes across the board. My concern is what individuals will do with their extra purchasing power -- if they choose to spend more on goods or limited services, we could see an inflation problem, as demand increases on a relatively fixed supply. (Of course, additional investment to grow those businesses could offset the supply issue and drive prices back down.) On the other hand, whole new classes of services could spring up to take advantage of that extra "pocket money", which would be inflation-neutral. It is even possible that individuals actually demonstrate fiscal restraint and responsibility, and invest the extra money, which increases the pool of goods manufactured and services available and should exert downward pressure on prices. In practice, it will probably be a healthy mix of all the above.
In any case, I don't see things getting worse for the consumer -- even in the worst, degenerate case of massive extra consumption, purchasing power looks to be stable. Now of course, all of this is still prognostication, but it is based on sound reasoning and economics.
Here are answers to many common questions about the Fair Tax:
http://www.fairtaxvolunteer.org/smart/faq-main.html#38
The fee of $100 included the cost of income tax compliance. Since the new competition realizes the actual costs (minus income tax compliance) and profit is stable, he offers it for $77.
In this example, I considered Prota and Principled to be self employed prognosticators. Neither one has employees to pay, they just rely on their own prognositication accuracy.
You poor guys are laboring under the impression that the government will ever give up it's biggest source of power. Or that the millions upon millions of citizens who have become dependant on the continuation of the system will not join them in opposing it. You poor guys actually think that someone wants to do the right thing.
And that is the scenerio you should focus on.
The feds' interest in controlling the borders are going to be controlled by political interests, primarily those involved in attracting votes. At least the Fair Tax would put US manufacturing on a level playing field with other countries, including those to the south. Maybe this would finally persuade Mexico to reform its own socialist tax policies so its own economy could prosper. That would do more to relieve the immigration concerns than border guards or the INS will do.
What are you smoking' these days? (And where can I get some?)
We are in a major inflationary bubble right now thanks to the Federal Reserve. How will the NRST "adjust" for that except by raising the rate and making it even worse?
In both competitive and non-competitive markets, you will see price adjustments -- basic economic principles show that this is inevitable -- it is only the amount of the price adjustment that is in question. In a competitive market, companies cannot simply take the tax savings as extra profit: too high of a profit margin allows existing competitors to increase market share by undercuting you in price and/or encourages new competitrs to enter the market. In a non-competitive market, the price is set to maximize the sales vs. profit/unit curve -- if the addition of taxes affects sales, prices will be modified to restablish that optimal point.The inverse of this is competition would have precluded businesses from putting the tax in prices to begin with, they would have taken less profits instead (the capital holders pay the tax). Who bears the incidence of corporate taxes is a matter of much debate.
Whether prices increase is not relevant to the point. If I pay $1.00, nad a new tax of 23% is added, I pay $1.00 for the item and $0.23 in tax, for a total of $1.23. (DUH)
So whip out the old Visa card and charge $1.23. The feds get their $0.23, I make the minimum payment, and pay interest on the tax until I die.
Their biggest source of power is the votes that keep them in office. The tax code and the money spent are a power base only in how they affects those votes. If enough of the voters stand up and make their Congresscritters accountable on this, it will be done.
When President Bush is re-elected, and the GOP retains the House, we will see action on tax reform in the next Congress. It won't happen overnight, and there will be competing plans, but for the first time ever, a serious attempt (driven by no less than the Speaker of the House) will be made at overhauling the tax system. I'll freely admit the Senate will have to be dragged kicking and screaming to the table, but hey, without a challenge, what fun would it be?
If you've got what you think is a better idea than the NRST, get it put down on paper and get it on Congress' agenda for other alternatives to consider. Because tax reform is already a major legislative priority for the 2005-2006 Congress.
Whether prices increase is not relevant to the point. If I pay $1.00, nad a new tax of 23% is added, I pay $1.00 for the item and $0.23 in tax, for a total of $1.23. (DUH)Actually, you would pay $1.29%. The "tax exclusive" rate is 29.87%. The 23% is the "tax inclusive" rate (29 is 23% of 1.29). Cute, huh?
So whip out the old Visa card and charge $1.23. The feds get their $0.23, I make the minimum payment, and pay interest on the tax until I die.,/I>You also pay sales tax on some of the interest (interest is payment for a service).
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