Posted on 08/26/2004 11:05:33 PM PDT by n-tres-ted
Two weeks ago a man stood up at a George Bush campaign appearance in Florida to ask about a piece of legislation known as HR25. Many, including myself, were pleased to hear Bush respond with some positive thoughts about the Fair Tax plan, a movement to replace the federal income tax with a national retail sales tax.
Washington is a city of inertia, and right now the inertia belongs to our present method of funding the operations of our government, the income tax. Politicians will not easily surrender a funding mechanism that lends itself so well to political demagoguery and which can be used to reward political allies and punish enemies.
The Fair Tax plan deserves a thorough public examination and debate. John Kerry seems dedicated to making sure this doesn’t happen. Soon after Bush cited the national retail sales tax as something worthy of further exploration, Kerry stepped forward with the typical class warfare rhetoric of the left. Acting as if he actually knew what was he was talking about (he didn’t), Kerry announced that the Fair Tax would amount to the largest increase in the tax burden on poor and middle income Americans in our history.
John Kerry was wrong. He was either speaking out of ignorance, or he was deliberately lying about the Fair Tax proposal in order to gain a political advantage. A politician lying in order to gain political advantage --- imagine that.
This column is lengthier than the norm, but I promise you that if you will invest the time it takes to read it you will be well on your way to becoming yet another rabid supporter of the Fair Tax plan. You will know that the poor and middle income Americans would be the prime beneficiaries of the proposal. You may even organize your own neighborhood march on Washington to demand that HR25 receive a fair hearing. In the next two minutes I’m going to turn you into a HR25 Fair Tax zealot. Read on:
First … the briefest of overviews: Simply put, HR25 would provide for the repeal of the 16th Amendment (the income tax amendment) and the dismantling of the IRS. All personal and corporate income taxes would end, as would all payroll taxes. There would not be one cent of federal taxes of any nature taken out of your paychecks. No more Social Security taxes. No more Medicare taxes. You earn $2,000 a payday; you get $2,000 a payday. The federal government would be funded through a national sales tax on goods and services sold at the retail level. No taxes on investments. No taxes on savings. You only get taxed on what you spend at the retail level. Store your earnings in a shoebox if you wish. They won’t be taxed.
When originally proposed, calculations showed that the sales tax would have to be in the area of 23%. A complete economic study is now being completed that is expected to bring that total to under 20%. For the purposes of this column, we’ll stick with the 23% figure.
OK … let’s put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation’s poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they’re living paycheck-to-paycheck in the first place, right?
Bear in mind that for the most part those whom we define as “poor” aren’t paying any income tax anyway. In fact, many of them are getting checks from the government; a form of outright income redistribution. The absurdly named Earned Income Tax Credit, for example. How can these people survive going from a no-tax situation to paying a 24% sales tax on all their retail purchases?
The implementation of the Fair Tax would fail in short order if, as the question presupposes, nothing were to change except that all of us would be paying today’s prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But … that’s would be far from the reality under the Fair Tax. Under the Fair Tax the poor won’t only survive, they’ll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.
Let’s begin by considering two realities.
First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For the poor this means an immediate 12 to 15% increase in their earnings.
Second. Don’t forget the 22% in imbedded taxes. These embedded taxes exist in virtually everything poor Americans or any other Americans have to buy. These embedded taxes represent all of the corporate and business income taxes and payroll taxes that the companies involved in the production, manufacture, marketing, distribution and sale of the goods and services must pay in the course of business. As soon as these taxes are gone, and after the competitive forces of the free market work their magic consumers, including the poor, will be paying at least 20% less for virtually everything they buy. This includes such basics as food, clothing, shelter and transportation. Yes... they’ll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you’ll see that the total price paid for consumer goods in terms of real dollars will fall or will remain very nearly the same.
So … just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, amounting to a 12 to 15% pay raise, and when you factor in the Fair Tax and the lower prices, they’re actually end up spending less of their money for a retail purchase than before. What John Kerry calls the greatest increase in the tax burden on the poor in the history of our country is, in reality, their greatest tax reduction.
You need a clearer picture? Pull out your calculator. Let’s say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax at 23% would be $8.07. This brings the total price to $43.17. That’s less than would have paid under today’s tax system. This single mother, whom we’ll consider “poor,” has just received a 12% to 15% increase in her weekly paychecks, and she’s paying less at the grocery story for her basic necessities.
So far, so good. At this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. Here’s the convincer. Brace yourself for the knockout punch.
The Rebate
Under the Fair Tax plan every consumer, rich and poor alike, will receive a check or an electronic credit to their bank account from the federal government every single month equal to the sales tax that person or that family would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government’s published poverty levels for various sized households.
Here’s an example of how the rebate payments would have worked in 2003.
Let’s say you’re a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. If the Fair Tax Act had been law in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have had to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government would have rebated this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would have received $172 per month.
Now … bear in mind, this rebate isn’t only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.
OK … let’s add it up for America’s lower income citizens:
1. They get their entire paycheck. 2. Even with the sales tax, and considering the drop in prices, they’ll be paying essentially the same or less for everything they buy. 3. They get a check from the federal government every month to rebate any sales taxes they had to pay on life’s basic necessities.
Are you beginning to see just how far off-base John Kerry was with his intemperate criticisms?
Though most of the poor don’t have what we would call complex tax returns, let’s also include the time these they (all of us, really) will save by not having to keep tax records or file tax returns.
If you’re looking for some reason to oppose the Fair Tax plan, you’re going to have to find a better excuse than its effect on the poor. John Kerry might find it politically expedient to demagogue the issue for votes, but now you know enough to know what he’s up to.
For more comprehensive information on The Fair Tax you can visit http://www.fairtax.org.
Neal Boortz is a lawyer and nationally syndicated radio talk show host.
©2004 Neal Boortz
"One glaring flaw.
Even if the "embedded tax" goes away prices will not fall by the same amount.
Many will see this as an opportunity to increase their profit margin, fund capitol improvements, ramp up research that has been put off, etc."
-- Sure, they can increase their profit margin, but will their competitors? If they don't cut prices and their competitors do, they're going to lose market share! It's called the elasticity of demand. trying to find the perfect 5balance between profit margin and market share.
Are you giving up the ghost on the idea that all taxes are in prices?
Not at all for all income/payroll taxes paid by a company must ultimately reflect in prices of its products or it must fold for lack of profitablity.
But neither is my criteria for supporting the NRST and HR25, contingent upon interactions in the market place with respect to individual circumstance, as in the end all taxes are passed onto the individual.
To remove perception of the tax burdens of the individual, is to remove the goad which assures accountability of government to the electorate. Federal tax rates are high and government grows ever larger because a majority of the electorate do not perceive, proportionately, the burden their demand for largesse imposes on the minority of citizens.
The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.
Liberty and freedom have a price, responsibility. If that price is avoided or not perceived there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.
"If employees keep the money, how do costs decrease?"
-- Removal of cascaded corporate income taxes and removal of obscene compliance costs.
There is no such thing as "cascaded" corporate income taxes.
This conclusion implies that employees bear most of the payroll tax burden, a result supported by empirical studies. In other words, wages paid to employees are lower by an amount roughly equal to the employers’ part of the payroll tax.
Unfortunately in order for any tax to be paid or a wage paid, revenue must be available to pay those wages. As I said, all taxes are reflected in the price of goods, or the business must of necessity cease operation. If a business cannot price products so they sell, there is no business, there is no wage to pay, there is no payroll tax to remit.
Wages for employees may be lowered by some factor because product sales cannot support the wage plus the employer's excise, that does not invalidate the fact that both the wage and the tax is derived from the price of goods that can be sold to keep the business in existance.
The business employer's excise is paid out of sales revenues right along with the gross wage actually paid to the employee. The customer pays for it all.
Not at all for all income/payroll taxes paid by a company must ultimately reflect in prices of its products or it must fold for lack of profitablity.No, it could just be less profitable (or their labor could make less in wages).
Just exactly what does a duck DO to a June bug?
It is a question. My research shows about 4% and I have detailed my assumptions previously. Perhaps you could do the same with referencing some irrelevant productivity increases or the magic of the business fairy.
You are putting words into my mouth!
I never said "evil", I said "greed" and "large"
Small business really does not have much opportunity to manipulate the system.
Take an open eyed look at how some corporations have established virtual monopolies, particularly in rural area's, and then tell me that there are no justifications for my concerns!
No "class warfare", just a realistic appraisal of the fact that some people and corporations will try to twist ANY system to their personal advantage, no matter if they already dominate their market or not.
As for "job growth", we would have all the jobs we could want NOW, if we would just get rid of the illegal invaders already here.
I never said the idea had NO merit, only that it has not been fully thought out.
I suspect we would end up with the IRS merely having a different mission statement, ensuring that EVERY possible sale gets taxed, including the kids lemonade stand, your used car, and your spring garage sale.
Not at all for all income/payroll taxes paid by a company must ultimately reflect in prices of its products or it must fold for lack of profitablity.
No, it could just be less profitable (or their labor could make less in wages).
Regardless, the lower profit, and the lower wage still comes from that price the customer will pay. No sales revenue, no profit, no wage, no employee, no business.
What does "cascade" mean?
It means that the shills are in fundamental denial of free market economics, and assume that all companies make a known profit so that tax liabilities and all other 'costs" can be merely passed along to the consumer.
Corporate income taxes are NOT a cost.
They are government confiscation of a portion of the profit (if any) that can only be determined AFTER costs are deducted from revenues. They CANNOT be computed in advance to be "passed along" to the consumer at a fixed market price that guarantees profit and tax liability. Yet that's EXACTLY how the shills would have you believe business functions in a competitive market economy. They are full of BS.
Corporate income taxes are NOT a cost.
=======
Income tax liability and payroll tax liability are not considered by business in advance of pricing decisions???
Those rates include the employer's portion of the payroll tax.
So what? The NRST is a replacement for all income and payroll taxe,. business side as well as individual, and those taxes are all reflected in that CBO measure.
You sure you want to stick with them?
Yes.
BTW, looking at the average is not a very good way to gauge what the typical American pays in taxes.
Rate based on all families is sufficient as an unweighted indicie of total federal tax burden for me.
You should try to find the median effective tax rate.
You use your measure, I'll use mine.
Your question was concerning what my tolerance point is not what your's.
No. Price is determined by competitive supply and demand in the market.
Regardless, the lower profit, and the lower wage still comes from that price the customer will pay. No sales revenue, no profit, no wage, no employee, no business.You seem to have a real hard time grasping this concept.
right- but prior to a product entering the market, its price is affected by a retailer's costs (raw materials, utilities, wages, etc.)
retailers' costs are considered when pricing...
why are taxes not considered a cost to be paid but light bills are?
It means that ALL costs incured by a business are, of necessity, passed on to the customers of that company in the price of it's products. There is simply NO other way for it to work as there is no magic money tree for which they can get funds necessary to pay these costs. They have exactly ONE source of revenue and that is their sales reciepts from which EVERY thing they pay must, of necessity, come. When several business "touch" a product at some stage of its manufacture ALL those costs "cascade" to the final consumer of the product.
thank you i know what you mean now by "cascade"...
yes the only source of revenue is sales, but could it not be the case that rather than increasing price to pay costs, wages could be lowered in stead - at least in part?
surely there is a point where people quit to go to a similar job for better wages - but there must be a little give...
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