Posted on 01/31/2005 7:12:16 AM PST by bmweezer
I may be mistaken, but I think he is speaking generally about a specific type of VAT, not about any specific bill. So he's still safe criticizing details of the FairTax without opening his own favored plan up to scrutiny. ;o)
You should check out the effect of oil prices on plastic resins, then you can easily translate that into the price of plastic goods, i.e. instrument panel in cars, and you could put together a better idea of the cost build up in products.
Remember, all companies must be able to pass on their cost to the buying entity (customer) or they will eventually die. Regardless of their margin, their costs must be passed on. As a result you have a tiering effect of all costs and if these costs include tax, then the burden related to tax can accumulate and exponentially grow throughout the supply chain.
Of course, but the tax effect is what is being debated here.
As a result you have a tiering effect of all costs and if these costs include tax, then the burden related to tax can accumulate and exponentially grow throughout the supply chain.
That's where I'm losing you. The tax effect doesn't appear to be very accumulative nor does it appear much larger than somewhere between my example of 10% or OHelix's example of 17%. And of course these aren't even real world examples. My original point was that I have come to believe that you can't have a large drop in prices with the NRST without a drop in wages. Some drop, yes but I don't think it is reasonable to use the drop as any sort of offset of the over-the-couter outlay on goods and services with the NRST.
You are right-that is the one and only big disadvantage. I would support a phase in of the NRST beside a phase out of the income tax but ONLY if a constitutional amendment was passed that said that after the year that was the last year of the phase-out that the income tax would be unlawful.
How do you propose getting support to cut spending when the burden is carried by half or less of the population? When you borrow from Peter to pay Paul, you will always have Paul's support.....
Which one?
"Of course, but the tax effect is what is being debated here."
Regardless of the name of the cost, the effect is the same. If a cost element is removed, the cost will decrease.
"That's where I'm losing you. The tax effect doesn't appear to be very accumulative nor does it appear much larger than somewhere between my example of 10% or OHelix's example of 17%."
I don't think anyone has the complete data, but intuitively, if the corporate income tax rate is 10% and you have 30 tiers in a supply chain, logic can prevail that it doesn't take very long to get to a significant cost that gets passed to each customer and ultimately falls to the retail consumer.
I have to go for now, but I will try to follow up with actual numbers and formulas for you at another time.
And that's what they don't like about it......can't be fair.
CG gave a very good response to this issue. There are many other good explanations on this thread as well. But the concept that you will lose 23% of your savings when the FairTax is implemented is based on a misunderstanding of the dynamics.the value if your savings under the FairTax is not likely going to be true. I think if you become more familiar with how the FairTax operates, and what it accomplishes, I think you will find that seniors with large after tax savings will fair better under the FairTax than under our current system.
http://www.freerepublic.com/focus/f-news/1332583/replies?c=484
Your NRST monthly rebate doesn't help the situation. When they reach 51% watch out.
I support a flat tax of 10% across the board, no deductions, no exceptions. You earn $1000 for the year, you pay $100. to the government.
"My original point was that I have come to believe that you can't have a large drop in prices with the NRST without a drop in wages"
Sure you can.
LEVEL 1
Price 115
Cost 100
Pre-tax Profit 17 14.8%
Tax (30%) 5.1
After Tax Profit 11.9 10.35%
Tax (Cum) 5.1 4.43%
LEVEL 2
Price 135.5
Cost 115
Pre-tax Profit 20.5 15.1%
Tax (30%) 6.15
After Tax Profit 14.35 10.59%
Tax (Cum) 11.25 8.30%
LEVEL 3
Price 159.5
Cost 135.5
Pre-tax Profit 24 15.0%
Tax (30%) 7.2
After Tax Profit 16.8 10.53%
Tax (Cum) 18.45 11.57%
That is 11 1/2% based on corporate income taxes alone going only 3 levels deep in the supply chain. Many manufactured products go much deeper than 3 levels. This does not even count compliance costs, which under the current system are staggering, nor the employers portion of payroll taxes.
Sorry I couldn't get the columns to line up.
Good example, but what if you took it the other way? Examine the cumulative savings of tax on the final purchaser of a bicycle perhaps?
LEVEL 1
Price 115
Cost 100
Pre-tax Profit 17 14.8%
Sorry about the math error. If the price were changed to 117, the pre-tax profit margin would be 14.5%.
"Good example, but what if you took it the other way? Examine the cumulative savings of tax on the final purchaser of a bicycle perhaps?"
You can use any product that you want. The way the model works, the primary variables are (1) how many levels in the supply chain you assume and (2) what pre-tax profit margins you assume. The tax rate is also an assumption, but I tend to think that the results aren't that sensitive to it.
"phil_will1, if your theory and math are correct, then corporate income taxes would be a large percentage of prices. Guess what? In 2001 they were less than 2% of the FairTax base + exports ($189 billion in corporate income taxes). So there is obviously something wrong with either your theory or your math or both."
Other than the error that I corrected in the post above, the math seems to be working. On another thread, another poster questioned my assumption of 15% pre-tax profit margin, but in my experience that is what successful companies pull down.
I don't know where your numbers come from, so I can't really comment on that.
I don't think there is anything wrong with my math or theory, except that it's a hypothetical example for the purpose of demonstrating how taxes can cascade and produce a savings under the FairTax significantly greater than just the tax savings at the Retail level alone. The dynamics would be the same if it were applied to real rather than hypothetical values. If I am mistaken, I would be pleased for anyone to point out and explain to me my error.
However, you may be making a logical error in comparing my example to statistics of the FairTax base. The current corporate tax system is much much broader than the FairTax base. The cascading effect take place throughout the entire production tree up and including the FairTax base, not just in the FairTax base alone. A correct comparison would consider not only the direct tax savings on the FairTax base, but also the cascading effect of all the other industry as well.
I've stated what I believe what validate or invalidate "wages must come down" theory. I think the statistic you've presented neither validates nor invalidates the theory in question, unless I'm misunderstanding something, in which case, please explain my error. I'm not necessarily taking the position that you're wrong. I'm just trying to find a way to reasonably and confidently verify.
I don't know where your numbers come from, so I can't really comment on that.Sorry, those were from 2003 and were my own calculations. Since I know you won't trust them, so let's use 2001 numbers.
FairTax Base: $7,904 billion Exports: + $1,034 billion =============================== TOTAL: $8,937 billion Corp Inc Tax: $ 151 billion 151 / 8,937 = 1.69%
That post was addressed to phil_will1, I just copied you.
However, you may be making a logical error in comparing my example to statistics of the FairTax base. The current corporate tax system is much much broader than the FairTax base.I know it's broader, I used the FairTax base so there wouldn't be any questions about the "prices" we were talking about. The broader base would actually reduce the percentage that corporate taxes could possibly be in prices.
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