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National Retail Sales Tax - You gotta be kidding!
GOPNATION.COM ^ | January 31, 2005 | Steve Pudlo

Posted on 01/31/2005 7:12:16 AM PST by bmweezer

For quite some time now there has been an organization pushing for a National Retail Sales Tax (NRST) to replace the current income tax in the US of A. The proponents thereof call it a "fair tax", and even have a web site www.fairtax.org. These folks claim that the current income tax structure is a crumbling mess, and that the NRST, a "voluntary" tax is the most equitable solution. For what it's worth, I agree wholeheartedly upon the first premise, but disagree vehemently on the second.

The NRST would be no more voluntary that the current system. What are you gonna do? Buy something and tell the cashier not to add the federal tax? Or not buy anything? (multiply that by every taxpayer and imagine the effect on the economy). And if you believe the proponents claim that they can put enough safeguards in place to make their system painless and equitable, then I have a bridge in New York that you can buy cheap.

The NRST would, by definition be a highly regressive system that would hurt the middle class far more than the wealthy, and if it ain't complicated enough in the planning stage, just wait a few years. Tax accountants wouldn't' be in any real jeopardy under the NRST, they would just have to learn a few new rules. Since the nature of any government program is to increase in complexity, watch for tax changes to increase this or decrease that, then try to factor in the cost of compliance with all this going on - guess who's gonna pay?

The premise that spending is a taxable activity is silly on the face of it. I remember my ex-wife complaining after I spent my last dime on a badly needed item "If you have $50 for that, then I can spend $50 on what I want". The proponents seem to believe that if I have 500 to spend on a badly needed washing machine, that I can also pony up another 40% or so for their agenda. This is ludicrous and insulting to the intelligence of the voting public. Just because I have 500 dollars, doesn't mean that I have 700. Just like my ex refused to believe that if I had 50 dollars for one item that I couldn't magically conjure up another 50 dollars for her. Fifty dollars is fifty dollars. It isn't an indication, hint, or promise that there's a matching fifty dollars lying around for everybody else's ideal. And under the NRST proposal, if I don't have the 700, then I can't buy the 500 washing machine. So since I don't have the 700 bucks, I don't buy the appliance. The seller doesn't make the sale, the manufacturer doesn't' get to make another one to replace it on the shelf, the deliverer doesn't get to deliver it. Everybody loses.

But wait! The NRST proponents cheerfully remind me that "large purchases" such as major appliances and automobiles would be exempt from the NRST. Ah! The first major complication. What is and what is not covered. So maybe a set of dishes would be covered. Would we care to look into what this little statement would mean? In a very few years we will inevitably see merchandise gerrymandering as to what would be taxable and what wouldn't. And someone would have to keep track of all this. I remember in Connecticut where a 75-cent milkshake was taxed six cents for a nickel's worth of malt, but the same sized milk was untaxed. Food was taxed but only if it cost one dollar or more. Clothing was taxed unless it was for a child under ten years of age. One customer buying a jacket had to pay the tax, but another didn't have to because of the age of the child. Can you keep track of this? Multiply this by the political agendas of congresscritters all over the country,. And you can see what I mean by merchandise gerrymandering.

Quite simply, it would mean that the increasing tax burden would be spread to more items of lesser value, therefore having a greater impact upon the final purchase price. So the government would have to get more from less. So the "Fair tax" might end up making that $40 set of dishes cost $80 or more. So what would be the result? Fewer people buy dishes. People who make and sell dishes would do less business, and therefore they would be hurt. The customer would be hurt by the loss of the use of the new dishes, the whole economy would take such a hit that it would take years, if not decades to recover. Discretionary purchasing could evaporate overnight.

Would there be exemptions for lower income people so that each person pays a tax burden more in line with their ability to pay? Would certain people be able to carry a tax avoidance card to not have to pay taxes due to their economic status? How would you protect the poor - who also need to buy things like dishes every now and again?

Let's look at this another way. Perhaps a person like me must spend 80 to 90 percent of their income on living expenses. Much of that would be subject to the NRST. So more of my money, as a percentage of income, would be taxed. Now let us look at someone like Bill Gates, or Ted Kennedy. Since they have vast incomes compared to me, they can afford to shelter more of their income into other areas. If the NRST is the major tax vehicle, then they would only be taxed upon the much smaller percentage of their incomes that they spend on living expenses. Because they can afford to sock away lots more money than I do, that money would not be taxed as it isn't "spent"! Yes, I know that Gates and Kennedy spend more than I do, but as a percentage of their total income, it is less. So the NRST favors the rich at the expense of the middle class!

But the NRST folks won't tell you that. In fact, they'll flatly deny it hoping that you don't notice the vast amounts of income that the very rich sock away into investments, etc. that wouldn't be taxed (unless they want yet another complication in their system), and focus our attention upon their SUV's. The net gain for the rich would have to be made up for by the rest of us - resulting in a higher tax rate for the middle class and for the poor. The poor subsidizing the rich - reverse Robin Hood!

Let's go back now to the concept that people spend a predictable portion of their income. Every person has basic needs - food, housing, clothing, etc. that must be met. These needs are similar for everyone across the income spectrum. To the extent that these items will be subject to the NRST, everybody pays the same flat fee. If your income is above the minimum, then you can spend a little more, which would be taxable, and perhaps sock a little away. That would not be taxable, apparently, so you gain an incentive not to spend, not to buy. That amounts to putting a damper on the economy in the area of discretional spending. Maybe I don't need those new dishes after all. Multiplied by the number of people who would be affected by the NRST, you have a serious downturn in the economy, resulting in loss of jobs, wages, resulting in severe economic hardships for just about all of the middle class. Of course, the rich wouldn't be affected as much.

So let's look again. The more you make, the less a percentage of your income you need to meet your basic needs. That means that you don't have to spend so much of your money to live. You can shelter more from the government, an option not available to the lower income brackets who often lead hand-to-mouth existences. They'd be the ones hit the hardest. This is the definition of regressive taxation. The social consequences are considerable, and beyond what I am prepared to discuss at this point, but there are historical precedents that are not good.

But wouldn't you benefit from an immediate pay raise by the amount you would normally pay in income taxes? Certainly, and I would welcome that. However, since the entire tax burden on the whole country would remain constant (which means ever-increasing), and since the rich would be paying less overall taxes (the richest 5% pay 85% of income taxes, or something like that), that loss of governmental income would have to be made up by people like me, so logically, there cannot be anything but a net loss for me - I'd end up subsidizing the likes of Kennedy and Gates!

And let us not forget that complication in that some things would be taxed while others would not be taxed. This would be a boon to the politicians - in that they can reap huge amounts of revenue simply by adding an item to the "Taxable" column, it would have a huge negative impact upon those who would be doing the collecting. Oh yeah - remember those? That burden would fall upon business owners and establishments that sell taxable items to the public. The reasoning of the NRST crowd seems to be that if they can collect income taxes for the state, they can collect for the feds. No prob. What they overlook is the increased cost to these businesses, many of them barely breaking even, to collect the deferral taxes. Not only must they follow the whims of state politicians, but they would have to attune themselves to the federal politicians as well! They'd have to absorb the costs of the paperwork required, increased bookkeeping, reprogramming computers, etc.. But you and I know full well that these costs would have to be passed on to us customers. So again, we will pay more for less. OR at least the middle class will. And presumably the poor - unless the poor become exempt, in which a whole new level of beauracracy would be needed - and we know who will have to pay those costs!

Let me give you an example. Support toothpaste isn't taxable. Then some politician figures out that the taxes on a three dollar tube of toothpaste can pay for the next congressional pay raise. It's only a buck or so, so the average guy won't get too upset, but that dollar turns into more than one dollar when you factor in the costs of reprogramming grocery store computers all over the country to reflect that this item is now taxable. So the price increase is closer to a buck fifty. Then some other politician wants to be reelected, so he proposes eliminating the tax on laundry detergent. Here we go again. That one - dollar price decrease translates into a mere 50 cents by the time compliance expense is factored in.

And nowhere would there be any addressing the real problem of federal taxation - the spending glut. The feds are simply spending too much money. The more they get, the more they spend, the government simply cannot exercise any fiscal restraint. The federal government has never had a revenue problem they've always had a spending problem. They spend too much. Where would be the incentive for them to spend less if we give them new pockets to pick?

The solution to the tax problem isn't a misnomer - a "fair tax" in name only, it will have to be a system in which everybody bears a share of the burden commensurate to their ability to pay, not their need to spend. It has been said that if everybody had to pay a fair share of the total tax burden, that people would demand reduced federal spending. THAT is the solution to the problem. Or at least, create a viable environment for the kind of fiscal triage that has been sore lacking in all levels of government.

First of all, I would propose to classify all monies coming into an individual as income. Investments, capital gains, interest, wages, compensation - anything coming IN will be classified as income. All incoming monies are income, all income is treated the same. That income would be taxed at a flat percentage, and that percentage would be the same for everybody. If Ted Kennedy pays the same percentage of income that I do, he still pays a lot more, whether he spends more than I do or not. If someone who makes less than I do has to pay the same percentage, they pay less, more fitting to their abilities.

Nothing would affect people's ability to buy dishes, cars, or anything else because purchasing would be relatively independent of taxation. If you don't' tax it, you don't stand in the way of people who want it. You don't collapse the whole economy for the sake of a political agenda. Purchasing would be minimally affected.

If people don't want to pay their fair share (I would even tax welfare because everybody should be stakeholders), then they can get after their representatives to cut spending. I predict a huge groundswell, and things like beekeeper subsidies and research in to the sex lives of insects would be subject to a lot more scrutiny, and spending would go down. That solves the problem.

The "fair tax" is highly unfair. It hurts far more than the middle class. It only helps the rich - those with the highest proportion of discretionary income. The NRST cannot help but hurt the working classes, the welfare classes, small businesses, and the national economy. The proponents of the NRST dangle the tax deductions in your paycheck like a carrot before your eyes, so that you don't see the huge stick that you're gonna get whacked with if this goes through. I predict that if the NRST gets passed, that within two years there will be a depression that would be far worse and longer lasting than the "Great depression" of the 20's.

Oh! And finally - they claim that they will get rid of the IRS. Really? Who's gonna police the collectors to make sure they collect the right taxes from the right goods?

Can you say "we're being hoodwinked?"


TOPICS: Culture/Society; Government
KEYWORDS: fairtax; repeal16thamendment; taxes; taxreform
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To: lewislynn

Very well, you claim that the Fair Tax will add 29.87% tax on items already taxed by other agencies. -- "Tax on tax" as you put it.

I don't read the proposal that way, -- but if indeed it does do that, -- it will never pass as written.

Can you agree?


821 posted on 01/31/2005 9:01:17 PM PST by jonestown ( A fanatic is a person who can't change his mind and won't change the subject." ~ Winston Churchill)
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To: jonestown
The appropriate rate depends on what you intend to accomplish.

Basically the Tax inclusive rate (23%) is specified in the Fair Tax Act to enable comparison with the tax systems (income and payroll) it replaces which use tax inclusive rates and is the rate a seller would apply to his sales receipts in a federal tax only situatation to calculate the tax to be remitted to tax agencies.

The two different rates are for the same amount of tax, but different methods of calculation based on price or total payment.

Tax-exclusive rate: means the rate of tax expressed as a ratio of the tax paid to the price of the item, exclusive of tax. Given base price of a product or service it is used to calculate the amount of tax to add onto price to obtain the required payment for product or service.(i.e. tax to be added)

Te = T / P

Tax-inclusive rate: Means the rate of tax expressed as a ratio of the tax paid to the price of the item including the tax. Given the required payment necessary to purchase a product or service, it is used to calculate the amount of tax taken out of the total payment received,(i.e. tax burden) to be remitted to government by a seller.

Ti = T / (P + T)

 

Getting the tax-exclusive rate given the tax-inclusive rate

Te = Ti / (1 - Ti)

For example, the proposed 17% (tax-inclusive) flat tax has a tax-exclusive rate of 20.48%.
(0.1700 / (1.0000 - 0.1700) = 0.2048)

For the NRST as proposed by HR 2525, the 23% inclusive rate comes out to 29.87%.
(0.2300 / (1.0000 - 0.2300) = 0.2987)

 

Getting the tax-inclusive rate given the tax-exclusive rate

Ti = Te / (1 + Te)

For example, a 5% state sales tax (tax-exclusive) is actually 4.76% tax-inclusive.
(0.0500 / (1.0000 + 0.0050) = 0.0476)

For the NRST as proposed by HR 2525, the 29.87% exclusive rate comes out to an inclusive rate of 23.00%.
(0.2987 / (1.0000 + 0.2987) = 0.2300)

 

Comparison of tax-inclusive and tax-exclusive rates

Inclusive Rate Description Exclusive Rate
4.76% Sample State Sales Tax --> 5.00%
10.00% <-- Penalty for IRA/401k Early Withdrawal 11.11%
15.00% <-- Marginal Income Tax 17.65%
15.00% <-- NRST (not including SS/Medicare) 17.65%
15.30% <-- Social Security/Medicare Payroll Tax 18.06%
17.00% <-- Flat Tax (not including SS/Medicare) 20.48%
20.00% <-- Capital Gains Tax 25.00%
23.00% <-- NRST (including SS/Medicare) 29.87%
28.00% <-- Marginal Income Tax 38.89%
32.30% <-- Flat Tax (including SS/Medicare) 47.71%
39.00% <-- Marginal Income Tax 63.93%
54.30% <-- Max Margin Income/Payroll tax rate 118.81%

Note that any tax-inclusive rate larger than 50% would have a tax-exclusive rate of over 100%.

822 posted on 01/31/2005 9:01:21 PM PST by ancient_geezer (Don't reform it, Replace it!!)
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To: Le Seigneur De Porc

"Do you really believe that retailers will drop their prices, or will they behave as always?"

Yes and yes. Price competition is alive and well in our economy and the evidence of that is abundant. Did Wal-Mart become a mega retailer by charging high prices? Economic theory holds that businesse exist to maximize profit, which is NOT synonymous with maximizing prices. Because of the elasticity of demand, demand moves inversely to prices.


823 posted on 01/31/2005 9:02:03 PM PST by phil_will1
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To: Gabz
Now I'm even further confused.

It's only because you're intentionally being misled with phony rates, which part of the purchase is actually taxed and you haven't heard the half of it...

Wait till you learn that the (phony) 23% rate is only the teaser for the first year. After the first year the bureaucrats at Social Security would "determine the rates" based on your reported earnings(yes reported earnings) for SS purposes....

It doesn't stop there

824 posted on 01/31/2005 9:05:53 PM PST by lewislynn (The meaning of life can be described in one word...Grandchildren)
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To: groanup

No, not that tax. There was, as I said, a tax added to phone bills to fund a war in the late 1800's, it is still on there today, unless in was finally repealed due to consumer complaints in the last ten years.


825 posted on 01/31/2005 9:11:27 PM PST by Babu
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To: ancient_geezer
The Fair Tax proposal is written in english..
We should be able to agree on the actual tax rate proposed on a $100 purchase.

Is it 23% ? Or -- 29.86% ?
807 jones

The appropriate rate depends on what you intend to accomplish.

It is either one or the other, on a sales receipt. The line would read:
Federal Tax - 23%
or
Federal Tax - 29.86%

Basically the Tax inclusive rate (23%) is specified in the Fair Tax Act to enable comparison with the tax systems (income and payroll) it replaces which use tax inclusive rates and is the rate a seller would apply to his sales receipts in a federal tax only situatation to calculate the tax to be remitted to tax agencies.

I don't care. All that matters is if the tax is 23% or 29.86% .

The two different rates are for the same amount of tax, but different methods of calculation based on price or total payment.

Same amount? That cannot be.
On a $100 purchase the tax paid would vary by $6.86 --- Can you explain further?

826 posted on 01/31/2005 9:23:19 PM PST by jonestown ( A fanatic is a person who can't change his mind and won't change the subject." ~ Winston Churchill)
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To: lewislynn
The posters on this thread I have been paying attention to have never misled me on this or any other topic, so I place a high level of acceptance on what they have said to me.

You, on the other hand, have intentionally mislead others on other topics, and lead me to be sceptical of what you have to say.

Please give me good reason to believe you are not trying to do so here. Please do it in terms the average person can understand..........I pay my accountant enough, I don't wish to have to pay her to explain anything more to me.
827 posted on 01/31/2005 9:25:51 PM PST by Gabz (Anti-smoker gnatzies...small minds buzzing in your business..............SWAT'EM)
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To: jonestown

A receipt would read:

$100 item
$29.87 tax
$129.87 total

29.87 is 23% of 129.87

If you earned 129.87 and 23% income tax was levied on it, you would have $100 after tax. Thus a 29.87% sales tax is the same as a 23% income tax. One is the inclusinve rate, the other is exclusive rate, but they are the same amount.

To compare it to most state sales taxes, you would use the 29.87% rate. To compare it to Federal income and payroll taxes, you would use the 23% rate.


828 posted on 01/31/2005 9:30:52 PM PST by OHelix
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To: Gabz
You, on the other hand, have intentionally mislead others on other topics,

Such as?

829 posted on 01/31/2005 9:42:32 PM PST by lewislynn (The meaning of life can be described in one word...Grandchildren)
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To: OHelix
Exactly.
In plain english, the Fair Tax rate would be 29.86% .. And be printed as such on a sales receipt. Correct?

[I doubt that the proposal would ever be accepted in that form, but whatever]
830 posted on 01/31/2005 9:44:06 PM PST by jonestown ( A fanatic is a person who can't change his mind and won't change the subject." ~ Winston Churchill)
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To: jonestown

Same amount? That cannot be.
On a $100 purchase the tax paid would vary by $6.86 --- Can you explain further?

 

Under tax inclusive the total payment is used to calcualte tax paid out of the payment tendered.

For $100 tendered in payment

tax = 0.23*$100 = $23
price = $77

Under tax exclusive calculation, price is is used to calculate to the tax to be added to determine the total payment to be rendered.

price = $77
tax = 0.2987*$77 = $23

payment = $23+$77 = $100 paid.

 

The difference is for example like the difference in calculating odds of a gaming event vs calculating the propbability of an event happening.

The odds calcualition represents a ration of one happening to another.

The probablility calculation represents the fraction of the total.

The tax inclusive calculation is a fraction of payment rendered. Out of a bucket with 23 green marbles and 77 red marbles, 23% of them are green.

831 posted on 01/31/2005 9:48:23 PM PST by ancient_geezer (Don't reform it, Replace it!!)
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To: Gabz
The posters on this thread I have been paying attention to have never misled me on this or any other topic,

Then you shouldn't have had a ????????? problem understanding what I posted.

I frankly don't care what you believe...

If you already have a predetermined doubt about my integrity, please don't bother me with your idiotic ???????questions you claim to already have a clear grasp of....

832 posted on 01/31/2005 9:48:45 PM PST by lewislynn (The meaning of life can be described in one word...Grandchildren)
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To: bmweezer

Can you say "riddled with errors"? first off, he missed the #1 feature of the FairTax, the Prebate that removes a sales tax's regressive nature. He also sair the people behind the fairtax want to exempt certain items.


833 posted on 01/31/2005 9:49:50 PM PST by Remember_Salamis (A nation which can prefer disgrace to danger is prepared for a master, and deserves one!)
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To: jonestown

Yes, if I understand your question.

The confusion about the 23% is the way the bill is written. I believe it is normal for federal tax bills to be written in language that thinks about the taxation as taking a portion of what is there, not adding an additional portion to it, (the FairTax is no diferent) hence the wording being 23% of gross. It is the vendor who is required to remit the correct portion of his proceeds. If $129.87 is collected by a vendor, they would be expected to remit 23% (or $29.87) to the state on behalf of the federal government. The consumer would see this as a sales tax of 29.87% on what he would pay without the tax.


834 posted on 01/31/2005 9:52:37 PM PST by OHelix
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Comment #835 Removed by Moderator

To: jonestown

Exactly.
In plain english, the Fair Tax rate would be 29.86% .. And be printed as such on a sales receipt. Correct?

H.R.25

Fair Tax Act of 2003 (Introduced in House)
http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.25:


`CHAPTER 5--OTHER ADMINISTRATIVE PROVISIONS

 

`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.

`(a) In General- For each purchase of taxable property or services for which a tax is imposed by section 101, the seller shall charge the tax imposed by section 101 separately from the purchase. For purchase of taxable property or services for which a tax is imposed by section 101, the seller shall provide to the purchaser a receipt for each transaction that includes--

`(1) the property or services price exclusive of tax;

`(2) the amount of tax paid;

`(3) the property or service price inclusive of tax;

`(4) the tax rate (the amount of tax paid (per paragraph (2)) divided by the property or service price inclusive of tax (per paragraph (3));

`(5) the date that the good or service was sold;

`(6) the name of the vendor; and

`(7) the vendor registration number.


836 posted on 01/31/2005 9:54:31 PM PST by ancient_geezer (Don't reform it, Replace it!!)
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To: OHelix

see #836


837 posted on 01/31/2005 9:56:30 PM PST by ancient_geezer (Don't reform it, Replace it!!)
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To: ancient_geezer

I think you are verifying my $129.87 as acurate (in terms of amount). Is that correct?

Also, I think lewislynn is trying to infer that state taxes would be taxed at the FairTax rate in addition to the item price, suggesting the following:

$100 item
$10 state sales tax
$110 subtotal
$33 FairTax
$143 total

I think he is being deceitfull, and that it would be as follows:

$100 item
$10 state sales tax
$30 federal sales tax
$140 total

I think I remember you asking Linder about this. Can you clarify?


838 posted on 01/31/2005 10:02:56 PM PST by OHelix
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To: jonestown
I have no idea what actual point is intended to be made by the tax 'inclusive/exclusive' rhetoric. Do you?

My guess is that it was an early attempt to put things on an apples to apples basis. Let me backtrack for a moment.

Years ago when you financed a car or borrowed money the interest rate was was quoted as an 'add-on' rate meaning that the payment was calculated by adding on the interest to be paid each year. A 5 year loan for $10,000 at 6% add-on, the total payback would be $13,000 and the payment would be (roughly) $216.66.

Then, about 20 or 25 years ago, the feds stepped in claiming that the rate was deceptive because it didn't allow people to adequately compare loans and they instituted a stardardized way of disclosing the rate as an Annual Percentage Rate (APR). That same loan would then be quoted as (roughly) 11.50% APR. The totals would all be the same, but the higher rate had to be quoted. (Later, the Feds did the same thing with investment yields (APY).

The point of this was that everyone would be working with the same info from the same standpoint. In the above example, 11.50 APR and 6% add on sound wildly different but yielded the same cost.

The 23% versus 30% inclusive/exclusive rate stuff is pretty much the same framing things in terms of how the current tax system is calculated and expressing this in similar terms. Either way, the cost the same. I think that the planners thought the 23% rate sounded better and easier to sell to people. They didn't count on the ability of it's proponents to do the job and sell the program using the higher rate.

I hope that helps somewhat. I still get confused on the inclusive v. exclusive stuff. I just quote the 30% if I mention any rate. Generally, I talk in terms of the benefits of going this route and destroying the IRS. Often, that's enough to bring people on board.

839 posted on 01/31/2005 10:04:43 PM PST by Badray (This tag line under construction.)
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To: ancient_geezer
Same amount? That cannot be. On a $100 purchase the tax paid would vary by $6.86 --- Can you explain further?  

Under tax inclusive the total payment is used to calcualte tax paid out of the payment tendered.
For $100 tendered in payment tax = 0.23*$100 = $23 price = $77

And for a $100 purchase the tax paid would be $29.86, a tax rate of 29.86%, not 23%, correct?

Why is admitting this a problem?
- As others have said here, playing mathematical games with the actual tax rate just makes the whole proposal look like a scam.

I like the Fair Tax idea, but playing rhetorical games will never get it written into law.

840 posted on 01/31/2005 10:09:21 PM PST by jonestown ( A fanatic is a person who can't change his mind and won't change the subject." ~ Winston Churchill)
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