Posted on 01/31/2005 7:12:16 AM PST by bmweezer
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?
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)
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)
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)
| 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%.
"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.
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
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.
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?
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.
Such as?
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 = $23payment = $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.
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....
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.
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.
Exactly.
In plain english, the Fair Tax rate would be 29.86% .. And be printed as such on a sales receipt. Correct?
H.R.25Fair Tax Act of 2003 (Introduced in House) `CHAPTER 5--OTHER ADMINISTRATIVE PROVISIONS
`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.
|
see #836
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?
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.
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.
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