[jonestown]

This guy lost me at the "pony up another 40% or so" line. How someone can be so misinformed about the topic they're writing about and expect to be taken seriously is beyond comprehension.
3 kevkrom

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I agree. He is misinformed. It's more like 50%.
32 robertpaulsen

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Exactly my impression. A. the tax will probably be 16%, B. the person buying the item has his full paycheck (without deductions) to pay for the item.
168 cowtowney

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Just because you can't comprehend it doesn't mean it can't happen.

$100 plus 8% state/local tax = $108
$108 plus 29.87% (federeal sales gross payment tax) = $140.26 (gross payment) or 40.26% total tax.
23% "of the gross payment" = $32.26 or 32.26% federal sales gross payment tax.
`(b) Rate-
`(1) FOR 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service
793 lewislynn

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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% ?

Hopefully, we can disregard the 40/50% imaginings of the fringe.

What say you?

[groanup]

What say you?

With all due respect, I say your post are difficult to comprehend with all the lines and such. Just a suggestion. I can't tell what you are arguing.

[ancient_geezer]

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)

T_e = 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.

T_i = 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%.

[kevkrom]

We should be able to agree on the actual tax rate proposed on a $100 purchase. Is it 23% ? Or -- 29.86% ?

Both, it depends on your point of reference. In terms of a sales tax as you are used to paying, it is 29.87%. In terms of an income tax you're used to paying, it's 23%. The two tax systems use different mechanisms (tax-exclusive for state sales taxes, tax-inclusive for income and payroll taxes).

The example is easier to understand on a $100 total bill, after taxes. The pre-tax item price is $77, the tax is $23. Under the state sales tax model, the tax rate is 23/77 = .2987 -- under the income tax model, the tax is 23/100 = .23 .