Posted on 03/03/2005 7:05:07 AM PST by FairOpinion
I think ancient geezer already answered your question in post 337. But I will attempt to, also.
A Joint Economic Committee ("JEC") study concluded that the NRST rate would have to be at least 32 percent unless imputed items of consumption, like "rent" that the national income accounts assume homeowners pay themselves were also included in the base. Furthermore, if food, medicine, and physician's services were excluded (as is commonplace among many state sales taxes) the rate would have to rise from 32 percent to 49.3 percent. Alternatively, they found that if all services were excluded from the base but food and medicine continued to be taxable, the rate would have to rise to 64.6 percent.
Wow! 49%, 64%, and rising. Principled and ancient_geezer didn't share that with us!
The FairTax differs from the above in that the above is describing hypothetical qualities of hypothetical NRST plans, which are NOT qualities of the FairTax. The FairTax solves the "problem" caused by the examples you cited by doing the oposite of what your examples do: it BROADENS the tax base over ALL consuption rather than NARROWING the tax base by picking and choosing special items to exempt.
Maybe I'm not understanding your point. It seems obvious to me that the more items exempt from taxation, the narower the base, and the higher the tax rate would have to be to be revenue neutral. The FairTax is designed to broaden the tax base over all consumption to make the rate as low as it can be. You seem to be not in favor of the FairTax, but your hypothetical examples of things that would increase the rate are examples of what the FairTax, as written, has avoided.
The Fairtax simply continues what is already happening you IDIOT!Uh, the only tax the federal government pays is the employer portion of Social Security. That's a lot less than an additional 30% on their purchases and employee's wages. Besides, the tax they are currently paying is accounted for on the expenditures side.
What do you suppose would be the result of taxing all goods and services sold in the private sector but NOT taxing those same things when the purchase is made by governments?For the federal government, it would be the same as if you did tax them. There is no net effect of the federal government taxing itself. For every dollar they pay, they get a dollar. There is no way to avoid this. The FairTax authors only tax the federal government for constitutional reasons and to allow them to play accounting games to achieve the "revenue neutrality" of the FairTax.
"Sorry but if you examine tax forms for businesses there is no line for 'income tax'"
What "tax forms" are you referring to? Are you saying there is no line on a corporate income tax return for "income tax"?
Are you serious?
Maybe I'm misunderstanding what it is you are refering to. Are you refering to Government Enterprises charging tax on taxable products and services?No, I'm referring to the fact that the federal government is paying itself a tax and the FairTax only accounts for the revenue this generates, not the increase in expenditures it would cause. It's as if I gave myself money and considered it income. It doesn't work that way. You have to account for that money on both sides of the ledger.
IF any income taxes are due they come from PROFIT. IF there is no profit there are NO income taxes. Examination of any corporate return will show that profit can be manipulated from year to year to minimize profit.
Economic theory postulates that a business will try to maximize its profit over time that output is not changed income tax or no income tax.
There is no line in the deductions section, or the cost of goods sold or anywhere dealing with expenses. Of course there is a line for Tax due. Sorry if I was not clear about that.
I understnad this concept.
No, I'm referring to the fact that the federal government is paying itself a tax and the FairTax only accounts for the revenue this generates, not the increase in expenditures it would cause.
I don't understand what provisions of the FiarTax accomplishes that. What are you refering to?
Form 1120 or 1120S. Or in the 1040 Schedule C.
Fairtax supporters don't think in real life terms. They speak as if the fairtax actually exists.
Depending on what margin your business is working at you couldn't lower your prices equal to the sales tax.
The sales tax is "of the gross payment", business income tax including "tax costs" is not....it doesn't/can't compute to -0-.
How can a typical business earning, paying income tax on, 10% or less profit lower their price (gross income) 20 to 30%?
Likely more since the tax burden of an entire group of taxpayers would be shifted directly to consumers.
If you tax food and medicine etc., you are going to make it even harder to get a bill passed. If by broadening the tax base you mean the taxing of Fed employees, you run into the problem raised in #341, where you have to increase their salaries so you can charge them sales tax, so the Fed expenses increase and the sales tax-rate has to go back up to the higher rate it would have been if you hadn't pulled this trick.
The federal government, as do ALL governments in this country, currently pays ALL the corporate income tax, and ALL compliance costs associated with the corporate income tax, of every corporation from whom they purchase anything as well as those taxes you mention and the costs of complying with them.
The FairTax authors only tax the federal government for constitutional reasons and to allow them to play accounting games to achieve the "revenue neutrality" of the FairTax.
You simply don't have the REMOTEST clue as to what you are talking about but why should THAT come as any surprise to anyone?
The FairTax authors only tax the federal government for the purposes I alluded to above and none other! If they DON'T do that the private sector will simply disappear VERY rapidly!
"Such a calculation comes at the end of the economic process not at the beginning."
So your position is that only costs at the beginning of the process are recouped, not costs at the end?
I will repeat my earlier question: Where do the funds come from to pay corporate income taxes?
What do you suppose would be the result of taxing all goods and services sold in the private sector but NOT taxing those same things when the purchase is made by governments?
Interesting that apparently, according to the JCT, that is required to assure parity between a retail sales tax, and income or flat taxes.
It should be noted that the taxation of government consumption avoids significant transitional effects as well by maintaining equivalency of treatment of both private and public sectors in replacing the current tax system with an NRST.
A fairly comprehensive discussion of the issues involved can be found here.
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Prepared for Americans For Fair TaxationPrepared for Americans For Fair Taxation This report responds to Ken Kies’ letter to Chairman Archer of January 12, 1998. In his letter Mr. Kies propounds several objections to the Americans for Fair Taxation (AFFT) FairTax plan (FairTax) as raised by the Joint Committee on Taxation (JCT) staff. This memorandum addresses those objections with respect to three basic issue areas. They are:
Page 14-16
C. Government Value Added Should be in the Tax Base The Same As It Is In the base of the Income and Flat Tax Schemes
We anticipate that one possible source of confusion on the part of the JCT is the tax treatment of government output. How should such output be taxed, if at all? The GDP includes, of course, both government value added and private value added. Government value added is included at “cost”, which is primarily the wages paid to its employees. The income tax taxes income whether the source is government or the private sector, and by doing so, taxes government output. While the government pays its employees a gross amount and then withholds the income tax from their paychecks, we could, of course, just pay government workers a lower tax-free wage. This would accomplish the same objective. However, we choose not to do this: with the result that we have higher spending (from paying pre-tax wages) and higher tax revenue (from the income tax on those wages). And it is important to note that the flat tax does tax government (and non-profit) output because government (and non-profit) wages are included in the tax base. To be consistent, the AFFT FairTax does so as well. A pure subtraction method VAT (aka a business transfer taxes) would not typically tax government value added. The Hall-Rabushka flat tax variant is an exception, however. Unlike a normal subtraction method VAT, the flat tax allows a deduction for wages and then taxes wages at the individual level. In doing so, it also provides the mechanism for taxing government wages (while a normal BTT only taxes business wages by taxing receipts and denying the deduction for wages). Thus, the flat tax base is much larger than the base of a normal BTT (i.e. larger by the size of the government wages).62 So today, both the income tax and the flat tax tax government output. However, a sales tax, in the absence of a special rule, would, like a pure BTT, not tax government value added by employee wages. In the absence of a tax on government payroll, therefore, the tax base would be much smaller than under either the income tax or the flat tax schemes. Assuming spending was held constant, this would effectively increase the relative size of government by the proportion of revenues relative to wages and government purchases that are foregone. The FairTax taxes government value added in order to maintain the relative size of the government to the private sector, rather than increasing the size of the government. Another way of looking at this problem is to examine it from two different perspectives: incidence forwards and backwards. If we assume that consumption taxes are fully incident on the factors of production, then the return to capital and the return to labor will decline by the amount of the tax. As noted earlier, under this incidence assumption, tax-inclusive prices would not be higher but the return to workers and capital would decline. Thus, in the absence of a special rule, government workers would experience a windfall. Their consumption prices would not go up and their wages would go up by the amount of the repealed income tax but, since government value added is not taxed, their wages would not appear to be subject to downward pressure.63 Taking the alternate incidence assumption, namely that the FairTax would be fully passed forward and borne by consumers, government employees would pay the tax just like private sector workers, since tax-inclusive prices would be higher by the amount of the FairTax. Government workers would, of course, have higher pre-tax wages, but the costs of purchasing goods and services would be higher by the amount of the FairTax. However, the inequity in our alternative incidence assumption redounds to the beneficiaries of government who would now be consuming a level of government services that is enlarged by the removal of the wage taxes formally imposed. We collectively would be getting the benefit of government (the Armed Forces, the Consumer Product Safety Commission, National Public Radio, or the JCT on Taxation) free of tax. Those who disproportionately benefit from government would disproportionately benefit from this effective increase in government spending. Or, put another way, we would have legislated a huge increase in the size of the government that is paid for by the private sector. Another way of addressing this problem is to simply take the National Income Product Accounts and start calculating the tax base under the various consumption taxes. If one goes through this exercise to demonstrate the oft-repeated equivalence of the various consumption tax plans, it becomes clear that in the absence of a special FairTax rule regarding government, the flat tax has a broader base because it taxes government wages. Similarly, a pure income tax is broader not only by the amount of unconsumed capital income but also by the government wages amount.64 In the context of a sales tax, then, an employer payroll tax on government wages simply achieves parity with the income tax and the flat tax. Failure to impose this tax would exempt government value added from tax for the first time and constitute a dramatic incentive to consume through the medium of government. The JCT seemingly recognized this in their pamphlet “Impact on State and Local Governments and Tax-Exempt Organizations of Replacing the Federal Income Tax,” p. 57-58, May 1, 1996. A sales tax should also be imposed on government purchases from the private sector to fully reflect the opportunity cost of that purchase. Government enterprises (e.g. Amtrak, the Post Office) are a separate case. They can easily be put on equal footing by taxing their sales and exempting their inputs as if they were a private enterprise. If government (and non-profit) enterprises are not subject to tax, they will have a huge relative price advantage over private companies through cross-subsidization.
62. Even a normal BTT, however, taxes government purchases of goods and services from the private sector since the private revenues from those sales are includible in the taxable base. 63. Eventually, with free market forces, private sector workers and perhaps political pressure would bid the government salaries down. However, given the rigidity of government pay scales and rules against exchange this may take many years (i.e. government wages may be “sticky”). In the interim, the relative size of government will have increased. 64. Since the sales tax does not tax the “return” to government investment (i.e. later government consumption scored as government capital consumption in NIPA), using a tax prepayment approach that is equivalent in present value terms to taxing the returns is appropriate. |
I don't understand what provisions of the FiarTax accomplishes that. What are you refering to?The FairTax imploses "a tax on the use or consumption in the United States of taxable property or services." The only exceptions are for "business purpose in a trade or business", "export from the United States", "taxable property or service purchased for an investment purpose", or "on State government functions that do not constitute the final consumption of property or services." This means the federal government pays sales tax on it's purchases. So do the states.
For example, we would:
· Expand our current system for registering Texas retailers to include registration of sellers under the Fair Tax (615,000 businesses are currently registered as sellers in Texas; under the Fair Tax, 1.5 million Texas businesses would have to be registered);
· Expand our taxpayer assistance efforts to respond to a larger volume of telephone, letter and e-mail inquiries from sellers who collect the Fair Tax and individuals who pay it;
· Expand our Revenue Processing Division to process more returns and tax payments on a more frequent basis and to remit tax collections to the federal government on an almost-daily basis;
· Expand our current audit team and train all auditors to examine businesses for both the Fair Tax and the Texas sales tax; and
· Expand our information technology systems to collect and maintain the computerized records critical to effective administration of a consumption tax like the Fair Tax.
The expansion of our systems to administer the Fair Tax, in the manner I've just described, would be sizable. Under the Fair Tax, we would serve approximately 900,000 more filers than we do currently. We estimate that serving that many additional taxpayers would require 1,100 to 1,600 more full-time employees.
And this is going to reduce compliance and collections costs?
No my contention is that income taxes are not a "cost" to businesses as are other forms of taxes. When you make a widgit you put the cost of ss taxes, head taxes, medicare taxes, sales taxes and other discreet business taxes into the expenses catagory. Just as you do for materials cost, labor cost, transportation cost etc.
How do you do that with a tax that may not even be there at the end of the year? And NO income taxes are NOT recouped. They are paid ONLY by business which make a profit.
a) have 5 people pay $18 each...
The consumers after removing some taxpayers from the tax rolls.
or you could expand the base
b) you could have 18 people pay $5 each.
The consumers/taxpayers before the sales tax.
The same amount of money is raised.
By shifting the tax burden to fewer taxpayers.
The federal government, as do ALL governments in this country, currently pays ALL the corporate income tax, and ALL compliance costs associated with the corporate income tax, of every corporation from whom they purchase anything as well as those taxes you mention and the costs of complying with them.A tax on income is not a tax on the source of that income. Besides, if it where, this cost is already accounted for the expenditures side of the ledger. It isn't with the FairTax.
The FairTax authors only tax the federal government for the purposes I alluded to above and none other! If they DON'T do that the private sector will simply disappear VERY rapidly!Again, there is no net effect of the federal government taxing itself. It's just an accounting trick to make the FairTax look "revenue neutral" at a lower rate than would be required.
"It is quite easy to 'estimate profit' -- how accurately you can estimate it is another matter. However, most of the businesses with stocks listed on Wall Street are able to come in fairly close to their predictions. (Sometimes they back into it, but that's another topic)"
Actually, profits (and income taxes) are relatively easy for any mature organization to forecast PROVIDED that they are reasonably close to their sales forecast. IOW sales is the toughest line to anticipate, but if the sales number is reasonably accurate, then all costs (including income taxes) will typically fall into line, assuming that they have reasonably competent financial staff.
Taking justshutup's logic, businesses should not even attempt to forecast sales (which will have a MAJOR impact on pricing decisions), since sales occur "at the end of" the business process, rather than the beginning.
Busineses set prices by flipping a coin or pulling out a jiugi (sp?) board.
The contortions in logic and economic principles that the guardians of the status quo go to to deny the benefits of the FairTax are incredible.
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