Posted on 05/12/2005 7:46:54 PM PDT by Your Nightmare
Members of the President's Advisory Panel on Federal Tax Reform on May 11 expressed concerns over the FairTax national retail sales tax, a plan that has emerged as an alternative with a major grass-roots push.
Panel chair Connie Mack, vice chair John B. Breaux, and other members worried the plan would be difficult to enforce, would be regressive, and would require a high rate in order to take in enough money to fund the government.
Breaux raised concerns that the proposed 23 percent (tax-inclusive) rate would not be sufficient to raise the revenue necessary to fund the government. The Joint Committee on Taxation estimated that it would take as much as a 57 percent (tax-exclusive) rate to be revenue-neutral. Further, Breaux said he thought exemptions that would be carved out to make the sales tax progressive would also complicate it.
Mack, who raised concerns similar to his fellow panelists', said he was "intrigued" by the plan. "But if it's such a great idea, why haven't other political entities around the world pursued it?" he asked.
Americans for Fair Taxation Executive Director Tom Wright emphasized that the plan emerged after "thorough academic research" and "thorough polling" The strong grass-roots push has resulted in some of the group's 600,000 members appearing at each of the panel's hearings and has inspired a large comment-writing campaign to the panel in support of the plan.
Sales tax advocates were among the 20 witnesses who gathered before the panel for a full day of testimony on tax reform proposals. Although the group has held several other hearings in Washington and around the country, the May 11 meeting was its first hearing on specific reform plans since Bush appointed the panel in January. The panel has been charged with identifying tax reform proposals that are progressive, encourage charitable giving and home purchases, and are revenue-neutral. The proposals are due by July 31.
Among the tax replacement and reform plans presented to the panel were the value added tax, consumption-based tax, and the flat tax, as well as proposals that would use the current income tax as the foundation.
Witnesses generally claimed that theirs was the fairest, simplest, most flexible, most transparent revenue-neutral proposal that would improve economic growth and savings while meeting the president's criteria of encouraging charitable giving and home buying. Witnesses presenting consumption-based plans praised their overhaul as taking millions of low-income taxpayers off the rolls, being easy to transition to on a worldwide basis, and including safeguards to prevent new loopholes that would result in increased complexity down the road.
Tax reform panel members, who agree the current tax system needs to be fixed, grilled witnesses without revealing whether they will ultimately endorse a consumption- or income-based tax or a different mixture of the two.
You're way off base there although your self-interest is quite apparent and explains why you don't mind sticking everyone with the existing tax system- so you can "get yours".
The ridiculous BIG scheme you keep mentioning (which has no backers in DC and is not a bill) is only a harebraned notion off a liberal Univ. of CA campus. It even states it will be necessary to increase taxes.
The prebate is merely part of the overall bill tax rate as a protection for those with low incomes ... but they still pay taxes at the same rate that you and everyone else does.
With the FairTax, you only pay taxes when you consume - and then only on new, untaxed things since used things are not taxed. With the present system you wish to keep, you only THINK you spending will be untaxed. It is taxed about 20% or more in the form of higher prices that you would otherwise pay as well in higher interest rates on things you might finance. If you continue to work you'll be paying even more in taxes than with the FairTax.
If you wish to pay little or no tax you could do that also by limiting your consumption but since you've said your object is to blow all your money I suppose you wouldn't do that, so perhaps you should invest and get richer and richer - that way the investment income is untaxed and you could earn so much you'd never notice the tax. You could pass it on to your family - I'm sure they'd appreciate it and THAT is not taxed either.
After all, you'd never pay the full 23% even if you blew the whole stash in a single bunch. Even if you should elect to spend it all under the present system you'd be paying as much or more in tax as I pointed out. All of this is not even considering the price reductions the FairTax will bring about which will give you increased purchasing power even considering the tax.
These increased costs must be recaptured by buyer #1, and are largely passed forward (raising prices) to the next point in the chain where the process continues (we are ignoring the effect of the overhead of buyer #1 on these costs for this discussion). The next point in the chain (buyer #2 lets call him) sees what amounts to those increased costs received from the first point in the chain (buyer #1) and the overhead of buyer #2 burdens what were these added costs from buyer #1 increasing their cost amount at the end of buyer #2's chain - a multiplying effect on the original cascaded costs. These cascaded costs are now quite a bit greater than at the input to buyer #2 and buyer #2 will now have embedded taxes of his own, some part of which will now become embedded tax costs just as for buyer #1. (And again, that does not mean they are taxes - those have surely already been paid by buyer #2 and employees).
This cascading continues through the entire consumption chain growing as it goes with a multiplying effect for each buyer.
OK, lets get this straight. Corporate income taxes, payroll taxes, etc. can be passed forward but they cannot cascade. A cascading tax occurs when a tax at one level of production is paid on the tax from the previous levels. Thus, the more levels of production, the greater the effective tax rate. This does not happen with corporate income taxes or payroll taxes. Payroll taxes are paid on wages, not on the payroll taxes of the previous levels. Corporate income taxes are paid on profits, not sales . Any taxes passed forward from previous production levels are deducted from sales to determine profits and the taxes due, thus no tax is paid on the income taxes from previous levels.
In this example I will assume the business can adjust their price to account for the income tax on their desired profit (even though this is not how pricing works in the real world) which would make the corporate tax incident on the consumer (not a common belief). I take the input costs (which include the tax from the previous level), include the value added and the desired net profit and add the tax in the desired profit to get the total price. This price is the input cost for the next level of production.
Corporate Income Tax
Level 1 Level 2 Level 3 Level 4 Level 5 The total effective rate is 20% (2.89/14.45), the same as the statutory rate. Because the previous taxes were removed from the amount taxed (profits) there was no cascading! There was "passing forward" of the tax, but that is completely different from cascading. You can add more levels of production to this example and the effective rate would not change.
For comparison, let's look at this example with no income tax.
No Tax
Level 1 Level 2 Level 3 Level 4 Level 5 The difference in the final price is the same as the tax passed forward above, $2.89.
Now let's look at a real cascading tax, a sales tax on all sales, not just retail sales.
Cascading Sales Tax
Level 1 Level 2 Level 3 Level 4 Level 5 The total effective rate is 675% (14.45/97.47)! If you were to add more levels to this example, the effective rate would continue to climb. This is a cascading tax.
As these examples clearly illustrate, corporate income taxes, payroll taxes, etc. do not cascade. To think that they do is silly.
It's your example that is silly ... and your premise that's wrong.
I said nothing in my example #357 about "cascading taxes" and yet that's the entirety of your post #362 and you continue to pretend that's what I was talking about. Re-read my example and see what cascading I'm talking about. It is obvious you do not understand cascading of costs boosted by taxes paid at all.
Your examples are meaningless and off the subject I was discussing. As I said, don't cry ... many economists don't understand either so you're not alone.
I am curious about the comment you make when you say:
" Any taxes passed forward from previous production levels are deducted from sales to determine profits and the taxes due, thus no tax is paid on the income taxes from previous levels."
What sort of a mechanism is it that you believe does this? And how is it we know what the amount of income tax from previous levels IS? Sounds more like your Nightmare VAT.
I said nothing in my example #357 about "cascading taxes" and yet that's the entirety of your post #362 and you continue to pretend that's what I was talking about. Re-read my example and see what cascading I'm talking about. It is obvious you do not understand cascading of costs boosted by taxes paid at all.The same would apply for costs. Unless input costs somehow affect the production costs of a level (they don't), there is no cascading (there isn't). There is passing forward, but not cascading.
I havent' followed the full thread, but the issue that I believe is at the core of this dispute is something we've covered before.....The notion that prices will fall the full nominal amount of the tax. I guess, by implication, that means that the PIT must be incident on the consumer. Is that how we got this notion that PIT is incident on the consumer?Yes.
Clearly the PIT cannot be incident on the consumer.Actually, I believe it could be, but almost certainly isn't. If employees asked for higher wages due to the income tax and the employer obliged but raised prices to cover the cost, wouldn't part of the personal income tax be incident on the consumer?
It is NOT an intention to mislead....but a nod to reality.What is an intention to mislead is to say consumer prices will stay the same while you get to take home your entire paycheck, which the AFT and most of their support claim all the time. The implication he is that purchasing power will increase...significantly. This just isn't possible.
All this being said, I don't think the vast majority of taxes are incident on the consumer (and the idea "cascading, embedded taxes" is bunk), that's why I don't believe producer prices would fall much after switching to a NRST and it would be impossible for them to fall significantly without nominal wages falling also.
Interesting little dance there.
Overlooks however, the fact that folks earning the wages are also the consumers who pay taxes whether they be income taxes or retail sales taxes.
I find it interesting that you find it necessary to put words in the mouth of AFT'rs with your "(as Fair Taxers imply)", the Fair Tax proponents here have been claiming one will receive their current contracted gross wage without any federal withholding taken out as the individual income and employee's side of the SS/Medicare taxes are repealed under HR25. They will instead be paying those taxes in the form of retail sales taxes when they purchase new goods and services.
With respect to replacing one tax system with another on a revenue neutral basis and all other factors held constant there is no higher wage necessary to make up for the tax, or even lower for that matter. There is only the same gross wage to be paid that which is contracted for by the individual.
As an NRST replaces the individual income and SS/Medicare taxes with tax collected at the time one spends their wage rather than at the time one earns their wage, the effect on gross wage in a revenue neutral replacement of taxes is nil for the same amount is still collected in aggregate from individuals. Neither upward pressure in gross wage nor downward pressure would exist as a cause for contracted gross wages to change.
The amount of total wages earned by labor, represented as gross wages in aggregate, are an overwhelmingly contractual based value not particularly subject to downward adjustment at whim of business employers.
Where there are no substantantive increases in business costs attendant with a tax replacement, downward movement of gross wage contracted to labor is less than likely, it would be rediculus to assume such. Likewise without substantive change in amount of taxes paid by individuals only a change in how taxes are paid, there likewise is no pressure introduced by such a reform a business to provide higher wages either.
Looking at the matter in parts, the incidence of tax upon the individual as a whole remains constant in the replaceing individual income and employee's side of SS/Medicare taxes with an equivalent retail sales tax. Thus the pressure by the individual to maintain current and contracted gross wage is considerable not allowing room for downward negotiation in gross wage earned.
As a consequence replacing those particular revenues received by government from federal individual income and employee's side of SS/Medicare taxes with an equivalent retail sales tax effects no change in gross wage. What, under an income/payroll tax system was paid to government by individuals out of wages as they are earned, merely becomes collectable from individuals at the time their earned wages are spent. No net change in pressure to raise or lower gross wages arises from a revenue neutral replacement of federal income and SS/Medicare taxes paid by the individual can exist.
Turning our gaze to the business side of taxreform however, makes for an interesting picture.
A look at the business side of taxes and the overhead costs attendant with those taxes reveals insight as to the relationship that arises between prices and lower costs on businesses, where wages are held in stasis by contractual obligation and the route to greater profit is seen in seeking market share & higher volumes attendant with lowering price to stimulate demand for product and redirection of the focus of resources into greater productivity.
Those taxes that are currently collected from businesses, (corporate income tax and employers the employer's half of SS/Mecidare taxes,) would be repealed under a retail sales tax regime.
With no tax levied on business purchases, business income or employer payrolls, under a retail sales tax structured as an excise on consuption products, considerable reductions in the cost of doing business would allow higher productivity to maximise profit through lower product pricing increasing demand and consequent market shares in competitive markets.
Repealing both corporate income taxes and employer's side of SS/medicare taxes removes the burden of not only those taxes on businesses per-se, it removes the attendant overhead costs on business expended in avoiding, minimizing, planning for, filing & reporting, litigation and legal fees arising out controversy with the government. With greater certainty of amount of taxes due, also comes a lowering of prices for the lower risk factors of guessing wrong at tax remittance time.
The combination of those business taxes and related overhead factors are no inconsiderable portion of the costs that must be financed out of sales of good and services, offering price being the variable that business juggles in its dance of supply & demand and besting competion in optimising profits.
The repeal of federal taxes levied on business will provide for a very substantive reduction in the costs of those businesses and a release of resources directed away from productive utilization in running from the taxman into more productive channels to increase the output capacity and efficiency of business operations to sustain those optimal profits.
Not only does the repeal of business level taxation reduce the cost factors that limit profitibility, repeal of business taxes also allows redirection of resources enhancing overall productivity and capacity to maintain maximum profit potential at much lower pricing levels, driving demand upward with consequent economic growth with price reductions that become possible, indeed economically mandatory, in a competive market.
Prices received by producers and manufacturers are able to to be considerably lower at maximized profit level as a consequence of the reduction of tax related costs and tax savings derived from repeal of business level taxes.
Under a retail sales tax system designed to replace the federal tax revenues from all income and payroll taxes (business level as well as individual), the revene that is now collected from businesses financed through product sales would be collected from individuals purchasing for consumption, that would merely add to those lower producer level prices that are consequent to repleal of business taxes bringing the total (retail sales tax exise plus producer price) payment by individuals for consumption to a level equivalent to the prices paid by individuals before change over from a federal income/payroll tax sytem to a pure national retail sales tax system.
You obviously do not understand the effects of cascading and how they affect prices.
You clearly did not understand my illustration.
You are wwwaaaay off base.
You obviously do not understand the effects of cascading and how they affect prices.I do, what you don't seem to understand is that costs don't cascade.
You clearly did not understand my illustration.Because your illustration didn't illustrate what you think it did. It certainly didn't illustrate "cascading costs." You multiplied the costs between buyer 1 and buyer 2 for no reason. Why don't you try again with real numbers so we see these cascading costs for ourselves.
You and CG are wasting your breath ... he either doesn't understand cost cascading in the real world or wishes not to and so your explanations will fall on deaf ears.
'Fraid he's blinded by what actually goes on by his Nightmare VAT/Flat theory. Be interesting to see how far that sort of thing gets with the Tax Panel recommendations come Jul.
Under a retail sales tax system designed to replace the federal tax revenues from all income and payroll taxes (business level as well as individual), the revene that is now collected from businesses financed through product sales would be collected from individuals purchasing for consumption, that would merely add to those lower producer level prices that are consequent to repleal of business taxes bringing the total (retail sales tax exise plus producer price) payment by individuals for consumption to a level equivalent to the prices paid by individuals before change over from a federal income/payroll tax sytem to a pure national retail sales tax system.See, CG? Take home all your current nominal wages and don't pay anymore for goods and services with the tax. [At least, that's what I think he's saying. AG tries to impress with his language so much it ends up sounding like gobbledygook sometimes.]
You and CG are wasting your breath ... he either doesn't understand cost cascading in the real world or wishes not to and so your explanations will fall on deaf ears.I admit I've don't understand "cost cascading." I've never heard of it except from FairTaxers. So put some real numbers together and show me.
You and CG are wasting your breath ... he either doesn't understand cost cascading in the real world or wishes not to and so your explanations will fall on deaf ears.Conservative Goddess, do you understand "cost cascading"? If so, can you explain it to me?
You and looey seem to miss that point. Not everything is embedded into wages
So they aren't embedded in wages, they aren't embedded in the 100% of federal revenue collected...where exaclty are they embedded?
cascading sometimes over sereral levels in the price chain
Including the stuff from China and other foreign countries where most of the "price chain" (whatever that is) originates?
Guess what. using grade school math and simple logic can disprove your theory. Ten levels of the "production/supply chain" each one passing along a 10% tax for example would still be a 10% (not 100%) increase at the end.
If you use the idiotic "price chain" theory where the SAME item is bought then resold for a profit 10 times then you're a moron who deserves to get screwed at the end.
Take home all your current nominal wages and don't pay anymore for goods and services with the tax.
When the burden in tax related overhead is greater than tax revenues collected as they are under the current income tax system, yes NRST plus price received by producers can indeed be equivalent to what we pay today for consumption goods and services.
Substantial lowering of producer prices well beyond the amount of tax revenue collected in business taxes per-se is reasonable expectation in any competitive market.
The expenditure of overhead costs are results in large reductions in the tax bite a business would otherwise remit to govenment, business efforts minimize the amount of revenue that is extractable from business profits. Unfortunately that avoidence comes at a high cost to the business. A cost ultimately financed by individuals buying consumer products at prices higher than they could otherwise be.
For examples of the potential change in tax inclusive prices of goods from various sectors of the economy, I have transcribed data from Dale Jorgenson's US Business sector estimates of change in production output and change in price received by producers, as percentage of 1996/97 tax law baseline case from
Jorgenson, Dale, The Economic Impact of the National Retail Sales Tax, Final Report to Americans For Fair Taxation, May 18, 1997.
Available on request from American's for Fair Taxation.
The change in total payment paid by the consumer,(assuming a 23% NRST) for consumption for each business sector has been computed using the function:
Price(consumer)% = 100*((1-Price(producer))/(1-Rate(nrst)) - 1)
and presented as the change in NRST inclusive price to a final consumer in the last column of the table.
Presuming sector goods or service are sold to a final consumer for each sector the net change to consumer is represented in the last (shaded) column. Those shaded red represent net price increases (NRST inclusive) to the consumer.
I would submit that those NRST inclusive consumer price changes are within ±5 percentage points of the values that can be expected in average change in sector prices with implementation of the FairTax legislation.
| First Year 1996 Percentage Changes from Base Line Case For Fair Tax Implementation |
|||
| Business Sector | % Change Production Quantity |
% Change in Producer Prices |
% Change in Consumer Prices |
| Agriculture | 22.8% | -22.26% | +0.96% |
| Metal Mining | 31.96% | -22.51% | +0.64% |
| Coal Mining | 13.77% | -24.63% | -2.21% |
| Crude Oil | 5.10% | -13.25% | +12.66% |
| Other Mining | 34.99% | -23.50% | -0.65% |
| Construction | 55.28% | -24.48% | -1.92% |
| Food Products | 20.79% | -22.84% | +0.21% |
| Tobbacco | 34.00% | -25.14% | -2.28% |
| Textiles | 32.58% | -23.21% | +0.27% |
| Apparel | 17.89% | -19.19% | +4.95% |
| Lumber, Wood | 53.14% | -22.51% | +0.64% |
| Furniture | 73.63% | -22.36% | +0.83% |
| Paper | 28.13% | -22.81% | +0.25% |
| Printing | 15.22% | -24.91% | -2.48% |
| Chemicals | 33.91% | -21.83% | +1.5% |
| Refining | 6.22% | -16.05% | +9.03% |
| Rubber, Plastic | 49.96% | -22.66% | +0.44% |
| Leather | 24.13% | -15.25% | +10.06% |
| Glass, Inc. | 48.25% | -22.63% | +0.48% |
| Primary Metals | 38.62% | -20.72% | +2.96% |
| Fabricated Metals | 47.29% | -23.20% | -0.26% |
| Non-electric Machine | 55.86% | -22.26% | +0.96% |
| Electric Machinery | 55.25% | -21.04% | +2.54% |
| Motor Vehicles | 60.82% | -18.53% | +5.81% |
| Other Transportation | 16.90% | -23.80% | -1.04% |
| Instruments | 24.51% | -22.89% | +1.00% |
| Miscellaneous Manufacturing | 57.57% | -17.95% | +1.07% |
| Transportation | 17.71% | -24.45% | -1.88% |
| Communication | 14.79% | -25.30% | -2.99% |
| Electric Utilities | -9.05% | -23.51% | -0.66% |
| Gas Utilities | -8.29% | -20.03% | +3.86% |
| Trade | 28.87% | -25.43% | -3.16% |
| Finance, etc. | 16.93% | -24.87% | -2.42% |
| Other Services | 12.04% | -25.43% | -3.16% |
| Government Enterprises | 18.56% | -25.57% | -3.34% |
Under a retail sales tax system designed to replace the federal tax revenues from all income and payroll taxes (business level as well as individual), the revene that is now collected from businesses financed through product sales would be collected from individuals purchasing for consumption, that would merely add to those lower producer level prices that are consequent to repleal of business taxes bringing the total (retail sales tax exise plus producer price) payment by individuals for consumption to a level equivalent to the prices paid by individuals before change over from a federal income/payroll tax sytem to a pure national retail sales tax system.
That is one long sentence...what the hell does it mean?
the revene that is now collected from businesses financed through product sales would be collected from individuals purchasing for consumption,
Otherwise known as double talk...Does that mean under the "pure national sales tax" it will be passed on to the consumer...like you claim it does now?
"The income tax was first begun during the 1860s to finance the War."
So we add this to the list of constitutional violations of Lincoln.
Just as well throw in some points for tying during the War of 1812 as well.
Running short of tariff money, an income tax was proposed to help pay for that war. Fortunately for folks back then, the war ended before Congress could manage to do the dirty deed.
| Tax Museum 1777-1815 The Revolutionary War to the War of 1812
1812 President Madison appealed to Congress for a Declaration of War against Britain. Anticipating this possibility, Gallatin had proposed a series of excise and direct taxes to the House Ways and Means Committee. Rancorous debate over Madison's resolution, however, revealed deep political divisions on the propriety of the war. Congress proved reluctant to approve radical fiscal measures, settling for a doubling of the tariff schedule. 1813 Because of the ensuing conflict's interruption of commerce, customs revenues actually dropped 50 percent. In August, a full year into the war, Congress approved a set of internal taxes, including a direct tax designed to collect $3 million and excise duties on carriages, sugar refining, and distilled spirits. Congress explicitly designated these taxes as war measures, and provided for their automatic appeal within a year of the war's termination. Legislators made no real effort to accommodate state revenue systems as it did with the Federalists' land tax of 1798. An assessor or collector did, however, have to be "a respectable freeholder and reside in the district." In addition, states were granted a 15 percent tax discount from the anticipated sum apportioned to their citizens if state governments collected the taxes themselves and paid the federal government directly. A majority of states took advantage of this arrangement, which spared the Madison administration the trouble of establishing an extensive bureaucratic infrastructure. 1815 Secretary of the Treasury Alexander Dallas contemplated the enactment of an income tax to raise up to $3 million dollars for the war effort. He modeled his idea after the income tax Britain adopted in 1799 to finance the Napoleonic Wars. Dallas assumed that such an income tax constituted an indirect tax, and would not require apportionment. The House Ways and Means Committee responded lukewarmly to the proposal, and the war ended before any income tax could be enacted. |
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