Posted on 08/03/2005 4:51:43 PM PDT by RobFromGa
A simple question...
So, under the FairTaxI get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month. And businesses pay no taxes.
Where is the extra money coming from...
What is wrong with this reasoning below?
1. Right now the government collects $X in the form of all taxes.
2. All taxes are really paid for by consumers in the end result, either directly, or in the cost of their purchases which allow businesses to collect money in order to pay taxes. Companies do not really pay taxes they jsut collect them and pass them on.
3. The FairTax will collect the same $X per year in the form of taxes but using a different method.
4. Under the FairTax, the price paid for goods will not rise because getting rid of all the taxes built into goods will cause the prices to drop, then the FairTax will add onto the new lower price, resulting in the same price paid by consumers.
5. So, for a given taxpayer, shopping (consumption) will be revenue neutral. Ie. Prices are the same as before.
6. And each given taxpayer will get a "prebate" check every month that they are not getting now.
7. And each taxpayer will pay no taxes on capital gains, or on savings.
8. And, each taxpayer will no longer pay any taxes on income, or payroll taxes.
9. And, there will be no Fair Taxes on any purchases made for a business.
Are these all true so far?
Again, I get to keep my whole paycheck, prices for everything I will buy will stay the same even with the taxes included, and I get a prebate check from the govt every month.
Where is the extra money coming from???
Point taken.
I think you mean well, but I am not talking about tax overhead expenses.
I am for they are the majority of the real costs the affect whether or not a business can even compete and exist even to hope to have a profit on which to pay income taxes in the first place.
Most small businesses don't have much of these types of expenses, they are really just a huge annoyance and make us spend a day per quarter and a weekend in Feb doing tax forms. This is an infintesimal percentage of most small business and medium business costs.
Sorry to say but most small businesses actually pay less taxes than they have tax related costs. Mainly because their reported taxable income is so small in realation to the tax related overhead costs they incur.
I have run three businesses, I know what cost structures of small and medium businesses are like, you can't make me believe that there is 22% hidden cost, it isn't there.
Fine I have experience with many small businesses and I know for a fact that most of them lose and expend much more in tax related costs, legal fees, penalties and fines, as well a account specifically required because of income taxes than the taxes they actually remit to the federal government.
From knowing the tax related overhead and productivity losses at least equals federal taxes paid it is a very small effort to determine that 22-25% is a very likely number for the potential in reducing producer (sans tax costs) prices.
http://www.heritage.org/Research/Taxes/hl565.cfm
An American Economic Review study found that every dollar of taxes could impose as much as $4 of lost output on the economy, with the probable harm ranging between $1.32 and $1.47
Edgar K. Browning, "On the Marginal Welfare Cost of Taxation," American Economic Review, Vol. 77, No. 1 (March 1987), pp. 11-23.
"Another study in the Journal of Political Economy estimated that the corporate income tax costs more in lost output than it raises for the government."
Jane G. Gravelle and Laurence J. Kotlikoff, "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, Vol. 97, No. 4 (1989), pp. 749-780.
Chief Executive, The New directions in tax reform -
May 1995.
Tax expert Ernest Christian Jr., a partner with Washington's Patton, Boggs & Blow, reckons these are low estimates or at best incomplete. Citing a U.S. Treasury study which indicates that 6 billion man-hours are consumed each year just in the record keeping for income and payroll tax returns alone, Christian says the true burden on the U.S. economy is probably closer to $1 trillion.
STATEMENT OF REPRESENTATIVE DICK ARMEY
HEARING ON THE IMPACT ON
INDIVIDUALS AND FAMILIES OF REPLACING THE FEDERAL INCOME TAX
Committee on Ways and Means, Full Committee, 4-15-97 TestimonyHinders Economic Opportunity
According to a study by Jane Gravelle, an economist with the Congressional Research Service, and Larry Kotlikoff, an economist at Boston University, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury. Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises in revenue through the current system costs the economy $1.39.
If you sell dirt from your back lot there probably wasn't
much Tax on it before you sold it (Property tax) but if it
was manufactured and shipped then every company that
touched that item from each raw material to your sales
floor had to collect and pay tax (both corporate and
employee) which was added on to the wholesale cost
you paid for it. A large appliance, good gracious! An
astronomical amount of accumulated tax was transferred
to the cost of that product.
I'm not sure there is enough money "imbedded" in the price of a product to come up with the 22%. I agree with many of these posts that prices will have to rise to allow a business to pay the 23%. Though I do have a couple of thoughts.
1) People who now pay no income tax will contribute to federal revenues through their purchases. This should add some more money to federal coffers.
2) Not all states collect income tax--how do they raise revenues? I suspect the feds will find other ways to tax businesses or raise revenues--maybe through import tarriffs to compensate for the imports not having to pay any imbedded taxes as is.
3) I am a physician and have a few questions of my own. The vast majority of my costs are insurance. Payroll taxes, supply costs, etc. do not add up to a great amount to my costs. My main question is this: My charges and collections are nowhere near the same thing. Do I only pay on what I collect? How does the government know what I collect unless they monitor my income? I suspect there will still be a federal infrastructure to police these incomes.
I am not an economist nor do I profess to understand much about the economy/taxes. I have an accountant and a business consultant--they know more about all this than I do so please excuse any naivete in my above post.
And if it is, it's a big red flag that the replacement system is destined to screw the taxpayer even moreso than the IRS. :-/
Lowers your standard of living by raising the cost of the imports you buy. Would also send us back to the days of trade wars making it more difficult for US merchants to sell in foreign markets.
There's no way to avoid a personal hit, unless you are a hobo.
Someone earlier in the thread pointed out IRS data on payroll (and payroll taxes) vs. corporate income (and corp taxes). My 70/20/10 split should probably be more like 80/10/10 which drops my embedded tax calculation to about 9.1%.
You're right. Trixie does not see any benefit from the fair tax. In fact, she may have things worse if prices do rise. Her services may cost more because of it.
Unless she got herself one of those sales tax exemption cards. Alas, only in certain counties of Nevada.
Isn't it funny that not one FAIRTAX shill has addressed the real numbers I posted in #67.
The guy dies and it'll be taxed again.
pinging
When in Germany, we were subject to a VAT tax. As American military overseas, we were permitted by the Germans to submit paperwork restoring our vat on purchases. (Most applied only for large purchases, but I think you could save up purchases and apply.)
In any case, they'd restore to us (about 1996-2000) about 16% of the purchase price.
But that was VAT.
Yes! Let's do that but before we proceed I must ask you a fundamental question or two if you don't mind.
1. Would you agree that the mining concern delivering the iron ore to the smelter is in business for the purpose of making a profit? How about the smelter and the steel mill?
2. If your answer to #1 is yes, must these include ALL their costs plus their profit margin in the price of their respective products?
No, it isn't. Because the post you made is ridiculous and your previous posts consisted of such comments as BWAAAAAAHAHAHAHAHAH!!!. You have been officially ignored.
BWAAAAAAAAAAAAAAAAAAAAAAAAAAHAHAHAHAHA!
Sorry, but the numbers don't go away. Take it up with the Bush's OMB if you think otherwise
That's what I'm doing. I'm trying to understand the plan. And if the Fair Tax supporters can't convince someone like me of the sense of the plan, who is pre-disposed to want to eliminate income tax, then they will never succeed in convincing the general public to go along with it.
They get a "prebate" of the tax that they will pay, so they still pay nothing. THe supporters of the plan are careful to point out that the freeloaders will not pay taxes. And the middle class will pay less, and the rich will be better off, and the government will still have the same amount of revenue.
2. If your answer to #1 is yes, must these include ALL their costs plus their profit margin in the price of their respective products?
1. yes, yes, and yes
2. yes
The point I was trying to get across was that the entire cost of an item is made up of 1) labor, 2) profits, 3) foreign import inputs, 4) cost of unimproved domestic land, 5) taxes. I hand-waved away #4 as too small to worry about for my rough estimates. #5 would largely be eliminated by the NRST, so I hand-waved away the remaining part for state/local/etc. taxes. That leaves labor, profits and foreign imports. The cost of the goods purchase, worked on and resold are themselves entirely from #1-5 eventually.
The foreign imports would of course also be just made from the same inputs (labor, profits, taxes, raw land). I put them in a different column because they are taxed differently than US labor and US profits.
And if the Fair Tax supporters can't convince someone like me of the sense of the plan, who is pre-disposed to want to eliminate income tax, then they will never succeed in convincing the general public to go along with it.The sales pitch of the outcome of the Fairtax is based on lies, repeating the lies, deception, and conjecture....there are no facts.
I was actually referring to the drug dealers, illegals, etc. who pay no income tax. These people will now contribute through their purchases. I understand that unless prices rise these people will not notice a difference, but the goods they buy will now contribute to federal coffers, not just to state and local coffers through their respective sales taxes. I would hope the illegals would not get the prebate--but I would also hope they wouldn't get drivers licenses either. Some politico, I'm sure, would find a way to give them their prebate since they have to buy food like the rest of us. But I digress.
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