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???
There are now about $1.2 trillion dollars in imports. To cover about $2 trillion in taxes you would need a rate of 167%. This would 1. reduce the amount of imports so the tax rate would have to go up on the remaining part, 2. really hit hard on thing which must be imported (OIL!), 3. cause foreign countries to jack up tariffs on our exports, 4. probably violate dozens or hundreds of treaties of tariffs we've signed.
With the progressive income tax system the government is allowed to make, and enforce, an apriori claim to whatever portion of the fruits of your labor they wish, the very defination of slavery IMHO. On the other hand the Fairtax makes no such claims and does not require the modern version of the Spanish inquisition for it's enforcement.
How much is FREEDOM worth?
I agree the current tax is a nightmare. I'm just jumping through all those hoops to try to find a real value for the embedded tax which would go away with implementing the FairTax. I came up with about 9% direct + compliance costs. I have a hard time believing that is large enough so its removal result in the same net prices after the Fair Tax is added.Look at my post #61. The only way you can get anywhere near the suggested price drop is if you include the employee's payroll and income taxes. That means the employee's would have to take a cut in their current pre-tax wages for the prices to go down this much. (And that isn't going to happen.)
the link won't work, maybe the site is overloaded. I will look into it.When you get to the link (it just worked for me) notice that they include federal government consumption in the base. In other words, the government is paying the FairTax to itself. They count this as revenue but don't adjust expenditures (revenue required) to pay the tax! It's as if you gave yourself a loan and called it income. Take that out and the rate goes up.
"Compliance costs would be hard to calculate because I expect that direct compliance costs (hours spent by accountants) would be smaller than the indirect cost of doing economically stupid things to jump through tax hoops. Recently some investors wanted to put money into where I work. Probably 80% of their discussions were about tax consequences of their actions instead of whether their investment would make money."
I agree, the toll those kinds of things take on our economy are enormous. I heard that when Daimler-Benz merged, their boards spent days in working the thing out. When they emerged, it was announced that they would be headquartered in Stuttgart, Germany. One of the direcotrs apparently said that they wanted to be based in Detroit, but when they analyzed the tax implications, that was a no go. Multiply that times the many, many times that happens (mostly on a smaller scale) and the impact has to be enormous.
I would not consider these kinds of things "compliance costs", but they are economic drags nonetheless. In fact, even when these aspects don't result in a business actually leaving our shores, just the time and energy wasted has to be enormous. That aspect could be considered a compliance cost.
Got link?
What I understand so far is that the FT people are claiming that the compliance money currently spent is enough to fund everything without asking the taxpayers to fork over a nickel. Everything we buy retail will cost the same as it does now, we will pay no taxes to the FedGov, and everyone gets a check every month to boot.Did you read the quotes I posted in #61?
A grateful tip of the hat to the political leadership on the tax reform issue from Georgia. John Linder has done outstanding work. Zell Miller was one of the first to sign on in the Senate. More discussion in the election races there than anywhere. And thanks for your open-minded contributions in this thread.
I've just gotta' answer that one for you since it cries out to me for an answer.
The embedded tax costs (and, truly, they are more than just embedded taxes) that cascade from level to level as things progress from one entity to another moving from inception through different production stages to final consumption. At each stage, a bit more of the nonproductive tax costs costs are added and get embedded.
When a thing is finally purchased whether by Ma and Pa K, or by someone from the underground economy (which is far more than just the drug trade since it includes, smong others, illegal aliens) the amount of embedded tax they contribute to the tax system is only that represented by their purchase.
Let's take a $100 purchase and say the retailer has a good margin of perhaps $25.00 profit. If this business is in the 15% marginal bracket which is reasonably representative, then the total "contribution" to the IRS would be the $25 x 0.15 = $3.75 - and that's from the entire price not just the embedded costs. You can see then that embedded taxes when purchased by the final consumer add only a small amount to the tax "contribution" but they do add to the cost of the thing itself by raising its price.
The extra money captured from the underground economy is NOT on the illegal transactions which by definition will never be known but on the underground money when it is spent at retail for taxable items. With the $100 purchase just described, there would be a "contribution" of $23 rather than $3.75.
That is, certainly, a noticeable difference. When you multiply an increased tax contribution by illegal aliens, for example, and multiply by the 20 million or more that we currently have, you end up with some very sizeable "contributions". One study I've seen estimates this to be $35 Billion, but I suspect that's even low.
THAT's how far more that one cent is captured from the underground economy - by the same mechanism that captures the same amount from Ma and Pa K on a like purchase.
From day one the prices will go down. Retailers get an inventory credit for the taxes embedded in the inventory they have on hand on the day the tax takes effect, so they can immediately lower their prices. Why would they lower their prices? Competition! And where did you get 25-30%? Out of thin air?RobFromGa, their rate also doesn't account for this inventory credit. That's several hundred billion dollars in revenue that the government won't see.
I want the IRS gone out of private lives.
I'll accept a vat or a sales tax to make that happen, but I'd prefer to see homes, death expenses, and medical care taxed at a lower rate; perhaps 25% of other items. Birth, death, residence.
You are right, but the inventory write-off is a one-time charge, I could live with that if the plan would be sustainable as a steady-state program. That can be solved and it doesn't bother me so much.
"phil_will1: The answer in both cases is the same: they are both asymptotic curves, meaning that they approach a constant but never reach it, even if you extend the curve into infinity. If you were to go thousands of levels deep into the supply chain, you would reach a point where accumulated taxes account for well over 99% of the price you would be paying.
In other words you get to 30% really fast but to get to 'well over 99%' takes quite a bit longer."
I notice that you left out a very important part of that post in which I said that that was the way the mathematical model worked, but supply chains didn't run into the thousands in the real world.
I also seem to recall that that comment began an amusing exchange in which you revealed your belief that if a product had 100 components, that equated to 100 levels in the supply chain in your mind.
If you don't understand my posts, that's fine. However, I would appreciate it if you would stop quoting me out of context and distorting the meaning of my words. That isn't beneficial to any position you advocate for - even one as loathsome as your beloved Marxist progressive income tax.
Why don't you write your congressmen and let them know you support the Fair Tax. Maybe if enough of us did they would be compelled to enact it. I wrote mine yesterday.
Rob, there is a word for people who would do that. Criminals.
Don't waste your fingers on him. He is the most ardent anti-Fair Tax guy on FR. He "knows" more than any economist, congressman, or anyone else in the whole world. A legend in his own mind.
Read your own post again realll slowwww and you might get it.
You are a credit to your cause. You could have a great career as an IRS collection agent with your attitude.
Correct on the 'Income Tax' but on Federal wage taxes, (SS & Medicare) they are paying 15% of their total income.
Mine wrote the Bill, so there.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.