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???
I've read the bill. It is not detailed on these points.
Rob, if you will click on this link http://cato.org/pubs/pas/pa-272.html and scroll way down to "A Note on the Sales Tax and Government Output " it will explain this. In fact, read the whole article. It will explain a lot of the questions you have had on this good thread you started.
BTW, YN, is there a line item in the budget right now for the payroll taxes on the federal government employees? Just asking.
Dear rwrcpal,
Lots more companies are like mine than have dramatically high tax compliance costs. Especially small businesses. Small businesses are usually about the product or service provided, not about trying to figure out a way to make money specifically off the tax laws. And most businesses are small businesses.
My accountant works primarily with small businesses, and he tells me that I'm far more compulsive about compliance than many other small business folks.
There's plenty of government red-tape that I have to put up with as a small businessman. But tax stuff isn't the most of it. And frankly, most of my compliance stuff would remain under the so-called "fair tax."
I'd have to continue to track and report income of my employees to the IRS (or to some other govt agency). I'd still have to pay unemployment insurance, and thus, I'd still have to comply with federal and state laws concerning who is a contractor, who is an employee, etc. I'd have to continue to pay workers' compensation insurance (although that's private insurance, it's nonetheless based on a govt requirement imposed upon me).
Because I only sell services, currently, I don't need to report sales or use tax. But under the so-called "fair tax," I would need to be set up to collect sales tax, and I'd have to determine who is eligible to exemptions (most of my clients) and who is not (a few of my clients).
Because most of my clients are business clients, I'd have a lot more exempt clients than non-exempt, which would likely raise red flags with the govt auditing agency (the new IRS or whatever you want to call it) meaning that I'd likely be subject to frequent auditing.
As well, because I sell no products, I pay sales tax now on everything I buy. Thus, I don't have a sales tax exemption in my own state, and that also reduces my compliance costs.
The govt never asks me whether I'm using my sales tax exemption for personal purchases because I don't have or use one.
Under the so-called "fair tax," I will have to buy with a sales tax exemption (or pay an extra 30% for all the goods and services I need for my company), and the govt will then wonder whether I'm buying stuff for home use with my exemption. More auditing. More compliance. More cost.
There are literally several million small businesses like mine that sell services, not products, and are specifically set up to minimize tax compliance issues, as I have done. For folks like us, our tax compliance costs would jump 10 or 100-fold under the so-called "fair tax."
The folks whose costs would be reduced are mainly very large companies that have whole divisions of accountants dedicated to tax avoidance. I suspect that these folks will save, in absolute dollars, significant amounts of money. However, in terms of percentage of their revenues, it is unlikely that they'd save more than a percent or two by eliminating a division of accountants, no matter how well paid.
sitetest
"Notice how their model has the labor supply increasing 30% the first year. I don't know about you, but that doesn't seem that reasonable to me."
The reason that it doesn't seem reasonable to YN is that he dismisses outsourcing as a part of the labor supply. With outsourcing, the labor supply is, for all practical purposes, unlimited. Of course, that doesn't suit his agenda, so he just says "outsourcing isn't part of the labor supply". He never bothered to offer a source for that counterintuitive assertion. It is that way because YN says it is. This is one of many reasons that I adopted the tag line that you see below.
You will appreciate the irony that YN, who offers the criticism of Boortz's book not being well sourced, doesn't bother to source that opinion. Of course, when you are YN, you don't need stinkin' sources. You make a statement and everyone is supposed to accept it as the law of the land.
I have consistently rejected that position and will continue to do so.
It sounds like a lot more paperwork than I do right now. And I do all the monthly and quarterly tax forms for my company myself, I get an accountant to do the annual based on information it takes me a day to pull together.
My compliance costs (mainly time) sound like they will be increased. It might not even be worth recovering a lot of the small business expense items and just go ahead and pay the tax. So the governement will get back some Lazy Tax there by making the refund process a hassle.
On a related topic did you know that 30% of all mail in reabates are never returned, another 10% are thrown out for incorrect documentation. This could work like that.
Like every government law/program everywhere, it will abused to within an inch of its life.
BTW, YN, is there a line item in the budget right now for the payroll taxes on the federal government employees? Just asking.They are factored into the costs of their employees, so yes.
Dear wardaddy,
Ah, but under the so-called "fair tax," you will get to continue to pay property tax, local income tax, etc., because those are all local, and this tax merely replaces federal income and payroll taxes.
sitetest
I suggest that you spend a little time with the methodology of using the NIPA tables with this paper which was the initial defining revenue neutral derivation for the FairTax:
http://www.cato.org/pubs/pas/pa-272.html
This will give you a much quicker insight into the various lines and classifications in the NIPA figures - much more so that trying to get an overall understanding from looking at a single table and not knowing all the detailed background information. Perusing this paper and then the later set of numbers in the link in #39 should help you quite a bit.
I read somewhere that they anticipated human nature and that consumers would go on a spending spree in the month or so prior to the effective date of the Fair Tax. That would result in higher profits for businesses therefore a windfall in taxes for the government in the last year under the current tax system. It will be a one time credit. People may buy some things they wouldn't normally buy so there may not be a corresponding decrease in spending after the effective date.
We have tax free weekend in Texas starting tomorrow. You should see the stores! You can't stir people with a stick.
Why not lawyer fees too? After all people need wills.
YN and LL are the only people it bothers.
excellent post, I am in agreement with your sentiments as a small business owner myself.
You're only 160 posts back now. Its as though you are on posting from Jupiter now instead of Pluto. At this rate you should be realtime by Saturday morning unless you stay up all night! :-)
WHen you do catch up: I do appreciate the information
Write your senators too. I think Saxby Chambliss was a sponsor before but I'm not sure now. What about Isakson?
You don't HAVE to be selling (or reselling) the room, just using it for a business purpose. The exemption relates to the tax involved, not what the item might have been.
And yes, the information is there in the bill but you may not have recognized it - see #436 for the exemption information as an example.
You really would be helped by spending some quality time with the bill by reading it thoughtfully. I think a lot of yur questions would be clarified more quickly than can be done in this sort of forum (which is quite slow).
I'm not so sure about that. If it's for a business purpose I think it would be tax free. Do you have any info on that I haven't seen?
It is too damn high, isn't it? But spending is another project.
You clarified it a lot since I read and responded to your first post. Perhaps if you had added a little more detail to begin with? I'm on your side here, remember.
Okay, I thought I had missed something. In Texas we have a resale certificate form. Not exactly the same thing since business pay the Texas sales tax, but close.
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