Posted on 08/15/2005 5:55:06 AM PDT by OESY
A major domestic battle looms this fall, when tax reform-- a centerpiece of the president's bold domestic agenda-- will finally be on the table. The President's Advisory Panel on Federal Tax Reform is expected to release its findings by the end of September. After the political shellacking the White House took on Social Security, the administration will be strongly tempted to take a conciliatory path that supports only superficial reforms, essentially preserving the status quo of our hideous income tax code.
Such a course would have perilous consequences, economically and politically. In fact, the administration has an opportunity here to boldly retake the initiative, to recover lost political support and thrust an already decent economy into high gear and, at the same time, make America better able to meet intensifying competition from China, India and others. How? By junking the entire federal income tax code and starting over with a flat tax. A growing number of countries are doing this -- and so should we.
The current system is beyond redemption, a beast whose complexity, confusion and outright unfairness have corrupted our economy and society. Americans waste more than $200 billion and over six billion hours each year filling out tax forms. They engage in all kinds of useless economic activity intended to take advantage of the code's complicated maze of deductions and to reduce taxes -- from deducting donations of old socks to making unwanted investments. The waste of brainpower -- at a time of increasing global competition -- is incalculable.
The code corrupts our system of government by encouraging the crassest political conduct and by creating a massive, intrusive federal bureaucracy. One-sixth of the private-sector employees in Washington are employed by the lobbying industry. One-half of their efforts are directed at wrangling changes in the tax code....
(Excerpt) Read more at online.wsj.com ...
Yes, your assumption was correct. The same would apply to a barber, nail salon, spa, business consultant, lawyer, accountant, dentist, surgeon, tree removal company, painter, handyman, janitorial service, maid or any other highly labor intensive business.
You no longer have to pay federal income or self employment tax on the profits of your business.
There is no savings for the business from taxes paid. All of this money goes to the individual instead of the govt, that is one of the main tenets of the FairTax.
Assume that this small business is an S-Corp or Sole Proprietorship like most small businesses. So there are no federal taxes on the corporate earnings. The rest of the money is the business owners' profit for operating the business. Right now it is taxed as personal income, but under the FairTax plan the owners will get to keep all of this money tax-free until they spend it. They are not expected to take a cut in their profits because they don't have to pay a tax on it, just like employees are not expected to take a cut in paychecks.
Unless this is the missing thing in the FairTax plan that has been eluding me-- they expect business owners to reduce their distributions by the amount they are now paying in income taxes to allow the business to save money. Business owners would therefore not realize the same income tax savings that employees would.
You no longer have to pay employer fica on your employees wages.
This money (7.65%) will be paid to the employee instead of the govt (he is really paying it now, but wage earners feel better thinking that their employer is getting stuck with it). No cost saving to the business here.
You no longer have to pay a CPA to do your taxes.
There's $500-1000 per year to do income taxes, but I now have to file to recapture all of my business expense tax payments. Essentially, I will turn in all of my monthly business expenses to the accountants, they will check them, and send them in for a rebate of the 30% taxes paid. Probably costs more in the new system, but no more than $1000 savings per year.
You no longer have to pay the vendors embedded tax and compliance costs on soap, wax, towels, tire cleaner, leather conditioner, office supplies, checks, etc.
This might be 15% of my costs, and even if you are right that there is 25% embedded costs in these suppliers (which I don't believe) that would be less than 4% overall savings in my bottom line.
You no longer have to file quarterly payroll tax returns for your employees, or make quarterly tax deposits for your own taxes.
There will still be filing for Soc Sec purposes, at best this is a hassle to be avoided, with very little cost associated with it.
You don't have to worry about whether a person is an employee or contract labor.
I get paid to worry, no cost savings here.
You can make business decisions, such as whether to open a new car wash across town, without considering the income tax repercussions if you do. You can sell your business without worrying about capital gains taxes on the sale. You don't have to worry about your heirs having to sell your business to pay the estate taxes. Your own taxes on the profit of your business may be the single biggest expense you have, and cannot be ignored.
All of these things won't matter if the economy craps out because the prices of goods and services don't take a nosedive when the FairTax plan kicks in. I won't have a profitable car wash model to duplicate, or sell or any profits to keep.
Every one of those items you think will save me money as a small business carwash amounted to at most $1000 per year plus 4% of my operating expenses. How any I going to cut the price of my $20 carwash down to $15.50 when my costs have only gone down by less than $1? ($15.50 is the price that I'd have to charge to allow me to tack on the 30% FairTax and still charge my customer $20).
shoot all the accountants!
wait, what am I saying, I am a controller.
You should advise him that the paper is from 1997 so it is not a current one..
I can read a date. Interesting article, will take more time to digest. I have little resect for economic guesses though, they can't even model our existing tax collections and growth one quarter into the future when we have years of exact data....
A noble profession.
As a controller, you know that under the FairTax plan we will not be getting rid of business accounting departments any time soon.
Not everything in a business involves the government, in my experience they are a small part of what a business accounting department does.
For the sake of those that don't know much about businesses, accounting handles:
Paying the employees their paychecks, and administering the benefit programs like health, life insurance, etc.
They handle accounts payable-- invoicing, collections, handling bad debts.
They handle accounts payable- scheduling and paying bills and other forms of cash flow management including credit line usage.
They review and track employee business expenses and analyze same.
They prepare answers to management "what-if" scenarios regarding business decisions of all types (vendor selection, new facilities, closing facilities, different compensation options, outsourcing, insourcing, etc).
Most businesses I have been involved with the controllers were a vital part of management because a good one has his finger on the pulse of the business, and the best ones are able to report that business health to management so they can take corrective action if needed.
Dear RobFromGa,
Excellent analysis.
What's worse is that the car wash real estate represents a sunk investment that under the current system, throws off depreciation, and thus tax savings.
So, the owner of the car wash may actually be paying very little in the way of federal income and payroll taxes.
He will recapture much less than the average person, because he has much less to recapture.
Even if he doesn't decrease prices, his net income will not rise enough to cover his having to pay the 30% NSRT on his personal expenditures.
AND, his price will be 30% higher than before.
Ouch.
sitetest
WRONGLY accused you of OOC postings??? Nothing of the sort. I actually showed they were OOC and where and how they failed. I RIGHTLY pointed out your little trick.
Since you had already posted the Linder/HD snippet, I chose for now to work with that. And BTW I've asked you for a link to the testimony you posted this from as it does not appear to be on the W&MC website.
It seems to me that your spin is incorrect since (and I presume Linder would know this) Home Depot right now accepts registration certifications for sales-tax free sales of businesses and changing them by the FairTax bill would certainly not be something that Linder or anyone else would seek to do. There is no reason to since he registration certifications (aka, reseller certs, tax-free ticket , and other names) are widely used in many states for this purpoe amd are VERY simple.
For this reason it seems quite apparent that Linder was responding to indicate the alternate tax rebate/refund which, as I said, is intended more for conversions of taxable items from one use to another. That MIGHT be a way to handle things, but certainly not the simplest, most efficient, nor cheapest method and would only apply in certain situations.
As I've said, the normal, and expected, method would be the very simple resale number/form. You're merely trying to overcomplicate and obfuscate for your own purposes in attacking the FairTax. That's quite obvious as you are trying to assume away the simple method already widely used (and trying to "innocently" use Linders apparent words to do so).
Please priovide the link.
Oh, and BTW the word should be "jibe" and not "jive" (which is what you do).
OOPS!
They handle accounts receivable-- invoicing, collections, handling bad debts.
For those who are not familiar with the business world, getting paid by the customer is a much more time-consuming job than anything involving the government.
Obviously you wouldn't believe that Rob since you've never taken advantage of some of the very good economic studies goiven you.
Where is it that you believe the FairTax supporters have been saying that the rich would benefit??? That's what s-test has been claiming. You guys need to get your stories straight.
Believe me s-test, I treat you with all the "respect and civility" you have merited by your posts on these threads.
And since you're not the house mother, I'll post as I please. I believe that's why it's called "Free Republic".
Go bitch at someone else if you have nothing better to do, it falls on deaf ears with me.
You should advise him that the paper is from 1997 so it is not a current one..That's the one Boortz was referring to so maybe you should advise Boortz that it is not a current one.
Dear pigdog,
Then don't post to me again.
Thank you.
sitetest
You keep saying this even though I have posted questions, examples and discussion points from each of these sacred FairTax texts in these threads. I have read the studies and I'm not buying what they're selling.
Neal Boortz has a saying "Don't believe anything I (Neal) tell you unless it squares with what you already know and believe to be true". Well, this FairTax plan doesn't square with my twenty five years in various businesses.
Where is it that you believe the FairTax supporters have been saying that the rich would benefit???
The FairTax supporters are all over the map on this, most seem to feel that everyone will benefit. I think that since this can't be true that the only ones that can possibly lose are the middle class and business owners. Because they are the only ones who have anything to lose in the present system. They have everything "bet" in the present economy-- their houses, their businesses, their retirement plans, their college savings accounts, their careers-- and they can't just pick up and move if things don't turn out so rosy.
The very rich have enough money and flexibility that they can choose to participate in a different economy. The poor have too many votes and if they even hint that they are losers they will march on Washington and demand change.
Naw ... you're welcome to do that if you wish. I've other affairs to take care of.
I'll post to you whenever I choose, thanx. You're welcome to not respond if you choose ... that's what FR is all about, seems to me.
Dear pigdog,
It surprises me that a long-time poster like yourself is unaware of the custom at FR of honoring requests from other posters not to post to them.
You believe that you're entitled to post rudely to me. You're entitled to your opinion.
My own opinion is that the discussion of issues can be contentious, and that it's incumbent upon posters to try to treat each other civilly.
You appear to disagree.
I'd prefer, then, that you no longer post to me.
Your cooperation in this regard is appreciated.
Thank you,
sitetest
Please point me to a post of yours that demonstrates you have read and understand the revenue neutral derivation. If so, I must have missed it.
Please also do similarly for one that indicates your reading and understanding of costs of home ownership under tha FariTax. Or of how the illegal economy will be more heavily taxed than at present. Or how US export businesses will be helped by the border-adjustable taxation offered by the FairTax. Or how large compliance costs really are under the present system.
No, we are individuals with different experiences and I am sure that there are plenty of areas of disagreement among those who think the Fair Tax as proposed is flawed. We wach have different areas where our exerience tell us there are troublesome points and assumptions.
It is only the Fair Tax KoolAd drinkers who feel the need to march in lockstep with arms entwined. But there is a huge amount of disparity among FairTax proponents as well, esp as how the Fair Tax affects business.
Actually, people operating in flea markets are supposed to pay income taxes now. They buy low and sell high. Thus making a profit. Do you think they put that on their tax returns? Maybe. Maybe not.
WRONGLY accused you of OOC postings??? Nothing of the sort. I actually showed they were OOC and where and how they failed. I RIGHTLY pointed out your little trick.Yes, wrongly accused. You show that I didn't post the entire papers I quoted, but you didn't show how anything I didn't post would change the meaning of what I did post. For it to be out of context, the meaning would have to change.
It seems to me that your spin is incorrect since (and I presume Linder would know this) Home Depot right now accepts registration certifications for sales-tax free sales of businesses and changing them by the FairTax bill would certainly not be something that Linder or anyone else would seek to do. There is no reason to since he registration certifications (aka, reseller certs, tax-free ticket , and other names) are widely used in many states for this purpoe amd are VERY simple.Linder's words are very clear. Regardless of how you think the FairTax would handle the situation, Linder's opinion is obvious. So the question to the reader's of this thread is "Do they trust your opinion on the workings of the FairTax, or Linder's?"
For this reason it seems quite apparent that Linder was responding to indicate the alternate tax rebate/refund which, as I said, is intended more for conversions of taxable items from one use to another.It is quite apparent Linder was not saying anything of the sort. Again, Linder's words are clear. You are just trying to spin them.
As I've said, the normal, and expected, method would be the very simple resale number/form. You're merely trying to overcomplicate and obfuscate for your own purposes in attacking the FairTax. That's quite obvious as you are trying to assume away the simple method already widely used (and trying to "innocently" use Linders apparent words to do so).I will post Linder's words again. People can make their own determination what he meant.
"If a business went to Home Depot and bought some goods from Home Depot they would pay the tax at Home Depot which sells to both consumers and businesses. And they would keep their receipts and they'd use the value of those receipts as a credit against paying the tax in the future. So they would not be taxed and we would not ask the Home Depot to make the decision whether or not to raise the tax from them. Any business-to-business transfer will not be taxed at all."Rep. John Linder
Testimony before the Ways & Means Committee
July 28, 2005
Please priovide the link.I don't have the exact link, it's on the Tax Analyst's website and I don't have access to it any longer. Your library might have access.
Oh, and BTW the word should be "jibe" and not "jive" (which is what you do).Given you frequent mistakes (I count at least 3 in this post, alone), do you really want to start correcting each other's spelling/grammar?
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