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 ...
Your whole reply reads like a econmic report and it is full of gobbledegook that makes no sense to a small business owner, to take just one example of your thinging,
The consequence derives from the repeal of the current tax system and its burdens on much of the economy and thus is referred to in terms of removing taxes. The impact however is much more wide ranging than just the amounts actually remitted to government by businesses as taxes.
Businesses remit income to the government in only two places: employee pay and business owner profit. We have already established clearly that the employee will get ALL of his money that is now being withheld for no net savings to the business from that change. If the business owner also gets to keep ALL of his profits and not pay income tax on them then therre is no net savings to the business from that change.
But I think that is where the FairTax is getting their money for businesses to reduce prices. They expect that business owners as a group will be willing to get the same amount of income and dividends that they now receive and pass their tax savings back to the business. But even at 50% profit margin, there is no 23% to be gained from the business owner.
You need to quit lookng at the studes for a minute and look at the real world.
FairTax should do a series of case studies where they have accountants look at the books of real companies and search for the hidden 23% to show that they know what they are talking about. I'd prefer this dry run exercise before the perform the live surgical experiment on the US economy.
Businesses won't save any money on taxes because they will be giving them to the employee in the case of the income and payroll taxes and to the shareholders/owners in the case of profit taxes and income taxes on K-1 distributions. There are no embedded tax savings unless you are going to take money from the employees or the business owners that you are promising them with FairTax.
FairTax should do a series of case studies where they have accountants look at the books of real companies and search for the hidden 23% to show that they know what they are talking about.Not exactly what you are talking about, but here is a case study of HP's FIT compliance costs: "Federal Income Tax Compliance Costs: A Case Study of Hewlett-Packard Company"
If I were running things, I would raise some taxes, create new taxes and eliminate other taxes.
In other words you are satified with the way Congress does it. Piecemeal tinkering.
A)I'd raise taxes/tariffs on some imports of goods
Why some and not all. Imports should bear the same burden in taxes that domestic goods do. Otherwise imports are handed an advantaged position over domestically manufactured products. That is a good part of the problem with international trade today. Our domestic industry is heavily laden with an overlay of income/payroll tax costs throughout the chain of production while imports only see only a single layer as they are sold in this country while having the tax burden removed by thier own nations through the mechanism of border adjustable taxes by exporting nations.
A nation retail sales tax assures that the advantage is removed and imports bear the same burden of taxation as domestic goods.
Furthermore, under a retail only tax system, domestic exports leave the U.S. free of national tax burdens same as happens with nations the export to the U.S. A retail sales tax is fully border adjusted as an inherent feature of retail sales taxes.
B)Lower taxes at the middle tax bracket
And do what? Add taxes on to the rich?
Over 90% of federal taxes are already paid by the upper 50% of income catagories today you want to add more to that burden?
I would rather eliminate individual income and payroll taxes. Get the government out of our family and personal lives. And make sure every voter participates in the nations tax system and is equally aware of the burdens of excess govenment.
Bush touts relief as tax day looms
Another 3.9 million Americans will have their income tax liability completely eliminated, officials said.
That's 3.9 million Americans more added to the spending constituency of 70% of the public clamoring for more from government, thinking someone foots the bill.
That just means there are that many more totally unconcerned about growth of government.
Walter Williams nails the real problem with unrestrained government growth and spending:
"It's like me in the restaurant: What do I care about extravagance if you're footing the bill?"
To remove perception of the tax burdens of the individual, is to remove the goad which assures accountability of government to the electorate. Federal tax rates are high and government grows ever larger because a majority of the electorate do not proportionately perceive the burden their demand for largesse imposes on the minority of citizens.
The siren call for representation without taxation is the formula that got us where we are at today. The ability to hide or disguise taxation from the view of large sectors of the electorate allows the Congress to get away with the creation of the evergrowing monster that it fosters.
Liberty and freedom have a price, responsibility. If the perception of burden laid by government is interfered with or avoided there are no brakes on the growth of government, the ultimate result is the end of freedom through creeping socialism.
C)Create tariffs for importation of personnel (H1Bs) and electronic service industries. If a company wants to build a call center in India, fine, but they have to pay taxes on the expertise they're electronically importing.
Fine, but how about a better idea, make the U.S. a tax haven for business and manufacturing to operate in.
Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
August 12, 1996
- "A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."
Seems to me that would resolve a lot more problems relative to job creation and wages.
It's up to the individual business owner whether to give the employer fica portion to the employees, keep it as profit, or lower his prices. Nothing is mandated from the government in H.R. 25.
You sure seem to quote economic models when they suit YOUR purposes.
Not true. Investment transactions are totally tax free under the Fair Tax. There is nothing for your broker to report. They will charge the sales tax on brokerage commissions, but that is less intrusive than reporting every sale on a 1099B.
The fact that you are even considering this worse than the IRS shows a little naivety on your part. Once the government collects income tax from the individual, it doesn't come calling. Oh, really? Ever heard of an IRS audit?
It wouldn't be much different with a sales tax except that many individuals who are not burden with collecting and reporting taxes under the current system would now become reporting agents.
EVERY business is a reporting agent and collector now. What do you think you do when you withhold taxes from your employees' paychecks and make tax deposits?
I understand your fears about what Congress "might" do with the Fair Tax. But you've got to understand, they ARE doing cr*p to us right now with the current law. Have you ever heard a politician gleefully announce "We've taken x million people completely off the income tax rolls"? Well, what that means is now x million more people have no vested interest whatsoever in how much their government cost. And now they will vote for whoever will keep them that way. And guess who pays for it? US!
I think I was right about you all along. It took you a week from being merely curious to being as hard nosed as Always Right and Your Nightmare.
Not true. Investment transactions are totally tax free under the Fair TaxNot true. This has been pointed oput to you before
Do you collect state sales taxes now? Small businesses in 45 states do right now. Every day.
You sure seem to quote economic models when they suit YOUR purposes.If I quote the results of economic models it's usually to show how they can differ.
And it is not taxed until he spends it. His investments can grow tax free. Do you understand the concept of compound interest?
Yep. The Fair Tax is only a good idea if we can undo the income tax amendment. Otherwise we will eventually end up with an income tax and a sales tax.
I'm sure you're being facetious, but in case you don't know, that is a poll tax, which is unconstitutional.
Of course, now we know that you don't have any other realistic options in mind about tax reform. You're just against the Fair Tax. Thanks for clearing that up.
Businesses remit income to the government in only two places: employee pay and business owner profit. We have already established clearly that the employee will get ALL of his money that is now being withheld for no net savings to the business from that change.
You totally missed the point of the statement, It is not just the taxes you pay, it more the overhead realated to those taxes that doesn't go away just because you have nil taxable income.
If the business owner also gets to keep ALL of his profits and not pay income tax on them then therre is no net savings to the business from that change.
You figure none of a business' competitors are going to take advantage of lower costs and higher productivity to expand there business and capture market share to increase there profits even more at the expense of those who decide to keep high prices. Guaranteed any business that does not respond competitively by lowering prices with productivity gains and lower overhead costs, not to mention no taxes on them are going to rapidly find themselves with less profit from loss of sales to their competitors.
Profit is not maximised by higher prices. Price too high a competitor who does it cheaper and more cost effectively will take your market share away and derive the profit you would otherwise be making for his own company. Business do not survive well in competitive markets by ignoring the competition who is more than ready to take a lower market to entice greater market share. The optimal profit is not at the highest price a business can offer its products for.
But I think that is where the FairTax is getting their money for businesses to reduce prices. They expect that business owners as a group will be willing to get the same amount of income and dividends that they now receive and pass their tax savings back to the business.
That choice is made for them by their competitors, Otherwise we would have higher prices now. The market is already at the highest price (with taxation) that is optimally profitable in competitive markets.
But even at 50% profit margin, there is no 23% to be gained from the business owner.
With lower costs of doing business from lower materials and services taxfree to the business above and beyound the immediate lower overhead costs their own business realizes.On average business will indeed be able lower there pricing 22% from current levels maintaining the same profitablility. Some sectors will be more, and other less, the overall averge will be between 20 and 25%.
Where there is a 15-25% advantage for any competitor to cash in on market share over laggards, you figure they aren't going to?
Here is a table compiled from Dale Jorgenson's US Business sector estimates of change in production and price received by producers for the Fair Tax legislation.
Jorgenson uses an IGEM simulation solving equilibrium prices for optimum business profits across 35 busness in balance with a set of household consumers across a full range of demographics and incomes seeking maximum value for their expenditure.
A copy of the study can be aquired from AFFT by email, just request :
THE ECONOMIC IMPACT OF THE NATIONAL RETAIL SALES TAX
By
Dale W.Jorgenson
May 18, 1997
Final Report to Americans For Fair Taxation
In the third the final column I computed the net price,(with a 23% NRST) paid for consumption by an assumed "retail" customer for each business sector via:
Price(consumer)% = 100*((1-Price(producer))/(1-Rate(nrst)) - 1)
and present 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 actual values that can be expected.
| First Year 1996 Percentage Changes for FairTax legislation, replacing 1996 tax law | |||
| 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% |
You need to quit lookng at the studes for a minute and look at the real world.
You need to look outside the box you live in more. There is more to the world and the economy that what you perceive, a lot more. Business is competitive, the federal tax system of today is ubiquitous and intrinsically affects both direct costs and decisions made by busiesses affecting their bottom line through inefficient choices, resources expended in tax avoidence and all the collateral factors that go with such including loss of sales for the higher prices that must be charged to recover said costs and tax impositions that engender them. That happens throughout the entire chain of production affect final price of all products as can be seen the chart above.
What you do in your own business is up to you, if you are relying on the current tax system and the ability to create a favorable position relative to your competitors to maintain a competative pricing advantage over them, you are probably going to be a loser under any of the tax reform changes being proposed to Congress today, that includes the Flat Tax, as well as an NRST or even G'd forbid a VAT. Get used to it, those advantages that arise from specialized deductibility and depreciation for buiness assets are headed out the door period. You had best be working now to create a foundation that is less reliant on tax code, and more reliant on product your customers desire at a price they are willing to pay.
If on-the-other-hand your business is profitable intrinsically and does not depend on specialized deductions and tax treatment under the current income tax code to maintain it's profitability then the changes brought about by a National Retail Sales Tax are going to be profound and significant adding to a business' bottom line as well as the customers benefit rather than the marginal benefit that those who have created their businesses around the income tax code can realize.
The nation's tax code should not be a vehicle there to give or provide advantage to anyone, the express purpose of taxation under the constitution is to generate revenue to pay the nation's bills and that should be a burden proportionately laid on all citizens.
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