So the only way that a small bizness would have a lower cost of production would be if the profit to the owners was reduced by the amount that they are now paying in income taxes on the profits (K1 distributions). The owners would receive the same amount of profits as they now have after income taxes.
You would do better to look at how Jorgenson's study was done and the fact that his findings are based on setting his functional parameters based on econometric measures of a long history of tax data affecting prices, consumer and business behaviours throughout many sectors of the economy.
What you are overlooking is the fact that no business will pay income or payroll taxes, and only retail transactions will be taxed for a business to remit to state govenment.
As a consequence the lower tax related costs are realized throughout all levels of production, passed from one supplier to the next in the purchase of their inputs, as well as their own increased productivity and efficient use of resources.
The repeal of business taxes, removes the tax related avoidence behaviours implicit in the income tax system, the litigation and audit costs related controversies with the IRS. Repeal removes the costs to businesses associated with the relocating to more tax advantaged parts of the world and encourages them to remain in the US by removing the federal tax system from their backs, it remove the fees and fines associated with losing disagreements with teh IRS over what is deductible and what is not, ...
There is a lot more involved in the changes in business behaviour, costs and productivity associated with repealing the federal business tax system than merely the amount of tax collected by government.
Remember, just because a business may not have a taxable profit, does not mean the costs associated with realizing that status are gone. The costs of achieving a lower taxable income often are greater than the tax finally remitted to government. On average that overhead costs bound up in tax avoidence and accountancy activitites as well as litigation when controversy arises under the income/payroll tax system far larger than the tax actually remitted to government.
The small business owner (or shareholders) would not receive the same income tax removal that employees get. Is this what they are saying the embedded taxes are going yo be saved from?
The reductions in price arise from increased productivity and efficiencies that arise with the repeal of business taxes and no longer diverting resources into tax avoidence but into business enhancement which bring about lower costs in imput purchases by a business as well as lower cost and more productive utilization of business assets and resources that become possible when income payroll tax management is no longer a factor in business decisions and activities.
The total reduction in producer prices are not just the amount of tax that is remitted to government by a business it is the full dynamic that occurs with more productive use of capital, human resources, cash flow, and the regenerative effect of such increases in productivity on the economy as a whole as well as individual transactions of manufacturing purchasing and selling of materials and services for the production of final products at retail.
That would explain where the extra money is coming fromm it is coming from the business owner.
Don't confuse the business with the business owner, that owner is an individual benefactor of the business through his returns on his capital just as the employee is in his wage as a return on his wage. It is the ability of the business to operate more efficiently at lower costs in its input purchases, its internal productivity advances, and interaction with the consumer in competitive markets that the reductions are realized. It is a dynamic change in behaviours on the part of consumers, producers, and investors that provide the conditions that result in change in producer pricing.
The tax reform proposed is a revenue neutral one, any increase in productivity increasing economic growth is reflect in a lower tax rate overall as the economy expands enhancing the taxbase. The lower burdens on the consumer results for a lowering of that intrinsic tax rate, as well as profiting the business in removal of its tax and tax related overhead costs.
The net total effect is lower costs on business from productivity gains, with the employee's gross wage held constant, The business utilizes its lower costs and investment in capital assets in a manner to optimize its profits through expansion, productivity impovements, and using savings to compete for market share and enhancing profitibility with the lowering of price for cost reductions realized.
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.
Of course they would reduce wages to employees to compensate for the unequal treatment.
No business profits from abusing its employees. Business owners derive their compensation from return on capital. Lower costs from more efficient utilization of assets, higher productivity and wider markets means more profit to owners not less. There is no basis to assume lower gross wage to employees at all.
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.
Excellent post, and right on ol' feller!!