Posted on 08/18/2005 6:34:27 AM PDT by GPBurdell
NUMBER ONE ---- AGAIN!
The word came in yesterday afternoon. The FairTax Book will remain No. 1 on the New York Times Bestseller's List for the second week in a row. Our editor at Regan Books told us yesterday afternoon that it is much harder to make this list the second week than it is the first. Needless to say, we're excited and gratified. Interview requests for Congressman Linder and myself are pouring in, and the crowds at the book signings remain strong.
Our greatest hope is that the book generates a buzz and momentum of its own. Across the country people who have never heard of The FairTax before are learning that it is possible to get rid of all income and payroll taxes and replace those taxes with a one-time tax on consumption at the retail level. These people are learning that:
* They can say goodbye to the death tax, the gift tax, Social Security taxes, Medicare taxes, the Alternative Minimum Tax, capital gains taxes and the trouble of filling out tax forms; * That they can just go enjoy themselves on April 15th, just as they do on every other spring day; * That American corporations who have fled overseas to escape our crushing tax system can be brought home again; * That they can invest and save with no federal tax consequences whatsoever; * That the trillions of dollars that are working in offshore financial centers, again to escape our crushing taxes, can be brought back to work in the American economy again; * That we don't need to spend $500 billion a year to comply with an obscene tax code; * And that all of this can be accomplished while eliminating the federal tax burden on the poor, and without increasing the cost of living for everyone else.
I was discussing the book with some friends last night. I told them that over the past ten or so days I think that I have signed about 8,000 copies of the book at various book signings. Since many people buy multiple copies of the book, I would guess that I've seen about 6,500 people during that time. So .. how many people had something negative to say? Two. That's it. Just two. One man at Ft. Bragg came through the line twice to have two books signed (he went and bought an extra copy) all the while grumbling that we didn't include enough of the research in the book. Well, there's a reason for that. You can find the research at the FairTax website. Knock yourself out, pal. One other man stood in front of the table and demanded an opportunity to point out all of the typos he had found. We politely declined his incredible offer. But that's it. Two complaints. On the other hand, we've received hundreds of comments from people who doubted whether or not this idea could work ... until they read the book. Well, that's what we were after.
Again ... thanks so much for another week at No. 1! The FairTax is becoming an idea that can't be ignored.
It was embedded tax costs, not just embedded taxes - and surely with your wide reading and study you have seen examples of this, haven't you?
Currently, his federal tax liabilty (Fica and income) is $4,838. This leaves a disposable income of $25,163 a year. Let's stipulate that he saves nothing in this example.This is all wrong. Beside what AW pointed out (you reduced his consumption under the FairTax), you just made up an amount for the Family Consumption Allowance. The FCA for 2004 would have been $2,141, not $3,600. Under the FairTax, he would spend $32,141 and pay $7,392 in sales tax, giving him $24,748 in total consumption. That's $413 less than what you said he would consume under the current system.
Under the Fair Tax plan he will have his $30,000 income plus a monthly check to cover basic living expenses (they use $400 a month but it's based on where you live); for this example let's say $3,600 a year. This leaves $33,600 a year in disposable income. At his income/FICA tax level of disposable income (apples to apples) the 23% Fair Tax would be $5,890 leaving him with $2,547 more to save.
It was embedded tax costs,You said "Embedded tax costs are the income taxes paid by businesses of all sorts as well as higher prices for everything THEY buy"
and surely with your wide reading and study you have seen examples of this, haven't you?Actually, no. I've never seen an example of cascading income taxes, tax costs, or any other costs. Would you care to show me one?
You didn't show cascading at all.
And my quick and simple example doesn't include any contracted parties who deliver the materials at the different stages of production who also have the various tax expenses included in their price of services, which are added to the price of the product.Cascading is not an additive process, it's a multiplicative one.
"A sales tax will not remain level either. Governments can't resist raising taxes. They're like a kid with daddy's credit card. They never have to pay the bill."
"It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, 'in political arithmetic, two and two do not always make four.' If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them."
Alexander Hamilton in Federalist #21
So now were going to quibble over a word, but not the reality of what I posted.
So now were going to quibble over a word, but not the reality of what I posted.Quibble over a word? I wanted to see an example of cascading income taxes, the reality is that your example didn't show that.
Maybe so, but my example clearly showed a recurring increase in cost of products from raw material to the shelf that would be eliminated by the fair tax.
Maybe so, but my example clearly showed a recurring increase in cost of products from raw material to the shelf that would be eliminated by the fair tax.A "recurring increase in cost of products" is not cascading. In your example, the percentage of the cost of the product that is due to taxes does not increase from level to level. If they were 10% at the first level, they would have been 10% at the last (assuming the same tax/compliance burden).
"A cascading tax is one which is not just on output value but also on the input element. That is to say it is at every stage of production and distribution. It is a tax on tax. For example resin, rubber and carbon black are necessary for manufacturing a tyre. All the three inputs paid tax and the final products, namely the tyre also paid tax. So these three inputs are taxed twice. Then again the tyre is used in a car, which also is taxed. These three inputs are now taxed thrice. So the tax element on these inputs goes on increasing with every production and distribution chain. The cascading effect of tax makes the tax rate much higher than the original rate."
That is what Phantom Lord was describing despite your quibble. You merely feel that your Job One is to attack, attac, attack anything FairTax. You actually look quite foolish when you get into these loops. Are you wishing to pretend that this build-up effect does not raise prices higher than they would be without them??
Why don't you find Jorgenson's study that tells us what he meant by 'embedded taxes'? There is no record on the net which I can find. I would be very interested in his methodology. No matter what I try, unless you include taxes paid by the employee, it is impossible to come up with 22% of embedded taxes. You certainly have no idea on how to account for these more than $2 Trillion worth of embedded taxes come from. Certainly there must be one fair tax expert who can produce this.....
"A cascading tax is one which is not just on output value but also on the input element. That is to say it is at every stage of production and distribution. It is a tax on tax. For example resin, rubber and carbon black are necessary for manufacturing a tyre. All the three inputs paid tax and the final products, namely the tyre also paid tax. So these three inputs are taxed twice. Then again the tyre is used in a car, which also is taxed. These three inputs are now taxed thrice. So the tax element on these inputs goes on increasing with every production and distribution chain. The cascading effect of tax makes the tax rate much higher than the original rate."This is an example of cascading sales taxes, not income/payroll taxes. That's why there is a "tax on tax" situation (which is necessary for to have a cascading tax). The income/payroll taxes do not tax the income/payroll taxes from the lower production levels and thus do not cascade.
That is what Phantom Lord was describing despite your quibble.No it isn't.
You merely feel that your Job One is to attack, attac, attack anything FairTax.Job One is the truth (which is probably what threw you off), and the truth is that payroll and income taxes do not cascade!
You actually look quite foolish when you get into these loops.You look quite foolish making grandiose claims with no support. Don't you think if payroll/income taxes cascaded there would be plenty of evidence to support your claim?
Are you wishing to pretend that this build-up effect does not raise prices higher than they would be without them??What do you mean by "build-up effect"? That sounds like you are saying taxes are added to costs. Even if this is true, that is not the same as cascading.
You also keep trying to push payroll taxes into the mix but that is not what was said. The discussion was about income tax costs to include income taxes and other sorts of costa also. The fact that you SQL guys have been unable to find them means nothing - and certainly does not mean they do not exist and operate on prices every day.
To illustrate the principle let's take an over-simplified example which does NOT include payroll taxes of any sort or even any other types of tax costs. Only income tax and the cascading effect that was described by the "tires" description in question. This is not intended to be an elaborate economic model nor one I originated but a simple example of the mechanism involved so that it can be easily understood:
LEVEL 1 2 3 4 5 6
$1.00 $1.41 $2.00 $2.82 $3.98 $5.62
33.00% PROFIT MARGIN $0.33 $0.47 $0.66 $0.93 $1.31 $1.86
25.00% TAX COSTS $0.08 $0.12 $0.16 $0.23 $0.33 $0.46
SELL PRICE $1.41 $2.00 $2.82 $3.98 $5.62 $7.94
Accumulated tax costs $0.08 $0.20 $0.36 $0.60 $0.92 $1.39
$0.12 $0.16 $0.23 $0.33 $0.46 $0.66
Tax costs as % of 5.84% 9.98% 12.90% 14.98% 16.44% 17.48%
sell price
Like heck he didn't! Let's look at what he said:
Company A extracts raw materials and sells them. They pay tax on their income, and for withholding, and compliance. These expenses are calculated and included in the price of the raw materials sold.
From where does company A in the above scenario obtain funds with which to pay those things spoken of? Since we have been over this ground 100 time before, and I'm in no mood to play round and round the mulberry bush with you, I will answer the question myself! They obtain them from the only source available to them, the sales receipts for the raw materials they sell thus ALL the costs mentioned are in the price of those raw materials!
Company B purchases raw materials from Company A (which contain ALL of company A's costs + profit for those raw materials) and converts them (for lack of a better term) to initial stage product bought in bulk by company C. Company B has to pay tax on the income, along with witholding on employees and compliance. These expenses are added to the price of their product.
Company B obtains funds in the same way that company a does, from the sale of it's products which include now include those costs passed on to them in the price of the raw materials they purchased from company A as well as ALL of company B's costs + profit. ON and on ad infinitum!
Phantom Lord most certainly DID render a valid description of cascading taxes and their associated costs.
I agree with you totally, the "embedded taxes" are just not there except for the payroll and income taxes on labor. They are not even saying 23% of the cost of the product, they are saying there is 23% of the SELLING PRICE which includes the profit margin.
Another way to point out how ridiculous this is:
If you assume that the payroll taxes are 15% and the average income tax about 8%, then there are 23% in income and payroll taxes in the labor component of the SELLING PRICE of products. For services the cost is almost all labor.
If we then add this additional 23% phantom embedded taxes to the quanitfiable income and payroll taxes, this would mean that 45% of the SELLING PRICE is taxes in some form.
Considering a profit of 15% of the selling price, this would mean that the remaining 85% of the SELLING PRICE is the cost of producing the product. If we believe that there is 23% embedded above and beyond the income and payroll taxes then 45/85 = 53% of the cost of a product would be tax-related.
This is obviously ludicrous.
That is to say it is at every stage of production and distribution. It is a tax on tax. For example resin, rubber and carbon black are necessary for manufacturing a tyre[sic]. All the three inputs paid tax and the final products, namely the tyre[sic] also paid tax.His description is actually quite good, as is this one:
Well, not really here's a better one
let's say the seller has a good margin of 25% on sales or $25 on the drug dealer's resin $100. Of this $25, only a small portion would ever possibly end up as tax revenue since the tax on the $25 profit would likely be something like the 15% rate - or $25 x 0.15 = $3.75.
Now let's say the seller has a good margin of 25% on sales or $25 on the drug dealer's rubber $100. Of this $25, only a small portion would ever possibly end up as tax revenue since the tax on the $25 profit would likely be something like the 15% rate - or $25 x 0.15 = $3.75.
Now let's say the seller has a good margin of 25% on sales or $25 on the drug dealer's carbon black $100. Of this $25, only a small portion would ever possibly end up as tax revenue since the tax on the $25 profit would likely be something like the 15% rate - or $25 x 0.15 = $3.75.
Now let's say the tyre [sic]seller has a good margin of 25% on sales or $25 on the drug dealer's tyre[sic] $400. Of this $25, only a small portion would ever possibly end up as tax revenue since the tax on the $25 profit would likely be something like the 15% rate - or $25 x 0.15 = $3.75.
Total "input" sales = $300
Total "input" tax collected = $11.25 or 3.75%
Total sales = $400
Total (gross) tax collected on gross sales = $15.00 or 3.75%
For services the cost is almost all labor.I've asked several times (though I know the answer) which part of service costs get cut to reduce the service price 20 to 30%...
BTW, They can't show you how you how it can be done (because it can't). It's always the other guy who's going to do it then force you to do the same.
It isn't.
The 22 or 23% or whatever does include taxes - but that's not all - not by a longshot.
No wonder you don't see taxes as 23% of prices - NOBODY does. What some are saying is that tax and tax costs combined come to 22 or 23%.
How can some continue to omit costs of compliance (of which there are three main types - NOT simply planning/accounting/litigations)?
Perhaps they deny the existence of any costs other than the tax paid itself?...talk about ludicrous.
A company who spends millions on planning and executing tax minimization may have a zero tax bill... does that mean no tax related costs are in the price? Of course not.
What about a decision made based solely on tax cnsequences that closes a plant in Utah in favor of opening a replacement in Mexico?
Your eyes are closed by choice, Rob. Your position does not hold water.
BTW, They can't show you how you how it can be done
Wrong. I showed you a real example. The owner of the business charges $75 an hour so that he will "bring home" $55. Without the taxes and tax costs he pays, he could bring homw $55 by charging $55.
In the case of the nrst, he would be able to charge $55 and bring home $55. The tax would be paid by the client bring ing the total back to about $75 - just what he's paying today.
This is a real example of a real company.
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