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.
Dear lewislynn,
Of course, then, you're model looks pretty good for retailers, but for say, airlines, it's wildly off.
Since the inception of the airline industry in the United States, the total summed profits of the airlines has been less than 0. In other words, the airline industry, as a whole, has had a cumulative net loss over the decades.
Most airlines pay no federal corporate income taxes in most years. As an example, American Airlines, on revenues of over $18 billion, paid no corporate income taxes last year.
However, they do buy stuff from manufacturers. Over the years, American airlines have bought a lot of stuff from Boeing.
Last year, Boeing made about 4% net pre-tax profit on revenues. But, Boeing paid a grand total of about 0.25% of revenues in corporate income taxes at all levels, federal and state. About one-quarter of 1% of revenues.
The cost of an airline ticket is going to have 30% added to it under the NSRT. But there just isn't much in "embedded tax" savings to take out of the cost of that ticket. The last two levels of production pay either no corporate taxes or nearly no corporate income taxes. At all.
sitetest
That is true but to ignore the dislocations CAUSED by the tax (many times what is collected in tax) is lunacy! Heck, I'll bet your that if the truth was known the government spends more to collect what it collects than it actually collects in taxes!
The dislocations caused by the corporate income tax are many (probably unquantifiable) and cost consumers many times the actual amount of the taxes collected.
BINGO!!!
Well said and spot on TRUE!!
Dear Bigun,
"That is true but to ignore the dislocations CAUSED by the tax (many times what is collected in tax) is lunacy!"
Why? What dislocations are you going to cite over 1.3%? When most corporations, through relatively straight-forward means such as depreciation (a part of the tax law that very much encourages capital formation, by the way), can reduce their tax burden to perhaps 20% - 25% of perhaps 6% of their revenues, what dislocations are they going to incur?
Profits are a relatively modest part of corporate revenues, and corporate income taxes are pretty much proportionate to those revenues.
In fact, those two facts together in context suggest that the vast majority of corporations do not go through gyrations to avoid paying corporate income taxes.
If corporate profits represented, on the whole, say, 15% of revenues, and only 1.3% of GDP was paid in corporate taxes, even with a marginal rate of 35% at the federal level, I'd say there's likely a whole lot of wiggling goin' on!
But the context suggests there isn't. And it's doubtful that companies are spending more than a fraction of one percent of revenues to minimize their corporate tax burdens, because the savings aren't really great enough, as a percentage of corporate revenues, to justify the outlays, especially if risk of non-compliance increases.
The fact is, most of the record-keeping that businesses do has to be done whether you have a federal corporate income tax or not.
"Heck, I'll bet your that if the truth was known the government spends more to collect what it collects than it actually collects in taxes!"
That's quite an assertion, but it's without foundation or evidence.
The budget for the IRS for FY2005 is less than $11 billion. That's to collect not only corporate income taxes, but all personal income taxes, as well as payroll taxes, and any other taxes falling under its purview.
sitetest
lewis, in the above exmple, I have a question. Usually, the gross minus the COGS is the net profitYou're right, I used "taxable income" when I should have used "net income". Use whatever labels you want when you deduct the cost of goods sold you also deduct, not tax, their "tax costs".
Looks like the cascading concept to me. Please explain where I'm wrong.Sure, I'll use your own words.
overtaxt:
The COGS figure should include all expenses incurred in making the product- labor, vehicles, office space, etc. The only thing left afterward should be profit, which is the taxable income figureUnless you can explain how Company "B" profited (paid taxes) from the taxes paid by Company "A" there is no cascading.
LEVEL 1 2 3 4 5 6 INPUTS $1.00 $1.41 $2.00 $2.82 $3.98 $5.62 33% PROFIT MARGIN $0.33 $0.47 $0.66 $0.93 $1.31 $1.85 25% TAX COSTS $0.08 $0.12 $0.17 $0.23 $0.33 $0.46 SELL PRICE $1.41 $1.99 $2.83 $3.98 $5.62 $7.94 Accumulated inputs $1.00 $2.41 $4.41 $7.23 $11.21 $16.83 inputs as % of sell price 70.80% 121.01% 156.11% 181.51% 199.40% 212.01% Accumulated profits $0.33 $0.80 $1.46 $2.39 $3.70 $5.55 profits as % of sell price 23.36% 39.93% 51.52% 59.90% 65.80% 69.96% Accumulated tax costs $0.08 $0.20 $0.36 $0.60 $0.92 $1.39 Tax costs as % of sell price 5.84% 9.98% 12.90% 14.98% 16.44% 17.48%
As you can see, profits end up being 69.96% of the final price and inputs end up being 212%! This shows the obvious flaw in your logic. If you are going to use accumulated costs, you need to use accumulated prices (notice how in your example the accumulated taxes are still 25% of the accumulated profits - there is no cascading).
Lets look at a corrected example using accumulated numbers across the board.
LEVEL 1 2 3 4 5 6 INPUTS $1.00 $1.41 $2.00 $2.82 $3.98 $5.62 33% PROFIT MARGIN $0.33 $0.47 $0.66 $0.93 $1.31 $1.85 25% TAX COSTS $0.08 $0.12 $0.17 $0.23 $0.33 $0.46 SELL PRICE $1.41 $1.99 $2.83 $3.98 $5.62 $7.94 Accumulated sales $ $1.41 $3.40 $6.23 $10.21 $15.83 $23.77 Accumulated inputs $1.00 $2.41 $4.41 $7.23 $11.21 $16.83 inputs as % of accumulated sales 70.80% 70.80% 70.80% 70.80% 70.80% 70.80% Accumulated profits $0.33 $0.80 $1.46 $2.39 $3.70 $5.55 profits as % of accumulated sales 23.36% 23.36% 23.36% 23.36% 23.36% 23.36% Accumulated tax costs $0.08 $0.20 $0.36 $0.60 $0.92 $1.39 Tax costs as % of accumulated sales 5.66% 5.88% 5.78% 5.88% 5.81% 5.85%
As you can see, the tax costs do not cascade (there is a slight difference from level to level due to rounding).
YN: How would a business ever loose money (and most do).We are talking about corporate (income) taxes. They don't pay income taxes if they lose money. A business can't go from profitable to unprofitable because of income taxes because they are a percentage of profits.
B: Many ways! Chief amongst them is failure to adequately plan for TAXES!
Oh yeah your dead on..
A business can't go from profitable to unprofitable because of income taxes because they are a percentage of profits.There you go confusing them with the difference between "of" and "on" again.
You know, I gotta find a business where I can buy something for a dollar, mark it up 33 cents, and resell it, with the 33 cents markup being all profitNot to mention the part about getting 25% of the profit to pay the tax from thin air....
They are 65 years old; they have paid the myriad of Income Taxes, Payroll Taxes, Social Security Taxes, Sales Taxes, Property Taxes, etc. their whole lives. And now that they are in a position to spend whatever they managed to save, here comes a National Sales mega-tax ... what's fair about that? ... just asking.
With that said, I can be reasonably sure that this will never happen unless the younger generation turns off the hip-hop and begins pounding on the door of their congress-critter. It would probably be worth their while to do so.
Dear Bigun,
"That is true but to ignore the dislocations CAUSED by the tax (many times what is collected in tax) is lunacy!"
In the context of what I was addressing, that's moving the goal posts.
My posts were aimed at the idea that there might typically be as much as 17+% of direct "embedded tax" in the retail price of a product.
I've merely demonstrated that the "embedded taxes" in retail products are likely quite low, probably around 2%, not 17+%.
Talking about the various economic efficiencies that the NSRT might theoretically produce is another matter altogether.
sitetest
Company A rolls their tax bill into the cost of their product. Their $2500 is absorbed by Company B. Then the same thing happens at the next transfer to Company C.
No matter how you cut it, the total tax bill at the end of these three transactions is $52,500. That amount is being paid by someone- the end user. I prefer a system where that amount is right up front where the consumer can feel it's maximum impact.
When Fairtaxers talk about these things they are talking about the WHOLE package, NOT just the taxes themselves.
Dear Bigun,
"When Fairtaxers talk about these things they are talking about the WHOLE package, NOT just the taxes themselves."
That may be, but a claim was made about THE TAXES THEMSELVES, and I merely showed that the claim was entirely unhinged from actual corporate reality. There are likely no C corporations that add no value, but enjoy 29% pre-tax profit margins. That there might be six such companies in a value chain shows a level of unfamiliarity with the world of business that belies and undermines the entire argument for the NSRT.
In 2000, the IRS reports that of 27 million business entities filing tax returns, only 2.2 million (8%), the C corporations, were liable for corporate income taxes at all. The remainder of businesses are subchapter S corporations, LLCs, proprietorships, various sorts of partnerships, that aren't liable for the corporate income taxe. Thus, it would be far more realistic to show cascading effects with more typical corporate income tax burdens in the range of 0% - 2%, with most businesses at most levels showing 0% corporate income tax. This would show cascaded corporate income taxes totaling perhaps 1% - 2%, not 17+%.
And, as a matter of fact, that is congruent with the overall reality that corporate income taxes at the federal level only account for 1.3% of GDP.
Of course, this also means that only 8% of businesses have corporate income tax compliance issues or costs, as well.
I suppose the reason why the initial claim was made is because even NSRTers recognize that proving actual embedded taxes is a lot more tangible than theorizing about possible changes in behavior due to the change in the tax laws, as individuals pursue their own interests.
I personally find the idea that the economic behavior of individuals and corporations is going to change significantly for the "better" to be, at best, a fuzzy and unproven argument, and at worst, entirely discreditable.
As an example, I've been told by some that "savings" will be rewarded and increased at the expense of "consumption." Oh, maybe. But I find that current tax laws already favor capital formation as opposed to final consumer consumption. In fact, that's part of the reason why corporate income tax revenues are so low, because companies can minimize their tax burdens by plowing profits back into capital formation.
On the other hand, the NSRT won't have that bias for capital formation, and American companies may wind up reducing their own internal funding of capitalization, which would actually be a bad thing.
In any event, as I said, I was responding to one claim made, not to an entire panoply of claims. And that claim is shown not to be congruent with reality.
sitetest
Talk about distorted examples!! This one ranks right up here at the top. Nightie, I've got to hand it to you, you've invented a whole new branch of accounting from what most people are used to ... let's call it "Creative Accounting", eh?? That's certainly what it is.
There are any number of things at odds with the real world or with the example of tax cascading given in #154. Overall, basically what you attempt is to smash all of the numbers for the individual businesses together to make them into a single company and of course by that definition the tax rate will never cascade nore go above 25% - but that is the number given by definition in the example for each business. When you re-define the business to be a single one as you attempt to do by consolidating their numbers you have only a single business and a 25% tax limit. DUH!!
These are individual busineses and your use of "accumulated inputs" is merely a way of multiple counting and is, therefore, meaningless. As the sell price from #1 is passed to #2 it already IS the equivalent of what you attempt to redefe it as by "accumulated inputs" (which is merely a method of your overstating the inputs by a significant amount for a given business). Since that's true, your "inputs as % of sell price" is also meaningkless since it stems from a meanginless base.
Your "accumulated profits" suffers from a very similar fatal problem as it is also the result of mashing all of the businesses together and looking at them as though they were a single business. They aren't - each is a separate business and must be considered as such. Done your way, of course, and for a similar reason as the meaningless figures in the paragraph just above there can be no tax cascading since you have now mashed the different busineses into a single one and therefore - voila - NO CASCADING in your little Creative Accounting dream world.
Sorry, Nightie - won't fly. I'll leave it up to any of the real CPS's that are FairTax supporters to discuss it further with you if they wish, but I certainly won't waste any more time looking at "stuff" like that. I think you've hung around Looey too long. Much prettier than the chart I posted in #154, though.
Tax cascading is shown by the example in #154 - except for all those who must deny it or be wrong.
Your example oldsters are going to pay taxes if they spend under the present system in the form of embedded tax costs which have the effect of boosting prices over what they would be without taxes. The effect on prices is something like a bump of 20-25% over what it sould be with the FairTax so that, in effect there is little or no difference in costs to them.
In addition, with the FairTax they will be receiving the prebate and their S/S check will not be taxed either.
So, are you saying that the old-timers if they take their $1000 to the mall, they will have the same purchasing power as before the FairTax, on average? They'll be able to buy about the same amount of stuff with their saved dollars?
You need to look up the definition of the word "cascading tax." What you are demonstrating is no more a "cascading tax" than it is "cascading profits." Income taxes do not cascade.
There is nothing in the cascading tax example in #154 that specifies any sort of business organization at all. It could even be individuals functioning as proprietors. The effect is still the same despite your fanciful reasoning s-test.
That example shows no effects from payroll taxes or compliance costs, either, so it is, if anything very low. Your claim of 1- 2% is nonsense. You better check your figures, since the IRS has stated that the typical corporation pays in the 25% bracket. The NIPA numbers show a different sotry altogether in that there were 5.3 million corporations (including 3.2 million S-corps) leaving about 2.8 million corps with net income and they paid taxes amounting to about $210 million.
There are many other types of business taxpayers other than corporations and I've no doubt there were net payments from them into the fed coffers also. Even the S-corps can figure into cascading taxes. You guys genuinely do not seem to understand the subject but keep flailing around trying to show taxes don't cascade,
The do, and a heck of a lot more that your 1-2% claim.
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