NUMBER ONE ---- AGAIN!(The Fair Tax Book)

Nealz Nuze ^ | 8/18/05 | Neal Boortz

[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.

[pigdog]

Read that again Rob. The poster specified nothing about the type of savings involved nor the amounts involved. It actually sounded like one of your "gotcha" questions with few specifics but wanting a specific answer.

In any event as I pointed out the oldsters would be better off rather that worse since with prices remaining the same their purchasing power would be increased due to untax S/S payments and the prebate.

[Your Nightmare]

Are you going to tell us where you got your example from?

[RobFromGa]

leaving about 2.8 million corps with net income and they paid taxes amounting to about $210 million.

That's what an average of $75 per corporation?

[RobFromGa]

In any event as I pointed out the oldsters would be better off rather that worse

Of course, everyone will be better off. Prices will be about the same, and all wage earners in America get a takehome pay increase of 15-25% which translates to 15-25% more stuff they can buy. And all this money appears from savings in compliance costs. And everyone gets free prebates, young and old, plucked fresh off the FairTax money tree.

It sounds great, too bad it is impossible to have people get their whole paychecks and still have prices go down enough to come even close to covering the 30% FairTax adder.

It could work, maybe, if businesses cut the payroll expenses by the amount that is now going to FICA, but otherwise it is a pipedream.

[sitetest]

Dear pigdog,

"There is nothing in the cascading tax example in #154 that specifies any sort of business organization at all."

Well, first, you should acknowledge how out of whack your model is. Likely very few or no businesses can: 1. add no value; 2. mark up 41%; 3. incur no costs whatsoever beyond the acquisition of the inputs; and 4. get to keep 25% of revenues as net after tax profits. LOL.

But getting back to your most recent comments, which pretty much overlook the loss of touch with reality of your model in #154, individual proprietors don't pay corporate income taxes.

I assumed you realized that, and thus, I assumed that you knew enough that your model is only relevant for C corporations. But perhaps you don't realize that only C corporations pay corporate income tax. Proprietorships, partnerships, S corporations and the like pay no income taxes. The income passes directly through to the owners, who only personal income and payroll taxes (except, proprietors and S corporation owners have their payroll taxes called "self-employment" taxes - I guess it's supposed to make us feel better) on their personal income, derived from the business.

We've already established that we're not going to "give back" the personal federal income and payroll taxes that individuals pay, or are paid on their behalf. After all, proprietors do the same things with their business income as wage earners do with theirs: pay their personal bills.

If you ask proprietors to "give back" the personal payroll and income taxes that they pay, then you're putting them at a disadvantage at which you're not putting other wage earners.

"The effect is still the same despite your fanciful reasoning s-test."

Well, actually, if you're talking about proprietors, the effect is that you should count ZERO tax in your model.

Proprietors pay NO corporate income taxes.

"That example shows no effects from payroll taxes..."

I thought we'd established that all of the payroll taxes are going back to the employees on whose behalf they're paid (and that must include the proprietor, or he is at a disadvantage to everyone else in his personal income)?

Do you no longer want to make sure that all wage earners get both sides of their payroll taxes?

"...or compliance costs, either, so it is, if anything very low."

Well, YOU made the argument based on the taxes, alone. If you now want to withdraw the argument on that basis, because you now acknowledge that there are no significant savings to be had, that's fine with me.

However, I'll point out that insofar as most corporations spend VERY LITTLE in corporate income taxes, it is unreasonable to assume that they spend VERY LARGE amounts of money to duck out on rather modest tax liabilities.

Thus, compliance costs for even large businesses probably are similar as they are to mine: a fraction of 1% of revenues.

Which still adds up to a pretty penny. Over the entire economy, that's still many tens of billions, or perhaps even as much as a hundred billion dollars.

But it isn't going to get us to anywhere near 22%.

As well, most of the "compliance costs" are necessary accounting and bookkeeping that businesses must do, whether they pay corporate income taxes or not.

My business does not pay corporate income taxes. Nonetheless, I must pretty much maintain the same accounting and bookkeeping as a business that does.

Accounting isn't all about, or even primarily about taxes.

"You better check your figures, since the IRS has stated that the typical corporation pays in the 25% bracket."

That's true. And if you'd read my posts, you'd see I actually said that most corporations that are liable for the corporate income tax pay about 20% - 25% of PRE-TAX PROFITS in federal corporate income taxes.

But pigdog, if you'd have read my post, you'd have learned that on average, corporations with corporate income tax liability have pre-tax profits of about 6% of revenues. Do you understand that you only pay income tax on profit, not on revenue?

Twenty-five percent of 6% is 1.5%. Thus, my assertion that most companies that are liable for corporate income taxes pay about 1% - 2% of revenues in corporate income taxes is pretty much dead-on.

At least according to the IRS information that you quote.

Thanks for affirming my statements. ;-)

"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."

Well, first, if there are 5.3 million corporations, and 3.2 million are Subchapter S corporations, that would leave 2.1 million other corporations, not 2.8 million.

But other than that, look carefully at what I wrote, pigdog. I didn't say 27 million CORPORATIONS but rather 27 million BUSINESS ENTITIES, or which, in 2000, 2.2 million were C corporations. There are millions of S corporations, as well as millions of proprietorships, LLCs, and partnerships. Thus, if you're saying that there are 2.1 million C corporations, well, that doesn't sound far off from my numbers.

"leaving about 2.8 million corps with net income and they paid taxes amounting to about $210 million."

Perhaps you mean $210 billion?

I don't know what year you're citing, I've only seen numbers through 2003, when the amount was about $165 billion. I won't quibble over $50 billion in a nearly $13 TRillion economy. That's less than a half-percent.

So, perhaps federal corporate income taxes were as much as 1.6% of GDP in some year recently, but not in 2003. Could be.

It still doesn't add up to 22%.

"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."

Well, just what federal business tax are they paying now that they won't pay under the NSRT?

Remember, we're not counting personal income taxes, as if these aren't returned to the individual taxpayer, that taxpayer will not be treated the same as all other wage earners, and will not be made whole to pay the 30% NSRT.

"Even the S-corps can figure into cascading taxes."

How? Subchapter S corporations pay no corporate income taxes.

All income passes through to the individual owners, and the individual owners use that income to pay their personal expenses.

As the owner of a Subchapter S corporation, let me tell you what I do with my "profits" (my income, my wages). First, we pay our federal income and self-employment (same as payroll) taxes. We pay our mortgage on our personal home. We buy groceries. We make my car payment. We pay our residential electric bill. We pay our auto insurance. We pay our life insurance. We pay our homeowners insurance.

We pay our personal state income tax. We pay our property taxes on our residence. We go to Home Depot and Sears and buy stuff to do things in and around our house. We go to department stores and buy ourselves and our children clothes. We pay for educational stuff (we homeschool, so we buy a pre-packaged curriculum).

We go out to eat on this money. Go to the movies. Buy each other birthday, Christmas, Fathers Day, and Mothers Day presents. Go on vacation.

We buy (a lot of) gasoline. We buy tools and home equipment, like our riding mower, our circular saw, and our gas grill. We had a tree fall down in the back yard. Forty-five footer. We paid to have it hauled away.

We take no business deductions for any of these things. We would pay the NSRT on any of these things that any other individual would pay.

Thus, the personal income and payroll taxes that I pay rightfully should come to me, should be considered in the same category as my payroll costs, not be calculated as a cascaded, embedded tax cost of the corporation.

What other federal taxes does my Subchapter S corporation pay that will be replaced by the NSRT?

"You guys genuinely do not seem to understand the subject but keep flailing around trying to show taxes don't cascade, "

LOL. I see some flailing, all right, but I ain't doin' it. ;-)

The fact is, taxes do cascade. And we know the entire amount to which they cascade, on average, economy-wide. In 2003, it was 1.3%. That's it. That's all she wrote.

"They do, and a heck of a lot more that your 1-2% claim."

That's an assertion that you haven't proved, but I've pretty much disproven.


sitetest

[RobFromGa]

It actually sounded like one of your "gotcha" questions with few specifics but wanting a specific answer.

You only call them "gotcha" questions because you know you are stuck in a corner with no escape.

My last simple question was:

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?

Of course, the standard FairTax canard is that prices on goods will go down, on average, by about 20-25% allowing prices to remain about the same when the 30% FairTax is added. So, you would answer YES to my question.

But you consider this a gotcha question because this points out the flaw in another FairTax canard- that wage earners will get to keep 100% of their income with no FICA or income taxes removed. This means that the average wage earner will receive a 15-25% windfall in purchasing power income with the FairTax PLUS THE PREBATE.

It is obviously impossible, ridiculous and dishonest to promote the FairTax plan on these grounds, yet you refuse to see what is staring you in the face. You will not answer this glaring problem and you just keep trying to change the subject to some other area.

[RobFromGa]

excellent analysis sitetest, your comments re: s-corp are exactly right. That is my business form as well, and you are saying what needs to be said, the 20-25% embedded costs is a myth unless wage earner and business owner alike is willing to take less income to compensate for the lack of taxes.

The only other Fairtax possibility is all prices go up 20-30% which doesn't put the US at any advantage vs. imports, and would be grossly unfair to anyone with accumulated savings.

[RobFromGa]

As for the service economy. In many cases fees can be lowered by the amount of tax liability and the service provider will net the same. A CPA making 100,000 minus 20,000 in tax, SS and Medicare no longer has to pay those things. He now has room to lower his fees if competition forces him too and I believe it will.

Why should the service provider (hint small businessman) get what he gets now, and the wage earner gets his pay now plus his FICA taxes plus his income taxes?

Do you agree that this would put the business owner (who you say should get the same takehome as before the FairTax) at a relative disadvantage vs the hundred million wage earners who are expecting to get their whole check (15-25% more income than before the FairTax)?

[sitetest]

Dear RobFromGa,

Thanks.

Yeah, either folks don't get back their taxes, in which case, take-home wages stay the same, but then prices can fall to accommodate the NSRT, or folks get back the taxes they pay or are paid on their behalf, and retail prices increase by 30%. If 30% is the right number (I think it may wind up being a little low), well, it's supposed to be revenue-neutral, so overall, on average, folks break even.

Because, there really isn't much by way of "embedded tax costs" or "embedded compliance costs" in the economy.

Ironically, Rob, it would have been different if this had been proposed 30 years ago, or so.

Back then, corporate profits were much higher, and corporate income taxes were a much larger part of GDP. Corporate income taxes averaged well over 5% of GDP. Cascade that a couple of levels, and you really do wind up with significant savings to be had by eliminating the corporate income tax. Maybe not 22%, but maybe 10% - 15%.

But the last 20 years have seen increasing competitive pressures in the US economy, and companies have squeezed down costs, and accepted much lower levels of profitability. I read an article not too long ago that gave significant credit for this result to Wal-Mart, all by itself.

That's because Wal-Mart has a pretty strict ethic of taking low net profits on revenues (and thus owing little by way of corporate income taxes), and has pushed hard on its own suppliers to keep their costs as low as possible, thus depressing their profits, as well. Their pricing discipline has permitted them to compete ruthlessly, and gain huge market share in their market segments. It's been an excellent plan for them, in that their total revenues now amount to more than 2% of the GDP of the United States. Think about that one!

Price competition, and the use of technology to intensify price competition, have squeezed a lot of profits (and thus corporate income taxes) out of the corporate economy.

This has been good, overall, for consumers.

But it means that there is little by way of "cascading taxes" or "compliance costs" with which to lower overall price levels.

That's just the reality of things, no matter how much others assert (without evidence) to the contrary.


sitetest

[pigdog]

The example is certainly simple enough and clearly indicates cascading of income tax. Wish I'd have done it myself (sorry, but no I didn't). Since you can't seem to find things like that (that don't fit the SQL Playbook) I see no reason to help you out since you'll merely deny it or attempt to belittle ANY source.

You apparently felt it was straightforward enough that you attempted a cardiac bypass with your spreadsheet - but failed. Perhaps if you made a real attempt to show the effect of cascading taxes (instead of trying to proove it doesn't exist) the muse would strike you.

[pigdog]

Can't you figger that, Rob ... my calculator's broke. And are you trying to amaze us with statistics?

[pigdog]

No, Rob, it is quite possible ... but you don't choose to believe it (and spare me the stuff about "being the first to lead the parade ..." business if someone would just show you). You've tried that before.

Some savings come from reduced compliance costs, some from elimination of embedded tax costs, some from an increased tax base, some from greatly increased economic activity, some from the prebate ... and, oh yes, some caused b capital flows being repatriated back into the US from the offshore locations to which they have fled. Some are even from other sources such incread tax paid by the illegal income sector, cash betting, the sex industry, etc. But of course none of that counts, right??? It's all lies, right???

And, let's see ... your plan is ...???

[groanup]

Why should the service provider (hint small businessman) get what he gets now, and the wage earner gets his pay now plus his FICA taxes plus his income taxes?

The small businessman gets his whole paycheck now. He just writes a check quarterly and another at the end of the year for both taxes and FICA. The wage earner is at no advantage. What are you talking about?

[lewislynn]

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 profit - no other costs of doing business. Twenty-five percent profit without adding any value whatsoever!!! LOL.

Why bother with the 33 cent markup when you can skip the fools at levels 2, 3, 4, and 5, then go directly to level 6 with the exact same product and sell it to some fool for over 7 times your initial "input....LOL!

[groanup]

LOL! I love the way you think that an oil rig in Texas can magically turn its yield into a Quik Trip in Virginia. Hmm, how do they do that?

[sitetest]

Dear lewislynn,

"Why bother with the 33 cent markup when you can skip the fools at levels 2, 3, 4, and 5, then go directly to level 6 with the exact same product and sell it to some fool for over 7 times your initial "input....LOL!"

Because, then the example provided wouldn't fool some posters who seem not to realize that in the example, there is no other economic activity than to collect profit and pay tax. Nothing to turn the yield, say, from an oil rig in Texas into a product available in Virginia.

No drilling, no refining, no transporting, no marketing, no advertising, no putting in the ground underneath the gas pump, no credit card transaction costs, no salaries, no insurance costs, no rent, no nothing.

Just profit and tax.

Without levels 2 through 5, no one would be fooled.

;-)

[groanup]

And, what a surprise, there are people on this board who think the fair taxers can understand nothing but profit and tax. Go figure. How did we ever get along without an income tax before 1913? Surely some of those estates out on Long Island, New York could have easily been bought and built with an income tax. Do you think that the pre-1913 folks would have preferred an income tax or a sales tax? Hmm. I recall they were sold on the fact that only the rich would pay taxes.

I just have to think that they had an appreciation for creating wealth without a ball and chain that inhibits that activity. Well, I guess we'll just have to pass the legislation without them.

[RobFromGa]

You must not have looked at the revenue neutral calculation, it didn't take greatly increased economic activity, or capital flows being repatriated into the US into account in its calculations at all.

And it certainly does not plan to generate revenue from cash betting or illegal activities except for when those people buy their stuff honestly on the open market like they do now. Those transactions are in the revenue neutral tax base.

And the embedded tax costs go to the people paying them now, remember the 100% paycheck promise? So, no savings there.

And the prebates are a cost item on the revenue calculation, not a savings. Without prebates, the NRST rate would be lower, but you wouldn't be able to take all the poor off the tax rolls (at least now they contribute to FICA) without the prebates.

My plan is to continue to cut taxes on the present system and to eliminate death, AMT, and corporate taxes. Job #1 is to reform SocSec so that it doesn't become a drain on our future. THAT is the #1 danger signal ahead in my opinion. Radical overhaul of the entire tax code while we're in the middle of a World War that threatens our existence seems a crazy time to make a prayer on a fantasy plan which is what the FairTax plan is.

I think you understand that every wage earner in America cannot be given outright a 15-25% increase in purchasing power without it coming from somewhere. I just think you have way too much of your ego wrapped up in this plan that if you knew for a certainty that prices would go up or salaries would go down by 20% or so, you would still support the plan. You can't seem to come up with any way to answer the repeated question of where is this huge pay raise for every wage earner going to come from? You just wave that away as though it is too stupid for you to answer. Because you are enthralled with a movement.

[lewislynn]

I love the way you think that an oil rig in Texas can magically turn its yield into a Quik Trip in Virginia. Hmm, how do they do that?

Using the pigdog example you all think they suck gasoline out of the ground in Texas then 6 different people buy and sell the same gasoline before it even get's to Virginia....

Hmm, how do they do that?

Tell us how it's done big shot....

[RobFromGa]

The small businessman gets his whole paycheck now. He just writes a check quarterly and another at the end of the year for both taxes and FICA. The wage earner is at no advantage. What are you talking about?

If you honestly don't understand what I am talking about then you are not reading. The wage earner is promised his whole 100% paycheck by the FairTax. This will be a 15-25% increase in takehome pay for the W2 wage earner. The other end is the business owner who makes profit on the business and pays income taxes on the profit. You seem to think that the business owner will be fine and dandy if he doesn't get any increase in takehome spendable pay and that the money he saves on taxes will go to the business bottom line,

That is giving wage earners a raise and putting the business owners at a relative disadvantage, it is redistributing income.

If you are now saying that the business owner will get an increase in his spendable pay just like the wage earner, then there are no other significant taxes that the business will save in order to reduce prices.