Replies

LOL, indeed, s-test. (And hey, werent' you the other guy who was refusing to post to me just recently??).

Let me point out some flies in YOUR ointment.

As to your assumptions about adding no value, etc., marking up, incurring no costs, etc, those do not apply since this is an example of the mechanism involved where those things are assumed to occur and not a P&L statement. Those concepts contribute nothing to the understanding of cascading taxes and can clearly be ignored or assumed-in to the example as given.

It is not MY model and in fact not a "model" at all in the usual sense but it certainly illustrates tax cascading very clearly. As to the types of businesses to which it might apply, even a single man firm needs to cover the taxes he will eventually pay (if any) so he must raise the prices of items that he processes to obtain this necessary money. The fact that he pays it as an individual rather that a corporation (or partnership for that matter) does not matter at all. The mechanism still applies to his business and what passes through it.

I certainly assumed you knew enough to realize that - but obviously you do not. The example applies to the general case of a business manipulating inputs in some fashion and adding value so that it (he, if a single man) will benefit in the long run after taxes. The boost in prices comes not only from any added value and price boost to cover taxes and profit but from the cascaded taxes that are ALSO embedded into the prices. That's what the example shows. It does not matter what the type of business entity might be (excluding the so-called non-profits here).

As for "giving back" the income/payroll taxes to wage earners, yes, that has been established for normal wage-earners but the mechanism operates a bit differently for a person who is not a normal wage-earning employee. The giving back of the wage withholdings applies to the wage earners so that their earnings are stable. In the case of a non C-corp entity you must still file and pay taxes though in a bit different fashion that the normal wage earning employee. That also isn't germane to the cascading mechanism which goes right on functioning as shown in the chart. And it doesn't matter that these taxes are (or are not) corporate taxes, but just that they are business taxes even if levied on and/or paid by individuals. It is the effect of cascading taxes on the things passing through the business to others that is at issue.

As a big, bad S-corp owner (which apparently you are), spare me the trivia about how you do or do not spend the money. That is immaterial also and the real point is that as a business owner you will (supposedly) benefit from your great busines acumen and do better than your wage earners (if any). As such you have the opportunity - but not the guarantee - to do better financially. If your S-corp does poorly or loses money does the government refund all your losses quickly (or at all)? The idea of "giving back" does not apply since you have a unique opportunity to do much better.

With the FairTax removal of the embedded tax costs the input to your business will be quite a bit less expensive that it was before. It is then up to you as a shrewd businessman to adjust your pricing structure to balance the lowering of prices to customers with the appropriate boosting of internal margins where necessary and to increase your volume of business as well with the additional opportunities the improved economy will offer. That is YOUR responsibility, not that of the government - and not that of your competitors (who will be actively trying to eat your lunch). Businesses - particularly smaller ones - paint on a constantly changing canvas and if you are unable to adapt to the new environment then you will perish as a business but it will not be the government OR the tax system that has caused this ... it will be YOU. That's why you're paid the big bux now.

You are far too locked in to thinking that tax cascading applies only to C-corps or that I never took Business 101 in high school. Spare me your condescension. I include the many business types and not just C-corps which you seem so fixated on. The mechanism applies across the board. Flail on; your 1-2% cascading is ludicrous and most, I think, would realize it. As a business owner you are not at all the same as a normal wage earner. If that's what you wish to be so you can have a guaranteed return of your withheld akmounts, then go to work for someone - or get busy and put that noodle to work in thinking about how you can greatly improve your business under the FairTax rather than posting such stuff.

BTW, most of the compliance cost estimates I've seen that seem likely range from $500 billion to $1,000 billiomn per year. Even the lowest I've seen (which is hardly credible) spins out at $250 billion of unproductive costs to the economy. Your own p[ersonal compliance cost may be as low as you say - and it may not - but there are certainly many, many businesses (and individuals) who have far mor significant compliance costs, apparently, than you.

Dear pigdog,

"As to your assumptions about adding no value, etc., marking up, incurring no costs, etc, those do not apply since this is an example of the mechanism involved where those things are assumed to occur and not a P&L statement. Those concepts contribute nothing to the understanding of cascading taxes and can clearly be ignored or assumed-in to the example as given."

Well, the problem with it is that since the model comprises 70% profit, 17% tax, and 13% initial input, why would we think we'd see anything else in it?

When you create a similar cascading model using realistic numbers about realistic businesses, you don't come up with 17% cascaded taxes. You come up with 1% or 2% or 3% cascaded taxes.

And, overall, the average amount of corporate income tax in a given dollar of GDP is about a penny and a half. Give or take.

"As to the types of businesses to which it might apply, even a single man firm needs to cover the taxes he will eventually pay (if any) so he must raise the prices of items that he processes to obtain this necessary money. The fact that he pays it as an individual rather that a corporation (or partnership for that matter) does not matter at all. The mechanism still applies to his business and what passes through it."

No, I refer you to the discussion between groanup and RobFromGa, where groanup has grasped the nature of the problem.

If you're saying the wage earner gets to keep his taxes, then you can't include the personal income and payroll (self-employment) taxes of the small business owner, as his "profit" is his wage, and he needs to recover his personal income and payroll taxes as well.

"certainly assumed you knew enough to realize that - but obviously you do not. The example applies to the general case of a business manipulating inputs in some fashion and adding value so that it (he, if a single man) will benefit in the long run after taxes. The boost in prices comes not only from any added value and price boost to cover taxes and profit but from the cascaded taxes that are ALSO embedded into the prices. That's what the example shows. It does not matter what the type of business entity might be (excluding the so-called non-profits here)."

The problem is that because your model is all profit and tax, it hysterically exaggerates the modest effects of cascading. Throw in a TechData with .1% tax liability as a percentage of revenues, or 0% for a small retailer that's a proprietor, or even a Wal-Mart, with 1.6% federal corporate income tax liability, and your cascaded taxes won't begin to approach 17%. Or even 7%. Or likely even 4%.

"The giving back of the wage withholdings applies to the wage earners so that their earnings are stable. In the case of a non C-corp entity you must still file and pay taxes though in a bit different fashion that the normal wage earning employee."

First, pigdog, then what you're saying is that my personal income taxes are really corporate income taxes. Then, do I pay personal income taxes? Are we counting them twice?

Second, I've shown that for C corporations, typical federal corporate income tax liability is typically 1% or 2% (or often even less) of revenues.

"And it doesn't matter that these taxes are (or are not) corporate taxes, but just that they are business taxes even if levied on and/or paid by individuals."

If it's paid personally, it isn't a corporate tax. It's the same as an individual's personal income tax and payroll taxes on his W-2 earnings. In fact, I file a Form 1040 and pay tax on it. The tax form I file for my business, I don't pay any tax with it. The GOVERNMENT is under the impression that I pay personal income tax, but not corporate income tax.

"As a big, bad S-corp owner (which apparently you are),..."

Well, if I were big and bad, perhaps I'd own a C corporation. ;-)

"...spare me the trivia about how you do or do not spend the money. That is immaterial..."

No, it isn't, actually. It shows that my personal income (the profit from my Subchapter S corporation, which is not subject to any corporate income tax) is used for personal consumption items, which will be subject to the NSRT, and thus, it is unreasonable for me not to get to keep my personal income and payroll taxes paid.

Groanup, do you disagree?

"...also and the real point is that as a business owner you will (supposedly) benefit from your great busines acumen and do better than your wage earners (if any)."

I may. But I may lose my shirt, too (although after 14 years of the current business, I haven't yet).

"As such you have the opportunity - but not the guarantee - to do better financially. If your S-corp does poorly or loses money does the government refund all your losses quickly (or at all)?"

No, what's that got to do with it? My profits = my income. Why do wage earners get to keep their personal income and payroll taxes, but you don't think I should?

"The idea of 'giving back' does not apply since you have a unique opportunity to do much better."

LOL! That ol' class warfare bit is seepin' in.

Groanup, what do you think? Because I might do better, that means I don't "deserve" my taxes back??

I think the NSRT theory is falling apart as you post, pigdog. LOL.

"With the FairTax removal of the embedded tax costs the input to your business will be quite a bit less expensive that it was before."

No, the inputs to my business, which are mostly all labor, will stay the same. Remember? We're giving workers back all their taxes, including their payroll taxes. My costs likely won't go down at all.

"It is then up to you as a shrewd businessman to adjust your pricing structure to balance the lowering of prices to customers with the appropriate boosting of internal margins where necessary and to increase your volume of business as well with the additional opportunities the improved economy will offer."

I won't need to adjust my pricing. The C corporations against which I compete won't be getting much out of the tax savings, as they're typically only paying 1% or 2% of revenues in corporate income taxes, and all the little guys like me are in the same boat as me. If we have to pay that 30% sales tax on the stuff we buy personally, none of us are going to reduce our prices by the amount of our own taxes, since we're going to need those taxes back to pay the blasted tax.

As well, even if I DID reduce my prices by the amount of my taxes, it would only be a few percent of my overall revenues. My profit margins are modestly higher than most big businesses, but not wildly so. And my effective tax rate, when all is said and done, is probably lower. So, I'm going to lower my rates by, maybe, 4% so I can bankrupt myself? LOL! Talk about lack of business experience...

And this isn't different from most small business folks.

"That is YOUR responsibility, not that of the government - and not that of your competitors (who will be actively trying to eat your lunch)."

My competitors try to eat my lunch now, LOL. And I, theirs.

But we gain nothing from the NSRT in terms of decreased costs, and we need those personal taxes back as much as any wage earner.

To cut our prices by the amount that we get back in taxes would be to take paycuts relative to the price level in general. Why would us competitive, shrewd businessfolks want to take pay CUTS?? LOL.

"You are far too locked in to thinking that tax cascading applies only to C-corps or that I never took Business 101 in high school."

Well, I don't know if you took Business 101 in high school or not. Did you? As for me, my advanced degree is in business management. I've owned several businesses, beginning in 1985. So, if I have to choose between your conception of how business works and mine, guess whose I will choose.

"Spare me your condescension."

If I wanted to condescend toward you, you would know it. You're an easy target.

"I include the many business types and not just C-corps which you seem so fixated on. The mechanism applies across the board."

You assert but offer no evidence. Get back to me when you have an argument rather than assertion.

"BTW, most of the compliance cost estimates I've seen that seem likely range from $500 billion to $1,000 billiomn per year."

Well, you're a guy who seems to believe that prices are going to fall large amounts by squeezing out the 1.3% of GDP paid in corporate income taxes, or that small business folks whose non-C corporation businesses don't pay corporate taxes are going to want to be the only folks in the US to forego keeping their tax savings.

So, my guess is that you'll believe anything that assures you of the righteousness of your cause. Even that there are a trillion dollars worth of compliance costs in the economy, LOL.

"Even the lowest I've seen (which is hardly credible) spins out at $250 billion of unproductive costs to the economy."

That would be all of 2% of GDP. Not much savings there.

I certainly could believe that all the corporate accounting costs in the US might add up that high.

However, nearly all those accounting costs would be incurred, anyway.

Because there is one government agency to which the very largest companies in America are accountable that is tougher than the IRS, and that's the SEC.

All the public companies in the US must comply with SEC standards (including the dreaded Sarbanes Oxley Act, which is driving up overall compliance costs an average of 40% overall for all public companies).

Thus, we're not going to get all those accounting costs out.

Anyway, even small companies that aren't public need accounting.

I gotta count the wages of each one of my workers whether there's an income tax or not (and I have to report it to the government whether there is an income tax or not). I gotta have documentation for every purchase I make (to prove it's for business and not personal) and for every collection of revenue I make (to demonstrate that it was either a taxable or a non-taxable sale, and since nearly all mine will be non-taxable, I will also have to do something new, which is keep the sales and use tax license copies of each one of my clients).

For the sake of proper accounting, I will still have to keep a General Ledger (otherwise, it's tough to figure out what exactly is happening in my business), and will still have to do cash flow reports, etc.

None of this goes away with the end of the income tax.

"Your own p[ersonal compliance cost may be as low as you say - and it may not - but there are certainly many, many businesses (and individuals) who have far mor significant compliance costs, apparently, than you."

Yes, but on average, most don't have wildly high compliance costs. Not as a percentage of revenues.

Remember, take a company like Boeing, with over $50 billion in annual revenue, and sure, I'm sure they spend a few million dollars figuring out how to minimize their tax bill.

But that amounts to some tiny fraction of one percent of their overall revenues.

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