Posted on 08/22/2005 6:53:28 PM PDT by RobFromGa
August 22, 2005
U.S. Representative John Linder
1026 Longworth House Office Building
Washington, DC 20515
Phone: 770-232-3005
Fax: 770-232-2909
Dear Representative Linder:
I have met you before and briefly discussed your FairTax proposal years ago in downtown Norcross at a street festival. I also campaigned for you in my neighborhood when you were running against Bob Barr.
I have read your book, and I have spent quite a bit of time researching the FairTax. As a small businessman who lives in Norcross, naturally I am interested in anything that will reduce taxes and assist our economy, so the idea of a FairTax sounds good. But reading your book, the bill itself, studying the fairtax.org website, and reading the House Ways and Means Committee testimony of Dr. Jorgenson back in 1995 and 1996 as well as your most recent testimony, I am disturbed by the way the FairTax plan is being presented.
I don't think you fully understand the "embedded taxes" concept-- you are double counting this money by both giving wage earners their full 100% paycheck and still expecting their employer to be able to reduce their prices by about 23% on average.
Let's look at a wage earner-- call him George-- that grosses $1000 per week under our current system. You claim that, under FairTax, George will keep all his income (the full $1000) plus everything he buys at retail will cost about the same as George pays now. This is implausible.
Businesses will not be able to pay 100% of their paychecks to their employees, because they need these "embedded tax" savings to be able to lower their selling prices.
Let's look at George's purchasing power, now and under FairTax:
George currently gets $1000 a week from which his employer withholds $200 in FICA and fed taxes and $50 in state taxes, leaving George with $750 to spend. Right now, let's say loaves of bread are $1. Today, George can buy 750 loaves of bread for $1.00 each with his take-home pay.
Under the FairTax, you claim George will get his whole check, which is the same $1000 less George's $50 state taxes, for a take-home of $950. If your FairTax logic is correct, the price of the bread will quickly drop to about $0.77 (when Bob's Bakery gets rid of his "embedded taxes") and when they add the 30% FairTax at the register the final price will still be $1.00. George can now buy 950 loaves of bread with his $950 take-home.
You have increased George's purchasing power by 200 loaves of bread which is a 26.7% increase in his purchasing power. And you claim that FairTax will do this on average for every wage earner in America.
This is dishonest to make everyone think they will get a 25%+ increase in purchasing power. ("Get a 25% pay raise, and prices stay the same")
It is obviously illogical that every wage earner in America, with no change in productivity can increase purchasing power by even ten percent, let alone 25%.
The fallacy in your understanding of the "embedded taxes" is that Bob's Bakery cannot give his employees their full paycheck AND still reduce his costs by $0.23 per loaf of bread as you claim. He can do one or the other, but not both.
The baker could reduce his price by about 25%, but only if he keeps his bakery employee taxes that are currently withheld and going to the government. If he gives these "embedded taxes" to his employee, then his overall labor costs haven't gone down and he has no saving to pass along in his prices. His only big difference is he writes a check to his employee for $950 instead of two checks- one to his employee for $750 and one to the IRS for $200.
If our baker instead kept the taxes, his labor cost would now be $800, and the baker could now maybe drop his price to around $0.77 per loaf as you expect. George would still have his same $750 take-home income and he would still be able to buy 750 loaves of bread for $1 each ($0.77 cents price plus $0.23 taxes). George's purchasing power would still be 750 loaves of bread as it is now.
I think this is the honest way to look at the FairTax plan, but this is not what you are claiming.
The only other alternative is that George gets his full $950 and the price of bread drops to say $0.90 to reflect Bob's Bakery's savings on the employer portion of FICA (7.65%) for his labor costs and a few percentage savings for IRS compliance costs. When sold, the $0.90 loaves of bread will get $0.27 FairTax added for a total selling price of $1.17. Under this scenario, George has $950 take-home, which allows him to purchase 811 loaves of bread, a slight increase in purchasing power which is mainly due to the elimination of the employer portion of the FICA. (assuming Bob's Bakery kept that employers half of FICA which is really his employees money but that is another discussion)
But this second "inflationary" scenario would put retired persons, or anyone with accumulated wealth or any person on a fixed income at a relative disadvantage to wage earners because things would cost more in absolute dollars. So, this scenario won't work in practice.
Please think about what you are promising here when you say that people will get their whole pay checks and at the same time all prices will be about the same. It cannot happen-- there is no 22-25% "embedded tax" savings once you give wage earners their entire paycheck.
Sincerely,
Rob xxxxxxxxx
XXXXXXXXXXXX
Dear goldstategop,
"With the income tax gone, people will be encouraged to save money."
People are already encouraged to save money. There are a variety of vehicles that encourage, predominantly various sorts of defined contribution plans for retirement. In fact, the bias in favor of saving money in some of these plans is fairly significant.
"Your figure does not factor in the fair tax allowing for an exempt basket of goods and services needed to sustain life. Like food and water and fuel in a reasonable quantity."
Actually, my figures calculate in the monthly government "prebate" check.
"Every one would still come out ahead."
If it's revenue neutral, everyone can't come out ahead.
If it's revenue neutral, then by definition, everyone will come out the same ON AVERAGE, but in specific circumstances, some people will come out ahead (I think some people will come out significantly ahead), and some folks will come out behind. Some folks (more than a handful) will get screwed.
sitetest
In the Total Tax Receipts chart, the FairTax proponents give the bottom two items (federal Individual and SocSec) to the wage earner, and the top two items (State/Local and Excise) are not affected. The only area of all this tax that is available as a "cost savings" is the Corporate Tax and that is less than 2% of GDP.
Exactly, and there is the $1.335 Trillion lie. The 20% embedded taxes INCLUDES taxes workers pay. So anyone who says workers get to keep the full paycheck AND prices come down 20% are telling a huge lie. But Boortz and the fairtax organization keep telling that lie.
Dear phil_will1,
1. For folks who are just investing, the United States already enjoys very low tax rates.
2. False premise. No evidence has been presented in any thread that's withstood critique.
2?2? False premise. This only happens if costs fall dramatically. No evidence presented that's withstood critique.
3. If we're taxing consumption, demand is likely to fall.
4. Hypothetical and probably pretty much overhyped.
"And in the midst of this, people owning stocks would get killed?"
Maybe.
We're devaluing all accumulated cash assets in one fell swoop, and depending on how corporations treat their tax savings, we may devalue other financial assets, as well.
sitetest
I know you are really not that dumb. The study clearly included taxes employees paid as a basis for prices falling 20%. This is so black and white it is not even funny. You are intentionally ignoring what the study that provided the basis for the claim says.
All of this Jorgenson stuff is based on the idea that workers will receive smaller gross pay, it all falls apart once you give the workers their full paycheck.
Mere assertion no matter how many times it may be repeated does not change reality. Sorry your presupposed conclusions that such must be true are simply not supported in the actual study.
And it is ten years old, the tax code, and the world has changed. Businesses have become more global, and eliminated layers of cost,
Yep and tax related costs have been rising due to evergrowing tax system complexity and the increasing pace of tax code changes coming out of Congress.
corporate and capital gains taxes have changed, income tax rates have been lowered.
Yep, and subsequently the original 23% estimate of the revenue neutral tax rate for the NRST is falling rapidly. During that 10 years the the revenue neutral rate calculated for the FairTax has ranged between 24% and 19% with 2003, the latest done, standing around 19.5%.
To provide a idea of the magnitude and direction that revenue neutral change in tax rate has been, the Tax Foundation's Tax Freedom Day reports provide useful historical tables of the change in tax rates relative to dollars available for use in consumption:
refer Tax Freedom Day 2005 report PDF: Special Report No.134, April 2005
|
Total Effective Tax Rates by Level of Government |
|||
| Year | Federal | State | Total |
| 1996 | 21.3% | 10.4% | 31.6% |
| 1997 | 21.8% | 10.3% | 32.1% |
| 1998 | 22.4% | 10.4% | 32.8% |
| 19990 | 22.5% | 10.4% | 32.9% |
| 2000 | 23.1% | 10.4% | 33.5% |
| 2001 | 22.2% | 10.5% | 32.7% |
| 2002 1 | 19.6% | 10.2% | 29.8% |
| 2003 2 | 18.8% | 10.1% | 28.9% |
| 2004 3 | 18.4% | 10.2% | 28.6% |
| 2005 | 19.0% | 10.1% | 29.1% |
| Notes: Leap day is omitted to make dates comparable over time. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP. "Overall, NNP provides the best statistical representation of the common notion of “spendable” resources. In 2004 NNP was $10,371.6 billion. Like GDP and PI, NNP is a component of the National Income Product Accounts (NIPA). These accounts are computed and compiled annually by the Commerce Depart-ment’s Bureau of Economic Analysis (BEA)." 0 First year introduction of HR2525(Fair Tax legislation). 1 Economic Growth and Tax Reform Reconciliation Act of 2001 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations. |
|||
Get Jorgenson to do a new study, and make it clear to him that you want him to be sure and keep all the workers and business owners getting to keep their income and payroll taxes as a windfall pay increase, and have him turn his Big Ol' Econometric Forecasting Machine back on and see if it doesn't spit out something awful.
Get your buddies together and chip in to hire him to do a study for you.
Or better yet, wait for a few months down the line as everyone and his brother-in-law commissions new studies from many economists based on the current tax code and condition of the economy to evaluate Flat Tax, fair tax, USA tax, etc proposals as they fight for recognition and the public's thumbs up.
Note that even under his flawed assumptions,
What flawed assumptions are those, be specific by citing them from his studies.
he still had Crude Oil and Refining with large increases.
Now how could that possibly happen with flawed assumptions? Surely a bought and paid for economist wouldn't show something negative about the tax system he has been hired to present would he? One would think that a Harvard hired gun could have at the least chosen a set of flawed assumption that would make the FairTax look better than that.
With realistic current numbers those will only get worse.
How and why?
The performance of the FairTax, NRST, FlatTax and other tax systems analyzed by Jorgenson are measured against the tax system in place, all of which operate under the same conditions whatever oil prices may be due to other reasons. The output results of the Jorgenson studies are relative to the tax law replaced as it manifests its impact on the economy above and beyond other factors in the economy.
For instance, a 10% gain in GDP under the FairTax is relative to what GDP would be under the tax law replaced in the same economic scenario otherwise.
Changing market oil prices changes the economy for all tax systems in much the same manner and degree. The relative measure as regards changing tax systems, the effect of one tax system compared to another, would remain much the same regardless of how oil prices or any prices change for other reasons.
This so-called cascading is not about taxes on taxes. It is about alledged markups on taxes. In other words this claimed cascading effect is talking about business profits. It has nothing to do with additional taxes.
Somehow the use of racial slurs would seem to fit right in with the fair taxers standard practices.
Mere assertions???? It is right out of the horses mouth.
You know why many quack products are sold by independent MLMers (like HerbalLife)? It's so the salespeople can make crazy unsubstantiated claims about what the product will do, and the core business can say "we told them not to say that".
The same thing happens with fairTax supporters selling their plan, but when John Linder put his name on that book, he became part of the "snake-oil sales" job. Whether he realizes it yet or not, he is accountable in a way that ya'll bunch of groupies aren't. He must correct the record on the full paycheck and 25% increased purchasing power claims made in the book.
The study clearly included taxes employees paid as a basis for prices falling 20%.
Only to one with their eyes closed.
This is so black and white it is not even funny.
It is indeed, repeal of all federal income and payroll taxes, means that both the wage earner and the business gain.
The business realize a gain in through their deceases in overhead costs due to repeal of the business side of income and payroll taxes.
The individual realizes a gain in takehome pay from no longer having income and FICA withheld from his contracted gross wage.
You are intentionally ignoring what the study that provided the basis for the claim says.
Hardly, as I find the study clearly indicates a substaintial increase in productionand GDP which can only result in higher demand for labor. Higher demand for labor pressures wages upward attracting greater labor supply, not downward as you would apparently like to believe in contradiction to just bottom line economics.
It appears to me to be more of a case of your overlooking inconvenient results hoping others don't see larger picture presenting just the opposite that you would like to make of it.
For those cannot support their position with the facts and truth about something,
“Truth, Sir, is a cow, which will yield such people no more milk, and so they are gone to milk the bull.”
--Samuel Johnson
I'm off to make some money and pay some taxes. Have a nice day.
Only to one with their eyes closed.
You can not be serious.......I know you know how to read.
But nowhere in the book do they say that the employer WILL give the employee all the money that the employer was paying in taxes. In fact, they specifically discuss the payroll tax and talk about how this money is actually a labor cost that the employer calculates when determining how much to pay someone, but that it will be up to the employer to determine whether or not to give this money to the employee after the implementation of the Fair Tax. Their calculations are based on the employer NOT giving this money to the employee, as far as I can understand.
But, it's currently money that the employee doesn't see anyway, except in the form of retirement benefits. However, under the Fair Tax plan, those retirement benefits will continue to be funded at the current rate, so, in effect, the employee will be seeing the benefit of having that extra money paid to the government for them, even though it won't be coming from their employer directly.
The net effect to the employee is that they'll get 100% of the check that they've usually seen FICA, Social Security, and Medicare taxes taken out of. If there are employers who feel they can stay competitive and also feel that their employees deserve to receive that extra percentage, then good for them, and I'm sure potential employees will be climbing all over themselves to work for those employers.
see page 111
One thing that I think is being overlooked in this whole debate is the effect that the Fair Tax will have on overall government policy. When people can see clearly the cost of the government, they'll begin to question why those costs are so high. As the book states, right now, you can ask many people how much they paid in taxes and they have no clue. Many of them will say "Oh, I didn't pay anything - I got some back." even though they may have paid several thousand dollars in payroll taxes. Under the Fair Tax - they will see clearly on each receipt how much of their purchase went to the federal government. THAT is how we will finally see government spending increases come to an end, because people will finally understand how much tax they're paying to keep this behemoth growing. The book doesn't talk about this, but it's an implied benefit of the Fair Tax idea.
The same thing happens with fairTax supporters selling their plan, but when John Linder put his name on that book, he became part of the "snake-oil sales" job. Whether he realizes it yet or not, he is accountable in a way that ya'll bunch of groupies aren't. He must correct the record on the full paycheck and 25% increased purchasing power claims made in the book.
Unless of course a claim turns out to just happen to be true. Or that such a claim is not made in the book.
The claims I see are that
1) People end up with their full paycheck (no withholding), an understandable one predicated on the fact that folks are not going to renegotiate there contracted wages downward in a strongly rising economy (10% GDP) relative to baseline of the 1996 tax code/economy of the Jorgenson studies.
2)As a consequence of revenue neutrality the American people will be paying the same amount of taxes as under current law; explicitly, under the FairTax as they do today implicitly through the combination of individual taxes paid directly and taxes paid indirectly through their purchases via businesses.
3) That businesses will be able to operate more efficiently and productively without the income/payroll tax system to burden them.
The net consequence of which would be an overall increase in personal standard of living of 15% or more under the FairTax even if its tax rate were 30%(tax inclusive) and not 23%. (per Kotlikoff testimony W&M committee, 2000)
Seems to me that the claims are based on more than just one economist's study, and is in fact supportable from many sources and means.
I am quite sure however, that even more will be forthcoming as newer economic studies of all taxreform proposals are produced over the coming months from many sources. As the real political fight heats up the campaigns to establish the direction of tax reform can only become more intense providing more information for all sides of the issues.
You can not be serious.......I know you know how to read.
I am quite serious because I not only know how to read, I know how to comprehend papers in light of their entire content.
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