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
Manufacturers and suppliers of goods will not lower prices.
Those who do not wish to remain in business won't but all the rest will!
"Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart,would fall by an average of twenty percent."
with any of your claims, how can you with a straight face insist that you comprehend it? You speaketh with folk tongue. You just blindly choose to ignore the definition of embedded taxes from the study you guys always quote so you can lie about what they are.
Dear RightFighter,
"When people can see clearly the cost of the government, they'll begin to question why those costs are so high."
Oh, heck. Every one of my employees gets a paystub every payday telling them precisely how much they paid for federal income, state income, and federal payroll taxes.
If they can't figure out what they're paying now, I'm a little skeptical that they'll notice much once the NSRT is in place for a while. I also think it's likely that the folks who really have no clue how much they're paying are folks who typically aren't earning much. These are folks who also benefit most from government spending. They won't look for a roll-back in government spending, just ways to shift the tax burden off themselves.
Anyway, I suspect that retailers will advertise the base price in small print, the tax in small print, and the total price, with the tax included, in large print, to make sure that folks don't misunderstand how much they need to bring to the register. If the law permits (and I expect this will be one of the first changes if the final bill does not permit), retailers will only print the final cost, or will be permitted to note the NSRT amount somewhere in fine print. And here's why: because if folks realize how much of their purchase is the NSRT, consumption will fall, and sellers of stuff will suffer. So, the sellers will look to relief from Congress to permit them to conceal the tax.
Anyway, pass the NSRT in roughly its current form, and the next thing you'll have is the liberal demagogues who will rightly note that the rich are doing very well under this NSRT, thank you very much (which is fine by me, but is always something that sticks in the craw of a significant percentage of the population, including, seemingly, many folks here at FR).
And the cry will go up to reduce the burden "on the working man" by raising taxes on the "very rich."
Since the 16th amendment isn't getting repealed before this sucker goes into effect, I expect that the libs will go for a "modest" reinstatement of the income tax on the "very rich," to bring down the NSRT rate, or to exempt food, or medical stuff (or health insurance premiums - in my company, the average health insurance premium is about $10,000 per year - the NSRT on that alone will be $3,000 - ouch), or whatever.
Or, we'll see libs introduce differential rates. "It's supposed to be a FAIR tax! How is it fair to charge poor people the same tax for their new car as rich people? Rich people buy decadent [we've seen that word thrown around on this thread already by alleged CONSERVATIVES] luxury cars. Let's make the NSRT 40% instead of 30% on cars over $50,000!"
Heck, it wasn't tough to get a 10% excise tax on cars over $30,000 under a REPUBLICAN president, along with a 10% excise tax on pleasure boats. People will (probably already have) forget about the disatrous effects on the boat-building industry from that last one.
See, there are two points of view represented in these threads: one that says that human nature will be altered by going from an income tax to a decadence, uh,... er,... consumption tax; and one that says that human nature will not be altered by collecting the same money in a different way.
One view is that politicians will stop being politicians, that people who avoid and evade taxes now will stop avoiding them and evading them in the future, and that somehow, taxing consumption heavily won't suppress consumption.
The other view is that our federal Congress comprises 535 full-time politicians who have to have something to occupy themselves, and thousands of paid lobbyists who are continuously suggesting "improvements" on things to these 535 politicians, to fill their time and give purpose and meaning to their otherwise meaningless and useless lives.
Of COURSE politicians will continue to tinker with the tax code!! LOL!!! What ELSE are they going to do?? Of COURSE lobbyists will develop arguments that sound reasonable to tens of millions of folks on how to make the Fair Tax even FAIRER. How do you think the income tax got to where it is?
As long as you have a honey pot with $2 trillion in it, you'll always draw a lot of flies. And nastier creatures.
And of COURSE, if you tinker with the code to take from the relatively-few well-off, but give a break to the relatively-more less well-off, you will gain majority support for your proposals. That's why the marginal income tax rate once exceeded 90%.
Most folks will think that any proposed change to the Fair Tax that gives them more at the expense of folks who are not like them will be FAIRER, so, why not?
sitetest
Manufacturers and suppliers of goods will not lower prices.They're all in China, Vietnam, Indonesia, South America, Japan etc.....They wouldn't be affected by our tax laws....
Any business that has to lower their prices 23% while they only lower their costs 7% won't be in business long either. Unless you are going to tell us market forces are going to lower wages too, the scenerio you pose is impossible.
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.
So lets look at what the maximum it would take to fund those functions clearly authorized under Article I Section 8 of the Constitution, in 2001 dollars:
http://w3.access.gpo.gov/usbudget/fy2001/guide02.html#Spending
- $334 Billion --- Defense & Military related expenditure
- $ 31 Billion ---- Administration of Justice
- $ 16 Billion ---- General Government
- $199 Billion ---- Interest on the Debt
=========================
$580 Billion ---- Total
Institute an across the board, Flat rate, single stage National Retail Sales Tax, which taxes all imports and domestic products with the same rate.
Replacing all current federal tax law with a retail sales tax would be 23% on new goods and services paid and receipted at the retail register. No hidden tax, no exceptions, exemptions everyone participates.
Such a tax acts in a natural manner to encourage the elimination of excess government functions through visibility of burden among all constituencies of the electorate.
The total federal government budget would move from $2,000 billions towards something less than $580 billions calculated.
The across the board federal tax rate on new goods and services would decline towards less than 7%.
As tax rate on sales decreases the economic burden on retail items, the sales volumes and growth in the economy would be tremendous allowing even further reductions in tax rates below that less than 7% hypothetical level.
That is what I perceive as the ultimate achievements possible under a National Retail Sales Tax structured in the manner of the revenue bill H.R.25. Simple common sense applied to the principal of TANSTAAFEL,( no free lunch, everyone participates in paying their way in proportion to the benefit the extract from their consumption.) encourages the natural change in attitudes required of the electorate as regards the burden of government largess in their lives.
- It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income
Hmmmmmm....... It's do able, with time and effort, once the blinders are removed from the electorate.
"When people can see clearly the cost of the government, they'll begin to question why those costs are so high."How would they do that? These same people who don't look at their check stubs would just throw their worthless receipts away in the bag they carried it home in.
Besides where would the realization of the huge cost of government be if the Fairtax promise of lower or "about the same as now" prices AND more money in their pocket is true?...Which one is the lie?
Well since you can not reconcile Jorgenson's statement
"Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart,would fall by an average of twenty percent."
with any of your claims
I don't have to claim anything.
The Jorgenson papers provide the clear basis as his first year 10% GDP growth large production increases and consequent demand for labor increases significantly precluding any fall in gross wages paid to employees.
, how can you with a straight face insist that you comprehend it?
Very easily, as I bother to read the full report in context.
You speaketh with folk tongue. You just blindly choose to ignore the definition of embedded taxes from the study you guys always quote so you can lie about what they are.
“It is amazing how many people think that they can answer an argument by attributing bad motives to those who disagree with them. Using this kind of reasoning, you can believe or not believe anything about anything, without having to bother to deal with facts or logic.”
--Dr. Thomas Sowell
Your false assertions no matter how many times repeated remain false.
Which has nothing to do with the price of tea in China. We are talking about prices dropping 20% because of embedded taxes. You can change the arguement to something else, but it doesn't change the fact that your fairytale scenerio of employees keeping their full paycheck and prices coming down 20% is a total misrepresentation of what Jorgenson said. This is a $1.335 Trillion lie. You can rationalize it away with excuses and other explainations, but it does not change the fact the you continue this lie.
Only to those who REFUSE to educate themselves on the issue.
We have educated ourselves to the point of going to the source and showing how it contradicts your claims. I don't know how much more educated we can get. Maybe some re-education in the fair tax brainwashing camps might work. It seems impossible to penetrate the brainwashing that has been done to you guys no matter how clearly you are shown to be wrong.
The fair tax commends itself by making you pay just one time. And it doesn't grab 50% of your income through various embedded taxes you can't see but you feel in the little money the government begrudges you to keepDoes the logic of eliminating taxes on business, "untaxing the poor" (by giving them money) and remaining "revenue neutral" (for everyone else) elude you?
We are talking about prices dropping 20% because of embedded taxes.
We are talking about producer prices dropping 20% because of the repeal of the income/payroll tax system as presented by the Jorgenson FairTax study done for AFFT.
That entails a great deal more than merely counting the amount of tax revenues remitted by a business to government. It is a comprehensive figure that takes all factors changes in business productivity, direct overhead costs burdening business and business decisions, and depressed markets due to high tax rates and attendant costs on business. 20% in price received by the producer is a consequent effect upon business sectors throughout the economy of removal of federal taxation of business and competitive interaction with the consumer, other businesses, and investor in how the dollars in circulation are put to use.
You can change the arguement to something else
Lets see, and explaination for how prices can fall without affecting gross wages paid is changing the argument to something else now. Sorry, producer prices fall, wages can remain without change and even increase when, compared to the current tax system, first year sees investment increase by more than 70% over current levels, Exports jump more than 26%, overall production quantities grow by more than 20%, GDP up by more than 10%, consequent demand for labor rises and wages do not fall under such economic conditions.
It is quite apparent why you do not want to look at the entire context of the study to understand how prices can fall with wages constant or growing as business productivity rises.
LOL, the effect of projected 10% growth of the economy happens to totally blow your theories out of the water.
This is a $1.335 Trillion lie. You can rationalize it away with excuses and other explainations, but it does not change the fact the you continue this lie.
A false allegation, no matter how often repeated, remains a false allegation.
“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
--Arthur Schopenhauer
--German philosopher (1788 - 1860)
"There isn't a lot of corporate income taxes to squeeze out of the value chain. There's a little, but it doesn't add up to much."
One important clarification here: Corporations don't pay taxes, they just pass the cost of taxes on to the consumer. People who think corporations should pay more of "their fair share" are only going to cause retail prices to rise.
Dear webstersII,
"One important clarification here: Corporations don't pay taxes, they just pass the cost of taxes on to the consumer. People who think corporations should pay more of 'their fair share' are only going to cause retail prices to rise."
Okay. I'll go along with that. So would a lot of our politicians and policy makers, which is perhaps why tax laws have slowly changed in ways that have minimized corporate income taxes.
So, let me rephrase. There isn't a whole lot of corporate income taxes, that are ultimately paid by consumers anyway, to squeeze out of the value chain. There's a little, but it doesn't add up to much, thus saving the final consumer very little.
sitetest
Amen!! Refuting these knuckleheads does nothing. Citing facts does nothing!! Logic does nothing!! I know of only one group who is immune to reason and common sense - liberals!! I notice that one keeps repeating the old liberal mantra that for there to be winners there must be a corresponding number of losers, the old fixed-pie ignorance.
If their goal is to waste time and bandwidth they are succeeding and that must be the goal because truth and understanding is obviously not their aim.
No matter how many times you turn and twist anf flip and squirm, it doesn't change a thing. We are talking about prices dropping 20% because of 'embedded taxes'. Jorgenson statement about prices falling 20% was not contingent upon growth or anything else, it solely had to do with the removal of all taxes and the compliance costs associated with them. If you continue to quote Jorgenson's numbers and says it means something else, it is a bold face lie.
The tax rate expressed as a percentage of GDP has little or nothing to do with embedded tax costs which is what the discussion is about. Tax costs (excluding payroll/withholding and compliance costs) are determined from profits, not revenues, but I suppose you did not know that. Revenues themselves show nothing about the cascading of embedded taxes. To determine the cascading embedded taxes it is necessary to look at income tax rates so that the build-up due to taxes can be determined at each level.
The simplified example I have given shows this mechanism quite well and is purposely simplified for easy understaanding. The post #88 shows the example and it clearly is discussing cascading embedded taxes and they are shown as "tax costs as % of sell price" and NOT as a % of revenue. Embedded tax is calculated from the margin of the business and their tax rate. Revenue is unrelated to cascading embedded tax and trying to express that amount of tax as a percent of revenue is completely meaningless since it shows nothing about how the mechanism works.
The meaningful figures are the income subject to tax and the taxes actually paid. The latter divided by the former is the rate of taxation for the particular business - just like they taught you in high school, that gives the tax rate for the business. It is this rate that figures importantly in cascaded tax costs.
As for groanup's opinion of whether or not payroll taxes of any sort should be included is of no importance to the discussion at hand - and perhaps he's correct. That once again is irrelevant since the example was defined as not including payroll/wihholding or compliance costs.
As for your statement:
"He seems to think that if you're not paying corporate income taxes, well, you're not paying corporate income taxes. "
Well, DUH - who's to argue about that. That's like saying if you're scratching your head, you're scratching your head.
The example in #88 is for a business (period) and not just Subchapter C corporations as you keep trying to pretend. They all have the same mechanism effecting the build up in prices. The fact you don't understand his is your problem, not mine. As for "... evidence and reason arrayed against me ..." I see very little of either but I do see a bunch of meaningles nonsense presenting numbers that are completely unrelated to the discussion but presented to try to fool others into thinking they are meaningful even though off-topic.
In post #310, the figures from the IRS SOI publication for 2001 show the detailed information that the C-corp tax rate (which you seem to think is the entire business world) is 34.4% rather that the 25% figure used in the original cascading example. Using that actual overall figure the cascading embedded taxes become:
LEVEL 1 2 3 4 5 6 INPUT $1.00 $1.44 $2.08 $3.01 $4.34 $6.27 33.00% PROFIT MARGIN $0.33 $0.48 $0.69 $0.99 $1.43 $2.07 34.40% TAX RATE $0.11 $0.16 $0.24 $0.34 $0.49 $0.71 SELL PRICE $1.44 $2.08 $3.01 $4.34 $6.27 $9.05 Accumulated tax costs $0.11 $0.28 $0.51 $0.86 $1.35 $2.06 Tax costs as % of 7.86% 13.31% 17.09% 19.70% 21.51% 22.77% sell price
So you can see that using the actual tax rate for your C corps results in a much faster build up of emedded tax costs. This is probably more true to the real world effect than the original illustrative example since it now uses the figures from what you seem to think is the whole business universe (and it isn't) - the major industries. Your statement about these C corporations:
"These businesses just don't pay a lot of taxes. "
... is shown to be the nonsense it is - they pay a good amount of taxes and at a 34% (plus) rate. To even try to fool readers into thinking that these amounts do not become embedded into prices is - truly - nonsense. Even your compatriot Nightie is now urging the use of a much higher figure for embedded taxes. Perhaps you should straighten him out???
I would say EXACTLY the same thing about you SQL types! Isn't that amazing?
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