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
We are talking about prices dropping 20% because of 'embedded taxes'.
Don't know about you, I am talking about first year producer prices (price sans tax) dropping 20% as a consequence of implementation of the FairTax legisilation.
Jorgenson's IGEM simulation results indicate a 20% fall in prices received by producer as a consequence of implementation of the FairTax legislation.
Jorgenson's 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.
Jorgenson's conclusions RE prices, is a comprehensive whole, the result of all factors effecting prices arising out of implementing the FairTax legislation and is not limited to your perceptions of a narrow set of constitutes the factors contributing to decline in producer price.
You might wish to constrain discussion to something less than the totality of that study and all the economic factors that provide for that change in price. That is your probem not mine.
If you continue to quote Jorgenson's numbers and says it means something else, it is a bold face lie.
Since I refer to Jorgenson's IGEM study results as a whole, in context. Your implied allegation simply is one more case of ad-hominen attack for effect lacking substantive argument in support of your positions.
Sorry Jorgenson's study is what it is, the results he states are what they are for all the interelated economic factors that enter into its results, not merely your narrow perceptions of what you want to talk about as regard to price change. Price change is the consequence of the whole of all factors entering into the general equation, not merely the some of some subset of pieces you want focus on.
Jorgenson indicates a first year 20% drop in price received by producer (price sans tax) price. With that is a first year 10% increase in GDP, 76% increase in real investment, 26% increase in exports, more than 20% increase in overall business sector production. Jorgenson, does not give any number for change in wages; However, the study results in high GDP growth which strongly supports increasing demand for labor, thus contracted gross wages are obviously sustained at current wage levels or higher as a consequence.
Actually I don't see that your question was answered, but under the FairTax, there is no such concept as "depreciation" required for tax purposes (since income is not taxes) and you are free to make the business decision of expensing an acquisition as meets the needs of your business the best - in your view.
That's one of the marvelous aspects of the FairTax ... it's called FREEDOM.
Why do you keep misstating and mischaracterizing such nonsense???
That's patent nonsense. Check #310 and #399.
BS. I have been very successful too. This isn't class warfare, it is leveling the playing field. It is taxing spending at whichever point the taxpayer wishes be taxed. It is allowing those who are accumulating wealth to do so without encumbrance. I baffles me how you guys can't understand that.
It obviously seems to elude you Looey. The poor ae not "untaxed" since they pay taxes at the same tax rate as anyone else - even you Mr. Megabux.
It also remains "revenue neutral" ... but that's for the whole country, Looey.
No, we're not. We're talking about prices dropping 20% and embedded tax costs are only part of that along with many other things as derived by the IGEM model.
B R A V O ! ! !
WELL said! Well said indeed!
It's called FREEDOM!!!
Well that is a nice bait and switch. You ought to tell pigdog, Boortz, and the fairtax.org people. Here is what the fairtax FAQ says:
All goods and services already contain the embedded costs of the current tax system in their prices. When these embedded taxes are removed, prices come down. Dale Jorgenson, Ph.D., former chairman of the Economics Department at Harvard University, has projected an average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax.
Nothing about growth, only 'embedded taxes'. How deep are you going to dig yourself before you admit to this gross misrepresentation by fair taxers?
What is so difficult to comprehend in that sentence?
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%.Not true, the latest number was calculated by Treasury for the Tax Reform Panel and they determined the rate would have to be 25.4% inclusive just to replace the income tax.
You know how many quotes I can dig up from you alone that says otherwise???
Nothing. The problem is not my understanding of it. The problem is every fair taxer has to LIE and LIE and LIE about what embedded taxes are. From the guy who did the study himself, he says they include employee-paid taxes. Why do you guys insist on living this lie?
THE SKY IS FALLING!!! THE SKY IS FALLING!!! ANd you really do sound a lot like Chicken Little.
Your employees (and you) may see their pay stub and shrug, but what they DON'T see is the costs of taxes embedded into prices in everything that they buy presently. That's why it's called a hidden tax - can't be easily seen. And that's why you need to see the cascading tax cost example in #399 which uses your treasured Subchapter C corporation actual tax rates for 2001.
You can "expect" anything you like in the Fairtax bill, but the bill is what it is and what it is presently can be read by everyone by going to this site:
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:
The language is very clear and understandable. Since the income tax is repealed by the bill it will be more than a tad difficult for the demagogues to rant about "the rich" with much effect as income can no longer tracked. Similarly for your differential rate nonsense. Your class warfare efforts are clearly full of beans.
With your last sentence, you show that you have confused the FairTax with the income tax:
"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?" That's income-tax-speak.
For an example of embedded taxes see #310 and #399.
So now embedded taxes means cost cascading. You are too much. Keep digging.
Some "body blows"!! The cheerleader of your little nest of Squirrels is now saying that embedded tax costs are too low and should be much higher.
Another has just been shown to not only not realize what a Subchapter C corporation is but how tax revenues are calculated for them - by dividing the amount of tax paid by the amount subject to the tax.
And you've ben right there all along too spouting the same stuff and claiming that tax costs are not embedded in prices today. Almost every economist one reads knows better than that!
Some "body blows".
The example in #399 shows the cascading effect of tax costs - and it doesn't include payroll/withholding taxes or compliance costs.
Keep reading; it may eventually sink in.
And this has what to do about your $1.335 Trillion lie about embedded taxes? Nothing. Another double-twist triple-flip by the fair taxers.
Well that is a nice bait and switch.
Hardly, all anyone has been referring to is the effect on prices as a consequence of implementing the FairTax legislation.
Nothing about growth, only 'embedded taxes'.
You figure that removing the burdens of the income payroll tax system from businesses (and individuals) do not have extended ramifications through out the economy and affect producer prices from multiple effects? Sorry but if you figure that is the case, I suggest you do abit of remedial study in economics.
How deep are you going to dig yourself
LOL, the only person I find who is in the process of digging themselves into a hole is yourself, through limiting your perceptual horizon to less than what economics actually provides.
before you admit to this gross misrepresentation by fair taxers?
Once again the ad-hominen attack mode. I see no admission necessary to any "gross misrepresentation" on the part of fairtaxers. Jorgenson's results indicate the level of the producer price reductions which are a result of removing the burdens of the current taxes levied on businesses with the repeal of the federal income/payroll tax system.
Now if you are unable to accept how change is effected on prices out of changing consumer and business behavior in response to modifying the mode of taxation, as in the implementation of a retail sales tax only system; you will just have to be satisfied with an unsatisfactory and partial view of the world. Of course there is a consequence to solidifying your perceptions into a limited view of the economics of the situation, generally to the detriment of your understanding and often to the detriment of ones standard of living. But that is a problem for you to correct, I can only provide the information that I have. Whether you accept it or not is your choice and your consequence.
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