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
No, just pointing out that businesses won't be forced by law to pay these taxes any longer. I'm not saying they'll keep FICA (nowhere near 10%, closer to 8% if they have a lot of high earners because of the Medicare part of the tax. Soc Sec taxes stop at $90K), they might be willing to pay more.
You mentioned it's "the employee's money" but it's not. It's benefit forced by law to pay into their Soc Sec and Medicare. These companies spend lots of money of private investments that do much more than these anemic, socialist programs. Which, franky, is why I don't politicians will touch this...the lacking of the match to those white elephants. But that's besides the point.
You still haven't defined how a business (S Corps, LLC or sole p's of course don't pay corporate income taxes. They pay individual income taxes on any profit realized which is even worse since they are on a "progressive" rate schedule while the corporate rate is flat) can "lower prices using embedded taxes".
And the plan isn't claiming a $1 loaf of bread will drop to $.77 overnight. They are saying prices won't go higher and could, and probably would, go down due to lower costs. And the extra tax is covered under the FCA.
But the bottom line is how are people wanting to be taxed. The income tax is a joke and everyone knows it. I don't pay a state income tax since we have only a sales tax and I pay far less than under any income tax proposal they keep trying to shove down our throats because I control my taxes through my consumption.
I also used 8% for FICA savings, I added a generous 2% for compliance savings.
And the plan isn't claiming a $1 loaf of bread will drop to $.77 overnight. They are saying prices won't go higher and could, and probably would, go down due to lower costs.
The plan, as defined by the Fairtax.org groupies and the #1 NYT bestselling FairTax Book, both claim prices on average will stay about the same (with FairTax included). If they didn't anyone on a fixed income, or with accumulated savings would see their purchasing power destroyed.
You still haven't defined how a business can "lower prices using embedded taxes".
My point is that they can't lower costs significantly, because there are no sigificant embedded taxes besides payroll and income taxes, which the FairTaxers claim will be returned to the wage earners.
The FairTax proponents are mis-representing what their economist, Dale Jorgenson said about employee wages. In his testimony before the Nouse W&M Cmte. he said that takehome wages would go down, and that would allow the businesses to reduce costs, so prices could go down.
The FairTaxers are telling us that the FairTax plan will allow every wage earner to get a 25%+ take-home pay raise and still pay (on average) the same for goods and services. THis is a lie.
I would wager any amount of money that my interpretaion is correct.
You, like many others, are ignoring the provision that every consumer will get a monthly check to reimburse them for the tax on basics like rent, food, etc.
They use an average of $400 a month for an individual. Look at their assumptions on that and their calculation then argue whether or not it it's believeable.
But you've called them liars when you are basing that on assumptions you've considered concrete. I've heard Boortz go through this many times and nothing is totally concrete. But the rationale is valid.
They are not saying that everything WILL go down 25% in price.
And what you quote Jorgenson saying makes no sense. How can takehome wages go down when your receive your gross pay to take home rather than a net pay with taxes withheld?
And they do not claim payroll and income taxes paid by business will go to the employee. Those withholdings from the employee will go to the employee. They are saying the matching payroll taxes (FICA, Federal unemployment but not state unemployment) and the corporate income taxes (or individual incomes taxes paid by non-coporate taxable income) COULD also be paid to the employee as any lowering of cost and/or increases in sales can.
I've read most of their proposal and it's full of details and the talking points you allude seem over absolute.
But this will be settled in the arena of legislation and votes. Good Luck.
Good post. There are more important things about a national consumption tax than what most of the SQL's are arguing about.
Certainly there are valid arguements you can make to push a consumption tax. But the leading arguement that you can keep 100% of your paycheck and prices going down is a fairytale. Once you get caught telling a whopper, the rest of your arguements that have more validity fall on deaf ears.
It's very clear that you don't understand the example (or don't want to more likely) and I certainly doubt you'll ever "get it" for either reason.
No matter. You don't get to redefine the example into something you might wish it to be and the income tax calculation for the example is just as I stated rather than as you try to redefine it. You seem to consider it an accounting example in calculating sell price. It isn't and you don't get to claim that it is.
It is you who do not seem to understand the method of calculating the income tax since you - from the first - have attempted to misstate the rate using revenue when that isn't how it works. The calculation is as shown in the cascading example. You can try as many times as you like ... it still will not change the example which shows the effect of cascading taxes.
The bottom line, this guy was a genius. He was willing to take anyone's bet that, in the future, any commodity would be cheaper. He was and is always right. Do you know why? Because anything that is a true commodity is subject to the overwhelming influence of a free people who are dedicated to commercial profit.
IOW, if oil stays at 67 bucks a bbl some wildcat will create a way to get more of it out of the ground, some scientist, motivated by profit, will find a substitute, some engineer will find a way for autos to get 100 MPG. Eventually. Always happens. AS LONG AS WE ARE FREE TO EXPLORE, RESEARCH, DELVE AND PROBE FOR PROFIT!!!
So let's put this in the context of the fair tax. Do any of you Squirrels understand the power of a free people? If we make taxpaying voluntary and link it with our fourth most motivating instinct, that of status, we will be economically sent to the stars.
Here is what all of the Procter and Gambel advertisers know: People have three things that sustain them: food, water and warmth. We have to have those three things to live, right?
What is the next motivation? According to most marketers (the people who have to figure this s**t out to make a living) it is status. Our staus in the community, our status within our own families, IOW, we care about how people think about us more than we care about our college winning a football game.
So, do any of you think that the status motivation will not be a huge tax? We are Americans FCOL. We want stuff. Especially if we have "made it". Our motivation for status is strong. If we have money we will spend money. And if we spend money the government will get its share under a NRST.
That is my diatribe on why a consumption tax is absolutely imperative.
I don't care how many disruptions occur or how many people may be inconvenienced, the fair tax, in some form, HAS to be the law of the land. If not, we are nothing but a bunch of slaves to one million bureaucrats and some government structure that we have let get out of control.
Check the post just made in #484.
Quite so!!!
Yes I saw that. Yet one more person who clearly does not understand the arguement.
Right! And Treasury runs the IRS, eh? There's a little thing like an $11 billion IRS budget to protect via the status quo I would think.
I don't think that would be judged arms-length at all.
LOL! I love the name Looey! Oh ok now that I proved you lewislynn (aka Looey) is a Troll because all he ever replies to is the Fair Tax ping. Hmmmmm..... Gee I wonder if that is just as RobFromGa would have us "believe" that he is just a one man issue....Hmmmm Or just maybe he is someone else just working under a different name. LOL!
Yeah if you believe that I have some beach front property in Nebraska to sell you.... LOL!
BTW, THE FAIR TAX book has debuted as #1 in its first two weeks. So much for it being a joke.....
Fair Tax Ping!
lewislynn is not a trollLOL..Thanks, I told you they all hate me.
Oh yea, Sprite518 encourages young girls on another site to have abortions...
That's what some of these Squirrels are worried about. They won't be able to continue picking that low hanging fruit. Just imagine if one third of the federal work force had to find a job. Unemployment would soar. That's okay. The only way a nation becomes financially strong is through pain. LOL! I think nightie and louey would not be employed. I'm sad for them and their families, especially nightie, but, after all, the rest of us should give up some of our income to satiate these people.
Louie, would you really be pissed off if you didn't have to pay taxes on your multiple 200,000 dollar deals? What if the houses in your neighborhood (for all of you lurkers and posters the common down payment on a house in lewislynn'sneighborhood is $200,000.) plummeted in price? Would you know what to do?
Dear pigdog,
It's easy, pigdog.
Show me 20 Fortune 500 companies where 11% of their revenue is going to corporate federal income taxes.
You know, the 11% of the price that they can cut out so that they can lower prices.
I guess this means you're not up to the challenge.
LOL.
I'm not surprised.
I didn't think you were.
;-)
sitetest
See that is your first mistake. You think corporations really pay taxes. They do not... They just pass it to the consumer...
the rest of us should give up some of our income to satiate these people.I'm sorry, what part of your income exactly do you "satiate" for my deals again?Louie, would you really be pissed off if you didn't have to pay taxes on your multiple 200,000 dollar deals?
Get over me and what you think I have..you're the loser here.
Now I don't know where that came from??? Everyone look at lewislynn in forum... Says it all...
BTW, now that we know that you are a Troll. Can you please tell me the thread and post number I said this..
Dear Sprite518,
"You think corporations really pay taxes. They do not... They just pass it to the consumer..."
I never said differently.
However, we've been told that because corporations will no longer send federal corporate income taxes to the federal government, they will lower prices dramatically.
Pigdog's example shows that at even one level, the savings will be 11% of revenues.
I just want pigdog to show me 20 real, actual companies in the Fortune 500 (that's only 4% of the total) that will actually be able to achieve those price reductions from one level of production because the federal corporate income taxes they submit to the government equal 11% of revenues.
I'll match him with 20 that submit less than 5%.
And with another 20.
And another.
If there aren't many companies that fit the model that he displayed, then the savings aren't actually there to be had.
But, like I said, pigdog doesn't appear to be up to the challenge.
sitetest
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