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OPEN LETTER TO BOORTZ/LINDER (FairTax)
self | August 22, 2005 | RobFromGa

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


TOPICS: Your Opinion/Questions
KEYWORDS: fairtax; irs
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To: RobFromGa

Dear RobFromGa,

"That is one of the hats I wear as a business owner. I am an engineer, a salesman, an accountant, an accounts receivable clerk, a secretary, a copywriter, an advertising wizard, a trade show planner, an errand boy, mail room clerk, copy room attendant, bill payer, coffee maker, janitor and a psychologist as well as being an unpaid minion of the IRS for about 25 hours a year. And I do all of this out of my office in my house, and from my car and hotel rooms."

ROTFLMAO!! You really ARE a small businessman, aren't you?

But you forgot my own two favorite titles: "Chief Cook and Bottle Washer"!! LOL!!!


sitetest


81 posted on 08/23/2005 8:41:22 AM PDT by sitetest (If Roe is not overturned, no unborn child will ever be protected in law.)
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To: Crolis; cowboyway; teenyelliott
even things the U.S. Government buys, like office supplies and fighter jets will have that extra overhead attached.

Incorrect.

No "extra overhead."

The sales tax is embedded in the price.

82 posted on 08/23/2005 9:08:17 AM PDT by Finger Monkey (H.R. 25, Fair Tax Act - A consumption tax which replaces the income tax, SS tax, death tax, etc.)
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To: RobFromGa
You are buying into the plan's statement that prices will be able to drop,

Don't see how they would actually. I just don't see how the amount of money would increase due to the tax change.

People will have to spend more money to get what they want. OTOH, people will have more money to spend.

The question is will there be a real, national, increase in wealth due to less compliance costs and the ending of costs associated with avoiding compliance?

And, will there be increases in economic efficiency due to the lessening of the influence of the tax code on business decisions -- hiring staff vs. independent contractors, the timing of the purchase of capital goods etc?

83 posted on 08/23/2005 9:15:12 AM PDT by Tribune7
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To: RobFromGa
Are you somehow under the impression that when an employer withholds tax money (Income, SS & Medicare) from an employee's check, that the employer gets to keep that money?

FYI. The IRS frowns on that practice with "extreme prejudice". There is no faster way to get a room in the Iron Bar Hotel.

84 posted on 08/23/2005 9:17:31 AM PDT by Ditto ( No trees were killed in sending this message, but billions of electrons were inconvenienced.)
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To: BoBToMatoE
Bingo sitetest. "Fairtax" is a fad which will kill small businesses like mine

So, the IRS is your friend?

85 posted on 08/23/2005 9:20:00 AM PDT by cowboyway (My heroes have always been cowboys.)
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To: Crolis

"The tax on services will mean that many things will get even more expensive, like college education."

Incorrect - educational expenses are treated as an investment under the FairTax and are not taxable. Because education will be paid for with pre-tax dollars, it will be more affordable under the FairTax.

"Moreover, even things the U.S. Government buys, like office supplies and fighter jets will have that extra overhead attached."

They already have imbedded taxes in them and would continue to do so under the flat tax. The biggest difference is that the taxes that the government would pay would be more visible under the FairTax than under the current system - or the flat tax.


86 posted on 08/23/2005 9:28:31 AM PDT by phil_will1 (My posts are in no way limited or restricted by previously expressed SQL opinions)
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To: BerthaDee
All business owners "pay" taxes, be they personal income or corporate income taxes. I say "pay," because these taxes are recouped in the purchases of goods or services by consumers

I understand that. My question was do people pay taxes on services? They do not here in Georgia

87 posted on 08/23/2005 9:28:41 AM PDT by msnimje
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To: RobFromGa
The prebate is nothing like "FREE MONEY". Why do you continue your economic ingorance in that fashion (too)?

You seem to be a small business owner who has a "good thing" (in your view) going with the present tax system and oppose any change - despite your nonsense statements to the contrary from time to time. It's clear you're one of the SQL crowd since you're really defending the Status Quo.

Your letter to Linder/Boortz or Boortz/Linder or Linder or Boortz is merely a vanity ploy in your eyes and makes very little sense. It's certainly a good thing you're a single, small businessman since you'd quickly trash one of any size.

And you - or your compatriots Nightie, s-test, etc. do not understand the mechanism of cascading tax costs and are more than willing to go around misstating facts relating the both that and the FairTax in general. It's called the Chicken Little approach to try to scare unsuspecting people who are unknowledgeable in tax systems by feeding them misinformation hyped mercilessly by your crowd to be something it is not - valid information.

The cascading mechanism is clearly shown with a simple example and it is not only for C-corporations as you keep proffering, but to businesses (period):

	LEVEL   	1	2	3	4	5	6
                	$1.00	$1.41	$2.00	$2.82	$3.98	$5.62
33.00%	PROFIT MARGIN	$0.33	$0.47	$0.66	$0.93	$1.31	$1.86
25.00%	TAX COSTS	$0.08	$0.12	$0.16	$0.23	$0.33	$0.46
	SELL PRICE	$1.41	$2.00	$2.82	$3.98	$5.62	$7.94
							
Accumulated tax costs	$0.08	$0.20	$0.36	$0.60	$0.92	$1.39
        		
Tax costs as % of 	5.84%	9.98%	12.90%	14.98%	16.44%	17.48%
   sell price

The fact that you pay taxes from your business as personal income taxes on a 1040 does not matter; those taxes still figure in to your business and the cascading still applies. You can dredge up all the figures you wish about what your "business" does and does not pay and any expenses it does or does not have - after all who can argue since it is, after all, your solely-operated business. It would take the IRS to break it apart and see what all "inconsistencies" there might be. That certainly means nothing in the big scheme of things as I think most people would realize.

Pretending, as the Squirrel squad does, that only Subchapter C corporations pay taxes that "count" for economic purposes with he FairTax is utter nonsense and graphically illustrates your shortcomings in economic understanding.

More than that your are overwhelmed by your own selfish (and incorrect) interests in the effects of the FairTax on your busines as well as in the benefits it offers the economy (and taxpayers) as a whole. Even this vanity post of yours illustrates your narcissistic attitude - you think it's all about YOU!!! Got news for you, pal - it's not about you at all, but about our country and how to best help it economically (your thrashings and railings notwithstanding).

A lot of people (including you) do not understand that cascaded tax costs are a real thing and affect prices right now in everything one might buy (and there is no option of not paying the tax when you purchase). That's why those with existing savings accounts will be hit with the additional equivalent of a tax in the form of embedded tax costs that run something like 20-25% of the price of everything they buy and will be no worse off under thr FairTax. YOU may not wish to admit this (or your Squirrel buddies) - in fact, you can't - but most economists certainly are aware of the mechanism. You can argue about whether it's 10, 20, or 50% ... but it's there and boosts prices right across the board.

So you might as well stop your Chicken Little economics since you're obviously not well equipped for that academically.

88 posted on 08/23/2005 9:34:48 AM PDT by pigdog
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To: msnimje

In most state sales tax systems (which I presume you're talking about), the states do not tax services (or many other things for that matter) and are replete with execptions and exemptions as well.

The FairTax taxes both goods and services purchased by the final consumer (not by a business for resale or to help produce things) at retail. Also, used (previously taxed) things are not taxed. The plan is to tax things once and only once - and only taxable things.


89 posted on 08/23/2005 9:39:31 AM PDT by pigdog
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To: Loud Mime
There is one consideration to the fair tax: Initially, people won't spend so much. But as they save, they will start spending.

From a macro economics standpoint, savings is also spending, and probably a more economically benificial form of spending -- (unless you choose to save your money in a coffee can). Savings is mearly "spending via a 3rd party".

Every dollar is "spent".

90 posted on 08/23/2005 9:42:12 AM PDT by Ditto ( No trees were killed in sending this message, but billions of electrons were inconvenienced.)
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To: RobFromGa

Perhaps you are all those things, and more RobGaGa, but you are certainly no economic wizard.

You should stop masquerading as one.


91 posted on 08/23/2005 9:43:17 AM PDT by pigdog
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To: Ecliptic

"Please tell me what would cause this 'economic boom' to take place...."

Several factors, but I will list perhaps the three biggest ones.
1. Various studies have attempted to measure the compliance costs of the current system and they vary widely, depending on how expansive a definition of the term "compliance costs" is used. However, all these studies show that those costs under the current system run into the tens of billions of dollars per year. They are probably well over the tax cuts that were so hotly contested during Bush's first term. Most, if not all, of those costs could be saved under the FairTax. Chairman Greenspan testified before congress during the go-go late 90s about the success of our economy in growing rapidly with modest inflationary pressure. He would typically be asked how he accounted for the fact that growth rates of 4% and above were traditionally thought by economists to be inflationary and yet we had little inflationary pressure after several years of 4+% growth. I won't attempt to recount Greenspeak verbatim, but a one word summary of his stock response was "productivity gains". Ok, that's two words. There is probably no single public policy decision which would have a greater impact on national productivity than getting rid of a horribly antiquated and inefficient federal tax system.

2. We currently have a tax system which puts US producers at a disadvantage in our increasingly global economy. The FairTax would create price shifts which would make US produced goods more competitive than under the current system - or under the flat tax. More demand for US produced goods means more capital investment and more jobs here in the USA.

3. Current estimates are that there is approximately $11 trillion stranded offshore by our tax system. Much of this would come back into the USA looking for good investment opportunities if we removed the financial impediment to doing so.


92 posted on 08/23/2005 9:44:06 AM PDT by phil_will1 (My posts are in no way limited or restricted by previously expressed SQL opinions)
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To: RobFromGa
I was just responding to your false statement that there would be savings to Bob's Bakery from federal corporate taxes.

Bob does not now pay the employeer's 7%+ portion of Fed wage taxes for his employee? And he doesn't pay the full 15%+ of his own Fed wage taxes?

Lucky Bob.

93 posted on 08/23/2005 9:45:14 AM PDT by Ditto ( No trees were killed in sending this message, but billions of electrons were inconvenienced.)
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To: Ecliptic

"If there were a Fair Tax, everyone would be waiting around for everyone else to lower their prices first and no one would ever do it.."

Right. No one would understand that they could increase market share by lowering their prices and that they could increase their profits by increasing their market share.


94 posted on 08/23/2005 9:48:05 AM PDT by phil_will1 (My posts are in no way limited or restricted by previously expressed SQL opinions)
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To: RobFromGa
There's a plethora of taxes on top of the income tax. They're called "embedded" because they're invisible and no one knows they're there. The FairTax does away with them and instead of being taxed multiple times - you get taxed ONCE and ONCE only. I think that's a great improvement over the current system and its also fair. Hence the name. With embedded taxes, the truth is the costs are passed onto the consumer anyway, in the form of higher prices. Someone needs to pay the embedded taxes. In that respect, the corporate income tax is an absurd fiction. Corporations don't pay taxes; individuals do. I have yet to meet any one who hadn't wanted to pay only one tax and not every other time. The government has too many fingers in the cookie jar. Under the FairTax, it would have just one and that's plenty.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
95 posted on 08/23/2005 9:49:53 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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To: BoBToMatoE
Do you mean you would pay more for accountants and be taxed several times for your work? That's the logic behind our crazy income tax system. We've become so used to paying again and again and again we don't realize its not fair and its not even an efficient way to collect tax revenue. Why can't we pay a tax ONCE? I would love to hear the defenders of the current system explain exactly how that happens to be a bad idea.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
96 posted on 08/23/2005 9:52:56 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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To: Ecliptic

"Wal-mart is not lowering it's prices..it has always been cheap.."

Why does Wal-Mart sell its stuff cheap? Why don't they just increase their prices 50% and make a lot more money?


97 posted on 08/23/2005 9:53:22 AM PDT by phil_will1 (My posts are in no way limited or restricted by previously expressed SQL opinions)
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To: phil_will1

Right. No one would understand that they could increase market share by lowering their prices and that they could increase their profits by increasing their market share.

--

Gee, thats nice in theory.

I run a service business which charges XX an hour. Under the "fair tax" system I would have to drop my hourly rate to keep prices where they are now. So I am making less per hour. Am I keeping more of my check? maybe. If its not there or my clients decide its not worth spending the bucks, no.

Competition may possibly force prices down - but you would need a deflation in value of things to keep prices where they are now.

Sorry, but the claim that you will get 50% more business by adding on a 25-30% sales tax (while removing income tax) is wrong.

"Fair tax" might be good for goods based businesses (larger ones), but it will crush the backbone of America, the small business.


98 posted on 08/23/2005 9:55:27 AM PDT by BoBToMatoE
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To: RobFromGa

"The present system with all of its flaws is one in which 300 million people are presently engaged in, and it has created the most prosperous and free nation in the history of the Earth."

Our current tax system has created our prosperity? Can you elaborate on that? You are the first person, other than lewislynn that I have ever heard say anything like that.

Most economists consider our tax system to be a major impediment to our prosperity.


99 posted on 08/23/2005 9:58:05 AM PDT by phil_will1 (My posts are in no way limited or restricted by previously expressed SQL opinions)
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To: Crolis
A flat tax is still an income tax. The fair tax is simply a sales tax. For most of American history, the federal government was funded by indirect taxes. Our current income tax is a legacy of the socialist era and its primary aim is to stoke class envy. Why, you can't be too wealthy; if you make more than a certain amount of money, we'll take it from you to make sure you don't make more than the next guy. That's the idea behind a tax on income. In contrast, the fair tax is a consumption tax. You get to keep your money and its taxed ONLY if you spend it. If you save it, you can accumulate wealth to pay for future business growth, your child's college and for your retirement. Now that's how a rational tax system should work. And what's the best thing about the fair tax? No more IRS wheedling itself into every nook and cranny of our lives. How much we make, where we make it and what we do with it, apart from spending it, ought to be NONE of the government's business.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
100 posted on 08/23/2005 9:58:30 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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