I assumed that the savings would be 10% across the board. Let's assume that Bob's Bakery has a 40% labor, 35% ingredients and supplies, 10% overhead and 15% profit. Say it is a $1 million per year bakery
Labor at $400,000 the bakery saves the 7.65% = $30,600
Ingredients and supplies at $350,000 the bakery saves 10% = $35,000
Profit at $150,000 is more complicated-- the bakery saves at best 7.65% on the part of the money that he is paying himself as salary. In many cases, Bob is running multiple businesses and has hired a manager to run the bakery so Bob's day-to-day involvement is minimal and his W2 salary is small. Let's say for the sake of argument that Bob's W2 salary is $90,000 (which is also the FICA limit), so the employers portion is $6,885 savings to the bakery.
Overhead at $100,000 includes his rent, utilities and office manager/accountant (maybe his wife Pandora) and assume he can save 10% here, or $10,000.
So, our total savings right now are $82,845. If we figure that he can save $5,000 in accounting (that is 10x what I spend and my business is at least as complicated tax-wise) that means that he has eliminated $87,845 out of his $1,000,000 business. Which is 8.8%. I allowed 10% being generous.
To reduce his cost by 23% we need to find another $142,000 to get rid of. (Hint: it is all there in the income tax windfall increase the Fairtax people say are going to go to the employees. Jorgenson understood the employee income and FICA taxes are the major part of the 22% embedded costs)
You forgot the $100,000 Bob spends every year in tax planning, or so I have been told.
he has eliminated $87,845 out of his $1,000,000 business. Which is 8.8%. I allowed 10% being generous.So now his gross is $900,000 and he'll owe 23% of that to the Fairtax leaving him with $693,000 (not $900,000) net income...
His prices including the tax would have to be 17% MORE than before to break even....[29.87% + $900,000 = $1,168,830 gross]....$1,168.830 minus 23%(federal sales tax) = $900,000 net.