Dear RobFromGa,
I don't think you can assume that we can take the employer's side of FICA and Medicare and lower prices with it.
The problem is that there are lots of middle class professional folks, with really good benefits, moderate incomes, who just don't pay a high percentage of their total gross compensation in federal income taxes.
They don't even pay 15%, really, of their total gross compensation in payroll taxes.
That's because a lot of their compensation is hidden in things like company-paid health insurance (which in my state, is very expensive).
If you don't give them back both sides of FICA and Medicare, many of these folks will be upside down.
I look for little or no price drop.
As I think about it, large publicly-held corporations will come under dramatically huge pressure by shareholders to give the saved corporate income taxes back to the shareholders, not to use that money to lower prices.
The reason why is otherwise, share values will take a hit relative to the inflated price levels after the NSRT takes effect.
Here's why. Let's say the P/E of ABC Big Public Company is 10. And earnings are $1 per share. So, the share price is $10.
Okay. Under the old regime, I sell the share. I bought it for $5 (I did really, really good ;-)). I pay 75 cents in tax (15% of the capital gain). I now have $9.25. I go and buy $9.25 worth of stuff.
Under the new regime, if my share is still worth $10, I sell it, I get to keep the whole ten bucks, but now, it only buys $7.70 worth of stuff. I'm screwed.
On the other hand, if the company has an additional 25 cents per share of profit (assuming that it was paying 20% of its pre-tax net profit in taxes), my share now has earnings per share of $1.25. Apply my P/E of 10, and voila, I've got $12.50. That's got $9.625 of purchasing power compared to the old price levels. I'm doin' okay. Heck, I actually PICKED UP 4% of purchasing power!
No, I think that saved corporate income taxes will go back to shareholders, not to consumers.
Especially since the top management of these companies often own a lot of shares. No way do they want to see their shares instantly devalued.
sitetest
I agree with you, but I was trying to give the FairTaxers every benefit of the doubt in coming up with an estimate, and I didn't want to get bogged down in this argument. Linder/Boortz did not represent that the wage earner would keep the employers half of FICA/Medicare (even though he makes a statement that this is really the employee's and it is a standard quote of Boortz to ridicule callers who think that the employer pays half).
So I made all my numbers generous to avoid arguments, not that it mattered much with hard core bunch. I figured that ten percent price drop was still so pitiful when compared with a retail tax of 30% that it would make the point.
Ten percent is a maximum cost savings in my estimation, without the employer half of payroll it would be more like 2-3% cost savings.