Let's say bread costs me 75 cents a loaf at wholesale. I am being taxed at about 23% on my earnings, which raises my cost to 92 cents. Then I mark the bread up 35%, which brings the retail price to $1.24 per loaf.
Now, let's look at the fair tax system. Under this system, that 23% tax paid by the employer on each unit vanishes. Now it costs me just 75 cents per loaf, not 92. So, I mark it up 35%. This gives me a retail price of $1.01 per loaf. Now, when you add the 23% sales tax the total cost per loaf to the consumer is $1.24-exactly the same. There may be a variance of a few cents,but the price will be essentially the same. Therefore, I can sell the same amount of bread each week that I was selling before.
But, now the consumer is getting a larger paycheck each week because no taxes are withheld. So,the consumer might buy an extra loaf of bread per week, because he or she has more disposable income.
All the while this is happening, the IRS ceases to exist. The cost of paperwork to help look for tax loopholes is gone. The loss of productive time spent contemplating the tax implications of every business decision is gone. Now, if any business tries to keep selling bread at $1.24 before the 23% sales tax is added, then this pushes the cost to the consumer up to $1.52. How many loaves will I sell at $1.52, when everyone else is selling it for $1.24 total cost? This is a win-win situation for the government and for Americans.
Dear SALChamps03,
"Let's say bread costs me 75 cents a loaf at wholesale. I am being taxed at about 23% on my earnings, which raises my cost to 92 cents. Then I mark the bread up 35%, which brings the retail price to $1.24 per loaf."
Not quite.
Your earnings are your pre-tax net profit, not your costs. Not your selling price.
Income taxes are on income, not on revenues. Income = Revenues - All Costs.
If the bread costs you 75 cents wholesale, and your labor costs, rent, everything else, are another 20 cents, that totals 95 cents. If you then sell the bread for a dollar, you make a nickel.
Five cents is your pre-tax profit.
If you pay 35% of the nickel in taxes, that comes to 1.75 cents.
As to the corporate income taxes that supermarkets pay, well, supermarkets have notoriously slim profit margins, thus, they don't pay much by way of income taxes.
For the fiscal year ending Jan 1, 2005, Safeway, Inc. had:
Revenues (sales): 35,822,900,000
Pre-tax profits (earnings, income): 793,900,000 (2.2% of revenues)
Income taxes (federal and states combined): 233,700,000 (0.65% of revenues)
Thus, at least at Safeway, that $1 loaf of bread can be reduced to $0.9935 after reducing the price of the loaf of bread by the amount of Safeway's corporate income tax burden.
As for the 0.65 cent, don't spend it all in one place. ;-)
sitetest
Let's say bread costs me 75 cents a loaf at wholesale. I am being taxed at about 23% on my earnings, which raises my cost to 92 cents.
What is the relation between the wholesale price of bread and your earnings? Your earnings are not the wholesale price, they are whatever you have left over after you buy the bread, incur all the costs of selling it, and then you have a profit left over.
In your example, if the wholesale price of bread is $0.75 and you marked it up 35%, the bread price would be $1.01. After you finish selling it for $1.01 and subtracting the cost of the wholesale loaf $0.75 and paying off your employees and the cost of the store, you'd likely have less than $0.05 in profit left, which you would then pay 23% income taxes on. which comes out to between one and two cents tax, which is 1-2% of your selling price. Not 23%.
There are other equally incorrect assertions in your post.
Let's say bread costs me 75 cents a loaf at wholesale. I am being taxed at about 23% on my earnings, which raises my cost to 92 cents.You didn't earn 75 cents, you spent it...You don't add income tax to money you spend...
Then I mark the bread up 35%, which brings the retail price to $1.24 per loaf.If the bread cost you 75 cents and you sold it for $1.24 your earnings are $0.49 If your tax rate is 23% on $0.49, your tax is $0.11 you could reduce your gross price/wage to $1.13 or about 9%...Then you'd owe 23% of the $1.13 to the Fairtax making your net income $0.87. From that you'd have to buy more bread, pay business expenses, rent etc. If it's all profit, what happens when you spend your $0.87? You know you still have tax to pay ..Your $0.87 will only purchase 23% of that or $0.67 worth of product....
Now, let's look at the fair tax system. Under this system, that 23% tax paid by the employer on each unit vanishes.Where did it go?
Now it costs me just 75 cents per loaf, not 92.You're adding the income tax before there's any income. You don't add your income tax to the purchase price....everything you've done after that is nonsense.
So, I mark it up 35%.Mark what up 35%?
This gives me a retail price of $1.01 per loaf. Now, when you add the 23% sales tax the total cost per loaf to the consumer is $1.24-exactly the same.The Fairtax when added is 30% not 23%.
The fairtax is "23% of the gross payment"....Your entire premise is grossly flawed, void of any logic.