I believe labor contracts are for gross pay, not after tax income. By what mechanism does the Fair Tax eliminate every labor contract in the country?
But the point is that Jorgenson is agreeing that you can't have both 1) workers keep same gross pay and 2) business realize cost savings to allow them to reduce prices.
A business can give it's employees a 25% take-home pay raise if they want, but they can't also save money on the elimination of the embedded worker payroll taxes. Put another way, You can't have your cake, and eat it too.
but gross pay is not gross outlay to an employer. Anyone who has ever met a payroll knows this. Gross outlay in terms of moneys paid out is at least 5% higher than gross pay.
I don't know what I think about "fair tax," with my exposure limited to one talk by Boortz on the way home from work one night -I have not read the book. However, the cost to employers is HIGHER than the gross pay..., just to get that point straight.
Dear yoswif,
"I believe labor contracts are for gross pay, not after tax income. By what mechanism does the Fair Tax eliminate every labor contract in the country?"
Excellent question.
However, we now know that the underlying basis for the assertion that general price levels will fall 20+% is a result from reducing gross wages to net wages, and doing away with personal income and payroll taxes (and passing the savings on to the consumer).
I guess this makes the whole issue of the NSRT a lot more theoretical and involved (at least in the implementation). To accomplish what Dr. Jorgenson suggests would take a lot of highly-technical, hard-bargained legislation to override labor contracts, to accomplish this result.
However the means of achieving the result, though, the relevant point is that Dr. Jorgenson believes that bringing down general price levels would be by lowering workers' gross pay (which would also be their net pay under the NSRT) to their current net pay, after-tax, under the existing system.
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