Posted on 09/08/2005 4:48:28 AM PDT by Your Nightmare
A bestseller advocating radical tax reform contains a critical flaw that misleads readers, according to a report in the October issue of MONEY Magazine.
...
While consumers would pay a federal sales tax on purchased items, the authors argue that prices at the store would stay the same. The reason: everyone involved in the process of production would no longer be paying taxes, so they could charge less for their goods and labor.
If true, that would mean a dramatic increase in Americans' purchasing power.
But, according to the MONEY report, the book fails to make clear that, in order for pre-tax prices to fall so sharply, companies would also have to cut wages they pay.
"Sure, you'd get to 'keep 100 percent of your paycheck,' as Boortz and Linder repeatedly write, but it would be a smaller paycheck," MONEY senior editor Pat Regnier writes. "That's kind of a big thing to leave out."
(Excerpt) Read more at money.cnn.com ...
That $100 item is really a $92 item plus $8 in taxes. In order for you to pay $100 for that item, you'd have to earn $117.65 (converting th federal inclusive 15% to exclusive gives us 17.65% -- $100 is 85% of $117.65).
Under the FairTax (bill version), that same $92 item would require you to earn $119.48. If the Bush tax cuts are permanent, you would only have to earn $113.86.
Note that all of this doesn't even include the "prebate". We're just talking about marginal rates with the NRST, and even then it compares pretty evenly with effective federal tax rates.
It is not deceitful, it is to compare income taxes and sales taxes on the same terms. Anyone who knows the FairTax bill will be able to use either form interchangably.
let's assume that the corporate tax burden (without reducing nominal wages) is 8%The FairTax base for 2004 would have been ~$9,716 billion. Add $1,173 billion in exports to that (the claim is taxes are embedded in them too) and you get $10,889 billion. This is the amount that is suppose to be reduced by the "embedded taxes." In 2004, corporate income taxes were $189.4 billion, add half of the employment and general retirement receipts ($344.6 billion) and you get a grand total of $534 billion in tax revenue from corporations. That is 4.9% of the FairTax base plus exports.
I didn't say anything about the FairTax base, so why bring it up? The 8% comes from rounding down a little the values that came from folks like RobFromGa, where they tried to calculate the corporate tax burden without lowering nominal wages. As far as I can recall, they came up with 9%.
TY, I stand corrected. I thought it was figured like sales tax. 29% would be worse than the 23%. Then add in your state tax of 6-8%. Now put that figure on every dime you spend. Even food, med.'s, ect.
Many things you buy have NO other companys to compete with. Elec., phone, heating oil, hell.. the list is endless.
Don't get me wrong, I'm far right of Atila the hun, and more conservative than Jack Benny, I just can't get into screwing over the poor and elderly as much as this plan would.
Its a good deal for business, but there are better ways to help them without screwing the lil guys.
Thanks all for the replies.
There ain't no free lunches. I think the majority of fair tax supporters think they are going to be better off, but I don't see it.
I've dealt both with IRS and our state's tax agency, and I'll take IRS any day. The thought of sending all tax compliance burden to the states is a chilling thought to me.
I also don't see a way around the black market.
Please point us to sources for this "research" by the fair taxer, and Boortz's "acknowledgement" thereof.
Thanking you in advance...
CA....
I think I've done a decent job of showing that the initial economic impact will be pretty much a wash (purchasing power remaining roughly constant). But I do think that the improved economic growth will make the FairTax better economically in the long run.
The more important aspect is personal freedom -- individuals not having to report their personal finances to the government. Having first claim on your own production. And so on. No form of income tax, flat, progressive, or otherwise, can come close to that same form of freedom.
I also don't see a way around the black market.
All forms of taxes have people evading them. Instead of a labor black market, they'll be a goods black market. The net effect is, again, pretty much a wash. Most people are honest, and the bulk of retail purchases are done at large retailers (and for black marketeering, if the seller isn't playing along, there's no black market happening).
The real problem is that ANY tax system will be corrupted.
The current income tax started real simple too.
Once some pol discovers he can win votes by changing the tax system to favor a special interest, the slippery slope begins.
As far as I can recall, they came up with 9%.That doesn't make it accurate.
I was refering to the Money allegation that in order to cheapen the price of bringing goods to market they'd need to drastically cut wages.
This fails to acknowledge the 'true cost' of having employees.
The employee salary is only a piece of what the company pays. The company also pays several taxes just for the privelege of having employees, these taxes presumably would be removed when a fair tax was levied, thus employee paychecks would already lighten considerably, around 20%; the employer would already see a massive savings per employee.
No it doesn't. That's why I called it an assumption. Obviously, changing the value changes the results, but the basic concepts are still correct.
I don't understand how anyone can think that the "Fair Tax" is a magic cure for federal taxes."
Exactly, plus the FEDS would never go fo it.
Ancient_Geezer is conspicuous by his abscence...
Click on the article and read it. It is in there.
Probably because nobody's pinged him (I've now taken care of that for you) or he's not online in the last couple of hours.
True. I think the FairTax will be a big improvement over the status quo. OTOH, that doesn't mean there are other reform plans that are equally as good if not better.
His posting history shows nothing but FairTax-bashing.Truth about the Fairtax is called bashing by the supporters...what does that say about it?
You are correct. Take home pay would have to be what is currently gross pay or close to it.
Most people are less concerned about the eclectic and arcane bits and pieces about the mechanics of the NRST than they are about the elimination of the present system and the unease caused by it's enforcers, the IRS.
Rather, I get to keep the $1,000 I earned! I get to say how I spend it. OK, prices rise by 20%, or whatever. I lived through the Carter years, and I survived. We'll survive this.
Headline-grabbing idiots who want to protest the war, or whatever, by withholding a part of their tax payments (or maybe even all of it) should disappear. They'll have to find another vehicle for their intellectual self-sodomy. How can you possibly put a price on something like that???
Only a true-blue, full-blooded idiot would argue in defense of the present system - either that, or someone who has a big investment in maintenance of the status quo.
No thanks.
On the upside, perhaps after NRST has become the law of the land, we'll see Hollywood coming out with an exciting new TV series, "Magnum, CPA"!
And besides, if the law is truly revenue-neutral, from the government's point of view, what's the problem? They get their money; they can (try to) continue foisting off on us all of those pork barrel spend-a-thons they perpetually engage in. How can they not be happy? (We all know the answer to that one!) And how can concerned citizens like yourself not express satisfaction with the outcome?
It's win-win all around!!!
Get with the program.
CA
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