Posted on 09/15/2005 7:03:21 AM PDT by groanup
THE FAIRTAX --- STRAIGHTENING OUT SOME CONFUSION
When Congressman Linder and I were busy researching and writing The FairTax Book we knew full well that it would one day become the focal point for those opposed to this tax reform idea. We tried, therefore, to make sure that our numbers and claims were correct and consistent with the research that went into the drafting of HR 25.
On review, and after reading the critiques of opponents to the FairTax plan, we have concluded that there is one element of the FairTax that could have been present with more clarity in the book; the concept of embedded taxes and keeping 100% of your paycheck. Those who have much to lose if the FairTax were to become law will focus on these areas in an attempt to undermine support, so let's put their objections and distortions to rest by addressing those matters here and now.
We explained in the book that the FairTax plan was revenue neutral. By this we meant revenue neutral for everyone ... the government, businesses and individuals. You can't put more money in the pockets of one without taking money out of the pockets of another. The harsh reality is that politicians would not support the FairTax if it meant less revenue for the federal government; business leaders would not support the FairTax if it meant a decrease in corporate earnings and profits, and the people would most certainly not support the FairTax if it meant a decrease in their income. Taking an snapshot view of our economy, an increase in income in one of these sectors would necessarily mean a decrease in another. This is why the FairTax was designed to be absolutely revenue neutral – leaving everyone pretty much where they are in terms of income or revenue. To put it more bluntly, there is no free lunch in the FairTax plan. There is no "something-for-nothing."
This brings us to the question of embedded taxes in the cost of consumer goods and services, and your paychecks.
As explained in The FairTax Book, there are taxes embedded in everything we buy. Every entity which provides a product or service in the design, production, marketing, distribution and sale of every consumer good or service will incur some tax liability as they perform their particular function. This tax liability will be incorporated into whatever these individuals or business entitles charge for their services, and will all passed through to become a part of the final cost of the product or service.
Now here's what we didn't explain well in the book.
Every employee of any company involved in American commerce is also a provider of a service, and, as such, the employee incurs a tax liability as a result of his or her work. This tax liability is incorporated into what the employee charges the employer for their services, and is eventually incorporated into the final retail cost of the employer's product or service. Each employee is essentially a separate business entity providing a product, be it physical or mental labor, to the employer.
The extensive research behind HR 25, The FairTax Bill, shows that the average embedded taxes in every consumer product or service is about 22%. In some industries, such as leather goods, the embedded tax is smaller. In other industries, such as homebuilding and construction, the embedded tax is higher, but it averages out to somewhere between 22 and 23%. With the passage of The FairTax Bill, those embedded taxes disappear. These embedded taxes include the combined tax burdens of all entities involved in bringing those goods or services to market, and that includes you, the employee, and the taxes you incur as a result of your employment.
We write in The FairTax Book that the competitive pressures of the marketplace will force prices down when embedded taxes disappear from the cost of retail goods and services, and we cite 22% as the average amount of those embedded taxes. Does this 22% include the income and payroll taxes that are paid by employees? Yes, it does. So ... what does this mean to your paycheck after the FairTax becomes law?
When the FairTax is implemented, and when business and personal income and payroll taxes disappear, your employer is going to have to make a decision. He will either take some or the entire amount he had been withholding for federal income and payroll taxes and add it to your weekly check, or he will readjust your pay figures so that your entire paycheck will be equal to what you used to call "take home pay" before the FairTax. The employer may also decide to do a little of both. Either way, you can see that the amount of money you actually receive as pay – the amount you can put into your bank account – will not decrease, and may actually increase.
On a larger scale real wages will rise to the extent to which the nation's employers decide to return the embedded costs of their employee's income and payroll taxes to the employee. Likewise, the cost of the products or services produced by the employer will be reduced to the extent to which that employer retains all or a portion of those income and payroll taxes together with the other taxes on capital and labor eliminated by the FairTax. Once again, a zero-sum, revenue neutral game.
Now, let's elaborate on the "keep 100% of your paycheck" line that appears in The FairTax Book. It is certainly true that after the FairTax becomes law there will be no more withholding from your paycheck for any federal taxes. What you earn is what you get. This is not to say that your gross pay will equal what it was before the FairTax. This will depend on what your employer does when the embedded costs represented by the tax burden you have passed on to your employer disappear. One thing is certain: You will suffer no decrease in real or net earnings --- the amount of each paycheck you deposit into your bank account every other week. The "keep 100% of your paycheck" concept can more easily be applied to those who either change jobs or come into the labor force after the implementation of the FairTax. A new worker will negotiate a wage with an employer knowing that the amount negotiated will be the amount that worker receives every two weeks ... no deductions. Likewise, when you change employers you, too, will negotiate a wage that will not be subject to withholding, and you will get 100% of your wages in each paycheck.
Some of you reading this amplification of the principle's of the FairTax may have come to a rather interesting and accurate conclusion. The reality is that in America we're already operating our federal government off a consumption tax. A convoluted and impossible to understand consumption tax, but consumption tax nonetheless. We say this because ultimately all taxes paid by businesses or individuals eventually make their way through our economic system until they are embedded in the cost of some consumer item or service. In other words, taxes, like that other stuff you've heard about, roll down hill. At the bottom of that hill we find the retail sale and you, the ultimate consumer.
As we said in the book, and as we repeat here, the FairTax is not a "something for nothing" scheme. It was designed to be and, in fact, is revenue neutral. Having said that; the non-government economists who studied the FairTax play are nearly unanimous in their agreement that the implementation of the FairTax will lead to unprecedented economic growth in the United States. We will see economic growth in our economy of such magnitude that it will, sooner rather than later, lift all boats ---- including yours.
This crazy piece of legislation hasn't even been passed and ALREADY we have changes!
By the way I have some exemption ideas myself, and maybe you do too!!
I'm in favor of a national retail sales tax but the total tax must be printed on each cash register receipt not hidden in the price of goods like a VAT!
The amount, and rate are both required to be printed on the sales receipt in the legislation.
Refer: H.R.25 Section 510 TAX TO BE SEPARATELY STATED AND CHARGED
How can you be so sure? Say you are a seller, and I am a buyer (or vice versa) Why don't we just split the tax and call it a day?
Surly every one can understand reporting on 25 million business most of whom report on computers is easier than reporting on 300 million tax payers! IRS will be reduced my 90%!
1. Because I build homes and under this bill my prices go up significantly and new homes will be at a huge competitive disadvantage with existing homes.
I appreciate your honesty, but believe your worries are misplaced...anytime there is a significant difference in price, market forces act quickly to reduce those differences..Your cost for lumber, labor,taxes, etc will decrease under a Fair Tax. The price of used homes will increase to near the price of new homes just as it does when other outside forces increase the price of new homes....they have consistently followed changes in new home prices.(permit fees, cost of labor,lumber,lot values, development added fees)) etc Its back to the old supply and demand equation. There are only x number of "used" houses
2. The arguments presented by fairtaxers are very misleading at best, as Boortz himself finally admits on this major point.
IMO Misinterpreted, not meant to be misleading..nothing is gained by misleading anyone..as you have pointed out.
3. I really don't see the great advantage of switching from one 800-lb gorilla to another 800-lb gorilla. It may start out looking nice and friendly, but when the gorilla gets hungry its just as ugly. The freedoms promise under this bill are a house of cards.
So you would rather stick with our present inneficient tax system which acts as a brake on our economy and competitiveness worldwide? Is there any other tax proposal you would take a chance on changing for the better?
As I see it our current house of cards is coming crashing down due to:
1) Its complexity and unfairness, it has become too difficult for even educated people to understand. Only those who can afford high priced help can manuever through it to their advantage.
2) Power it currently gives Congress over the people through paid lobbyists and special interest groups,(who pay off congress and undermine our representative system of govt) this needs to be eliminated
3) The large influx of foreigners who have a cultural predisposition to not pay their share of taxes. Average people are tired of paying taxes for those that don't.
There are lies being spread around now... but you might wanna check a mirror to see who is doing it.
Pain? Yes. Like pulling a band-aid from a healed wound.
I think the new IRS will be examining the 300 million buyers, meaning that the new IRS will MULTIPLY?
Remember, currently the IRS checks what a company reports on its income tax. Won't his 'fair tax' in order to insure compliance require that every TRANSACTION be recorded for audit?
I just gotta get to work.
They would if they could but could they? This assumes the corps are paying more than they have to now.
Also, this would make it easier for small biz to hire workers since withholding and keeping track of withholding would disappear.
Your prices will go up but your buyers will have more cash in their pockets to buy because they will receive the the gross income instead of the net! After six months competition in material prices will cause prices to fall because the layers of taxation during manufacturing of materials will be eliminated.
Pretty much.
Wrong. The IRS will compare the businesses wholesale purchases against sales. They will not contact individual consumers!
You make excellent points but you are addressing a brick wall. For someone who claims to be a homebuilder certain people are woefully economic intelligence deprived.
Seriously though, this isn't rocket science. We can't leave things the way they are and a Flat Tax just doesn't go far enough to get things even moving in the right direction.
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
This has not only been commented on once but many times. The bills, HR 25 and S 25, eliminate the IRS and the income tax. Yes, you say, but the politicians can easily reinstate the income tax and the IRS. To which I reply, the politicians can do anything they please it seems whether constitutional or not. Look at the recent Kelo decision. At least the Fair Tax takes there favorite tool on coercion away from them for awhile, at least, and gives us a goods look at the other side. That will make tougher on them to go back. You should support this.
NO.
Why do fair tax supporters claim it is like a sales tax then quote a rate and method of computing the tax that is radicaly different than any current sales tax.
If it was like a sale tax then the tax on a 100.00 item would be 22.00 not the 29.xx that the fair tax method requires.
A recipe for decision by indecision, or leaving things as they are which is admittedly awful. I don't understand that a Fair Tax doesn't go far enough. What would you like?
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