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.
Yes, we do. Exempt me, period. That is how the present system works for the special interests and also the reason some here oppose the NRST. They think they are making money off the present system by not paying taxes. They ignore that they are paying those taxes in everything they buy. It is just not listed as a tax. It is a cost to all producers who must recover it in the prices they charge. They also ignore that someone else must take up the slack of their not paying taxes as well as pay the higher prices the present system creates.
Section 510 of the fairtax bill...
Oh but there are new reporting requirement and new registrations along with requirements for reporting income. Read the bill sometimes.
I think the new IRS will be examining the 300 million buyers, meaning that the new IRS will MULTIPLY?
Easy to speculate when you don't read the legislation, isn't it.
The business selling products is made liable for collecting and remitting the tax from the purchaser.
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?
Yep they are called sales receipts, and are audited today under state and local sales tax administrators who will be administrating the National Retail Sales Tax implemented in the FairTax legislation in parallel with their own retail tax systems.
The Federal IRS is dismantled and taxpayer records are required to be destoryed by provisions of H.R.25, You should read it sometime instead of spouting off speculation.
H.R.25Fair Tax Act of 2005 (Introduced in House) |
And encouraging savings and investment is bad how?
Then there's the effect of attracting foreign investment to America, as it becomes tax free. What will that do to our economy?
Oddly, the current bill already has ONE exemption for college tuition, which opens up the floodgate. Why not health expenses too?
Oddly, the current bill already has ONE exemption for college tuition, which opens up the floodgate.
You are correct, that exemption should be removed and reduce the tax rate at which the bill is revenue neutral. Afterall college is paying for use and consumption of a service isn't it?
The best way to get that changed is to contact Linder's office, and request its removal and why you beleive it should be done.
It is much easier to change a bill in its proposal stages than later when it goes through the committee process and partisan recalcitrance takes over.
Fair enough, the current code is way too complex. But don't kid yourself, the sales tax rules will grow too. For instance, people converting tax-free business property into personal use property will be a huge sticking point with extensive rules to distinguish what is a personal use and what is a business use. Sales tax is better, but I don't believe it will end up 90% better.
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
Another valid point, but again lobbyists and special interest groups will not go away. They will still be pressuring Congress to muck up the code. The only reason the income tax rules are big is because it has had a one-hundred year head start. Rules and rulings will be added every year to the sales tax.
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.
This I am not sure there will be an advantage. If foreigners are going to cheat the income tax, you can bet they will cheat the sales tax. They cheat the income tax by making off the book sales, they will cheat the sales tax the same way. Go to china town in any large city and tell them you will pay cash, there is always a significant discount. The place where the sales tax make the most sense is in importing and exporting. That is the one area where it really makes sense, and is why Greenspan supports the idea of a consumption based tax. I will grant legitimate arguements, I am just sick of the BS they peddle.
I understand his point about the revenue nuetral affect on each element of the tax base that is part of our economy. I do see a disconnect in this article that does not take into account the expansion of that base into foriegn produced goods and on the underground economy.
The base grows, therefore the burden is lowered on the elements carrying the load today. Are we willing to reject this idea because it might hurt foriegn companies and criminals?
You are correct but I think a little clarification would be helpful. The part about prices going up should explain that the raw prices themselves don't go up as the employers costs have remained the same. The prices + the tax causes the end price to increase by the amount of the tax, the same as is done by the states and local governments now. The worker receiving his gross pay negates the harm.
Cheap a$$holes who do that will get the turnover they deserve. These are the same kind of people who hire at minimum wage, then complain that they cannot get a full day's work out of "these people" as they drive home in the Lexus.
You are not the only one to express this cynicism. Your complaint is with the politicians, not the Fair Tax. If that is your only concern, that it will manipulated, then you shouldn't even bother to discuss it. Spend your time elsewhere.
You surely recognize that the conclusion to your attitude is that there is nothing we can do because all politicians are corrupt, so let's just roll over and play dead.
Ah geez... not this sh*t again...
$100. After Income/corporate taxes/compliance costs pulled. $70. With NRST, it's back up to around $100 dollars again. Businesses win. Consumers win. Only applies to retail items. If you can find it used, buy it that way. Fix old stuff. Increased value on durable goods. Blah-blah-blah...
Why do current IRS tax scheme advocates gottta re-hash the same crap over and over again as if it is new territory?
"I take it then that you want two slaughter houses imposed on us??"
What prevents the House and Senate from imposing the 2nd slaughter house today?
No Federal taxes on US citizens what so ever. To do that, you'd need to fit the FedGov back inside its Constitutional leash. A bit of a pipedream right now, but that doesn't mean it isn't a worthy goal to aim for. Any change for the good is a positive thing at this point.
Or do you approve of that kind of chicanery as well?
greetings from Bora Bora.
Thanks for the ping, I haven't seen FreeRepublic in a week and it looks like a few things are being clarified by Boortz and Linder.
First off, whoever employes you still reports your income. Second off, you have to regisiter you family to recieve your monthly rebate check. Third off consumers are liable for all taxes unless they have a reciept. Purchases for goods and services you make without a receipt must be reported on a monthly basis. What Hillary does with FBI records is really not an issue here. I suppose Hillary could sick the new sales tax collectors on you to make sure you have all your receipts.
Furs and vacations are examples of the legitimate economy. Either a sales tax or a income tax will capture that.
Drug deals and prostitution are examples of the underground economy. Neither tax system can capture that.
I've seen vendors at flea markets. They are not likely to collect and remit sales tax at all.
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