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.
And who's gonna come after me? My purchases are completely legal business expenses.
State sales tax adminsitrators auditing the conduct of a shell business that has insufficient sales tax collections.
To qualify for for business exemption, you must register for business certification which opens you to the inevitable audit.
Insufficient sales and tax collections, its a hobby, no tax free purchases,.I don't have sales or tax collections, I get paid every time someone clicks a Google Ad on my website. It's advertising revenue for ad being sold by Google. It's a completely legitimate business that would likely lose a bunch of money. Of course, there's the chance, however small, that my site would be a hit and I would get a ton of traffic and could actually make a profit. Is the government going to determine whether my business is viable or not?
Insufficient sales and tax collections, its a hobby, no tax free purchases,.I don't have sales or tax collections, I get paid every time someone clicks a Google Ad on my website. It's advertising revenue for ad being sold by Google. It's a completely legitimate business that would likely lose a bunch of money. Of course, there's the chance, however small, that my site would be a hit and I would get a ton of traffic and could actually make a profit. Is the government going to determine whether my business is viable or not?
State sales tax adminsitrators auditing the conduct of a shell business that has insufficient sales tax collections.I'm not selling anything. Why would I have sales tax collections?
The business owner, just like today.OK. I intend to make a profit, so I don't have to pay the sales tax. Sweet!
But you will have to collect the sales tax on your sales by the liscensed business.
I don't have sales or tax collections,
If you are not registered and certified as a business, you don't have tax exemption on your purchases either.
Certified as a business, opens the door for audit, if no sales, no profit, its not business, its a hobby whatever you might want to call it.
That is what the hobby classification is all about. Those that would register to obtain the business certificate for tax free purchasing but do not meet the standards of an operating business and thus do not qualify for tax free purchases for a business.
The FairTax is a brick and mortar tax in an internet world.
No business certification, no tax free purchasing for business use. Works whether internet business or brick and mortar.
But you will have to collect the sales tax on your sales by the liscensed business.Are you saying I have to collect the sales tax on the business to business transaction between me and Google (I would have no other client and no sales, per se).
If you are not registered and certified as a business, you don't have tax exemption on your purchases either.The only revenue I get is solely from Google - a business. There are no taxable sales from my site, just ads provide by Google.
Boortz is such a doofus. This is just his attempt to rake in some cash by tagging along with another guy's idea. Debating the "fair tax" is a waste of oxygen. It will never happen. I will also never forgive that gasbag for his heartless ridicule of Terry Schiavo and her family, and lionizing of Michael Schiavo.
If you are not selling to a retail customer, then no, you don't need to collect the sales tax. At least that is how I understand it.
Why the circular conversation?
There are no taxable sales from my site, just ads provide by Google.
Fine with business certification. That certification is what qualifies you as a business for business tax free purchases and monitoring by the state sales tax authority.
If you are paid by google you are providing a service to a business which merely passes cost on up the marketing chain until tax is collected at a final consumption sale, with a business certification your business' purchases would be tax free, pProvided business use is established on your purchases without conversions to personal use. That is one function of sales tax audits.
If you are converting your business purchases to personal use as determined under sales tax audit of your certified business then you have a bit of a problem under the enforcement statutes and owe taxes and any potential penalties as well if a fraudulent conversion is demonstrable.
What I don't understand is how to factor in the tax exempt status for post-tax money I already have in savings.
That money was taxed under the old/current system. If we switch systems, and place a FT in place of the old system, why would prior post-tax money be subject to the tax? It would be taxed twice.
even though I would probably lose a lot of money.
In which case you won't be at it for very long will you, unless losing money is a hobby of yours?
In which case you won't be at it for very long will you, unless losing money is a hobby of yours?My expenses are stuff I would be buying anyway. My use of them would not be for "personal" use, but would be me evaluating the products (in real world situations, of course) so I can review them on my site. Who is going to tell me these expenses are legitimate business expenses?
Well that’s where you and I will respectfully disagree...
I think the “rewards” to the black-marketeer and their customers will outweigh the “risks”.
You think the “risks” will outweigh the “rewards”.
I’m still on the fence on the Fair Tax issue.
Dear Mind-numbed Robot,
Well, what you say is partly true, to a limited degree, but kind of irrelevant to the point - which is that the taxes on the very wealthy will mostly decline.
Most of these folks will invest in businesses that pay wages, buy services, and purchase products. All these activities will be exempt from the NRST. Certainly, eventually, employees get their share, and will spend and be taxed, but as has been pointed out so many times before, all we're doing is moving the tollbooth where we're collecting the taxes.
Bottom line - the very rich make out very well with this.
Not that I'm complaining, as I wouldn't object to being in that category sooner or later, myself.
;-)
sitetest
Yeah. LOL!
Well how long are you going to evaluate them? How will you dispose of them? What are you going to be reviewing? give some examples please. And if they are for business use not personal use, you wouln't be caught using them for personal use would you? As far as making a profit, now businessed are subject to a test to determine if they are a hobby or business, some people try the same thing now, and may or may not get away with it. Yours is not a new idea.....I doubt you could prove to a reasonable man that yours was a legitimate business unless after a period of time you made a profit. Are you going to be competing with consumer Reports? C/Net etc? Clearly this is one area that will be subject to review just like it is now...How many people/corporations write off questionable items now? How much money will you save compared to your time and effort and risk? With fewer places to look for questionable tactics compared to now, I think you are barking up the wrong tree...
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