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.
Sure, but then that tax will just become 'unhidden' under the fair tax.
So $1.00 in savings (post tax money) buys the same as $1.00 in newly earned money (pretaxed money). Any way you cut it, my $1 in savings absorbed an income tax hit that the new $1 earned does not.
So for money I saved and paid 33% in income taxes, I earned $ 1.50 pretax and kept $1.00 post-tax, and that has $1 in buying power under the fair tax system. Under the fair tax, I earn $1.50 and keep $1.50, which has $1.50 in buying piower under the fair tax system.
The Feds are clearly taking a second tax bite out of my saved $1.00 when I try to spend it under the Fair Tax system, see?
So the state auditors are going to be telling businesses that they aren't profitable enough to get the exemptions?
Could be, especially if it smells and looks like a hobby or scam for personal use.
I'm running a business with the products.
And no profits or sales to show for it.
Sorry, if it looks like a hobby, smells like a hobby hmmm, could be a hobby not qualifying a business use exemption, especially in a business that doesn't generate a cut for the state, you know no sales, no tax collection and no profit either. Sure doesn't look like much of a business does it.
I would suggest finding a better hobby.
Wasnt talking about state, Nightie. The writing off of personal expenses as "business" expenses goes on all the time at present under the income tax and apparently few get detected.
I figger you're "smart" enough to do that right now since you could think up the idea "out of nowhere" at once. Must have a good bit of experience at it, eh?
Is it that you're just afraid you're more likely to be detected under the FairTax since the taxing administration is a lot closer to you there in TX than in DC as with the income tax. And if that's not it, why bother since you can evade at higher marginal rates under the income tax than under the FairTax so you're taking a bigger risk for lowered rewards. I'll bet THAT'S why you're so enamored of the Status Quo ... it's more profitable for you to evade than under the FairTax and you realize its safer too.
Golly gee you're smart, fella".
It's not a hobby, it's a business.
Whatever YOU care to call it, if it doesn't meet the requirements of Section 701 its not "conclusively deemed to be engaged in for profit." and in mys estimation subject to audit and review.
Current IRS guidelines state:
"In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:
You carry on the activity in a business-like manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on income from the activity for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You, or your advisors, have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years and the amount of profit it makes, and You can expect to make a future profit from the appreciation of the assets used in the activity"
Clearly there will be similar guidelines to prevent shysters from skirting the law
You cetainly would be legal - until caught in one ruse or the other - the most probable one being the fraud of buying things tax free as a business when you were actually using them for personal use.
I think you oughta do it Nightie ... really - the state sales tax folks in TX are dumber than anywhere else since they only have to deal with cowpies and used oil rigs and you can dazzle them with footwork. Besides I hear that Huntsville needs some nice tender new meat. Keep us posted on who you make friends with.
Hey, Looey. I think you should start the left-coast branch of the Nightmare Scam and help Nightie out.
Those CA state tax dudes are real pushovers for a good sob story like you could put up. Just tell 'em how you used to watch the fireworks at Disneyland from your yard at night and didn't they do that too??? They'd fall for that in a minnit I'll bet. Besides, they're probably all other left-wingers too.
Maybe you and Nightie could play "musical cells" from one state to another, even.
Whatever YOU care to call it, if it doesn't meet the requirements of Section 701 its not "conclusively deemed to be engaged in for profit." and in mys estimation subject to audit and review.Why would Section 701 even apply to me? Must all businesses have "received gross payments for the sale of taxable property or services that exceed the sum of-- `(1) taxable property and services purchased; `(2) wages and salary paid; and `(3) taxes (of any type) paid, in 2 or more of the most recent 3 calendar years during which it operated when the business activity shall be conclusively deemed to be engaged in for profit" before they can claim the exemption? Sound like it would be tough for startups, which is all my business is.
Sure, Sure, Nightie ... we know (that's what they all say as they get dragged away).
Be sure to let us know at least which cell block you end up in if not the cell number.
Should we start addressing you as "8796453772-1"??
It's not a ruse, it's a business.
Then I'm sure it will withstand that inevitable tax audit for certified businesss won't it, so no problem for you.
Go fer it. YN.
"Why would Section 701 even apply to me?"
Sounds to me like it was written for people like you....sorry the barn door will be closed...cross checking...
try this old summary:
http://www.ntu.org/main/press.php?PressID=331&org_name=NTUF
Enforcement and Compliance
Tax evasion could be a challenge to the success of a NRST if enforcement is not handled properly. The risk of noncompliance grows as rates increase, sales information becomes scarce, and exemptions are created.40 Although the IRS will be dismantled, a Federal agency will be necessary to investigate tax evasion and maintain uniform, national collection of the tax. States will likely be compensated for their efforts, but there is not enough incentive for each State to investigate and audit cases of evasion.41 This agency will conduct regular audits of businesses to safeguard compliance. Existing federal tax collection budgets should be more than adequate for the task since there are significantly fewer collection points under a NRST than the current system.42
Some additional paperwork for businesses will be a part of the transition process. Some of the initial transition would be simple paperwork such as requiring retail vendor registration43 and creating new tax forms.44 Businesses will be required to maintain records of previous years' sales to allow for audits by the Federal agency,45 similar to the reporting system already in place in at least 45 States. Information reporting could be implemented similar to the current Form 1099 to facilitate cross-checking by government auditors. This form records the quantity of merchandise purchased by retailers. An auditor would be able to cross-reference the retailer's inventory and sales records to ensure accuracy.46 It would be the business's responsibility to provide documentation upon auditing, but the burden of persuasion in a court of law should rest with the government.47
The exemption of business purchases is a fundamental premise of a NRST, in order to avoid hidden taxes. The system is not meant to be like the value added tax (VAT) where a good is taxed at every stage in the production process.48 Manufacturers and wholesale distributors will not be taxed. Only consumers at retail will be taxed, and they will see the entire tax burden printed on their receipt.49
The differentiation of personal and business uses for goods and services must be strictly maintained. Enforcement efforts must insure that exempt purchases are for business uses only. The creation of a business as a front to purchase goods tax-free and use those goods for personal consumption is a serious concern to be dealt with.50 Also, with mixed-use property, it can be difficult to distinguish between personal and business uses.51 According to the Representative Billy Tauzin's and Representative Linder's proposals being considered in the House of Representatives, a business exemption could only be used on goods or services that are for business use more than 95 percent of the time.52 This rule or a similar one must be adopted upon the introduction of a NRST.
Small businesses and independent contractors pose enforcement and compliance difficulties as well. They are most likely to evade payment of taxes, underreport taxes collected, or to use the monies collected as working capital. These problems should be eliminated with properly scheduled collection of taxes, regular audits, and appropriate penalties for noncompliance.53 Additionally, merchants would be liable for taxes due upon sales. This would create an incentive for businesses to keep accurate records of sales and make the distinction of sales for business or personal use.54
A comparative point is in order here. Although these transition rules seem complex, they pale in comparison to the current mountain of paperwork that the income tax entails. Most business organizations report that their members would gladly assume NRST compliance burdens in place of those imposed by present law.
What Boortz "finally admits" is not what you think. You need to read what he's written more carefully.
That's just his way of saying that people are the ones who eventually pay all taxes ... BIG DUH!
What Boortz "finally admits" is not what you think. You need to read what he's written more carefully.Are you kidding? Well just what is it that Boortz finally admitted?
Naw, Nightie - you're welcome to loose all the money you can afford and then some. That's not what what'll do you in.
It'll be the clearly illegal mode of bying things under the color of being for "business use" when it has clearly been converted to personal use.
There are lots of ways that state tax folks have of getting information - for example from jealous neighbors, unhappy competitors, ticked off web site hosts when you don't pay your bill (or sometimes even when you do) and even teed off ex-spouses ... just for starters.
Of course you're too fine to have any of those we know, but why don't you just do the same thing now and earn both a greater marginal rate and a lesser chance of detection? Hmmm! Maybe you do - izzat how you came up with the idea or did Looey sell it to you as one of his TP schemes?
I doubt it but if you are not operating with a profit motive, which is what it appears to me, then you loose your exemption.
Do you have any idea how many people actually make a living doing something similar to what I described? These are just individuals working out of their homes. Some of them earn well into the 6 figures on Google ads alone. Is the government going to tell me I can't do the same?
Did you read anything I wrote? If they are making money its a business with a profit motive and result..
So much for freedom. Darn.
So much for your spin LOL..
Chew on this for awhile:
The FairTax, Tax Evasion, and the Underground Economy
http://www.fairtaxvolunteer.org/smart/under_economy.html
Read the part that says "... together with the other taxes on capital and labor eliminated by the FairTax ..." and see if you can tell what that might mean.
I certainly see no real "admission" of much of anything.
Boortz, The Fairtax Book, p 83:
First, remember that the poor - along with everybody else - will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of those we categorize as poor, this would mean an immediate 25 to 30 percent increase in their take-home pay.
Second, remember that that 22 percent is already inflating the retail prices we all pay in the form of embedded taxes buried in the cost of all consumer goods. As soon as the competitive forces of the free market work their magic, as they always do, consumers of all incomes will be paying at least 20 percent less for virtually everything they buy, including the basics of food, clothing, shelter, and transportation. Yes, they'll have to pay the new national sales tax - but when you factor in the lower prices caused by the disappearance of the embedded taxes, you'll see that the total price paid for consumer goods will remain very nearly the same.
Boortz as of today:
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.
To summarize, old Boortz: embedded tax doesn't include employee's tax, more take-home pay than now, post-tax prices same as current price. New Boortz: embedded tax included employee's tax, same take-home pay as now (or possibly an increase), post-tax prices the same as current prices (or possibly more if the employees keep more than their current net)
That sounds exactly like what I thought.
All those do all they legally can to avoid taxes and there are many legal ways to do that. While the liberals rail about taxing the rich they are busy opening back doors to let them out of the trap. All have numerous trust, foundations, and corporations which buy much of what they own and shield their children from estate taxes.
But, they all buy. Legal or illegal, they all buy. Much of that is taxable even if they do buy "used" estates, cars, art, antiques, etc.
I don't care how much the rich have and actually want them to have even more. They have to do something with it. When they sock it away in the bank the bank can't just hold it and pay them interest. The bank must put it to work in a way that the depositor makes money, the bank makes money, and the person they lend the money to makes money. Same with investments, no matter what they are. Along the way a lot of money is made and a lot of it is spent on taxable items.
The best way to make the rich pay their "fair share" is to become one. Then miraculously it becomes fair.
Thus, where income is now generally subject to tax, and thus, these folks pay whether they buy a new Lexus or 1,000 shares of IBM, under the NRST, these folks will pay much less in taxes than they are paying now. Much, much less.
I am not sure I agree with this but it doesn't matter that much. A super rich family of four has four purchasers and one income. That narrows the gap considerably.
A poor family of four has one or two wage earners but four purchasers, or four people for which things are bought. Generally speaking the purchases taxed are equal to the wages taxed.
A middle class family with credit cards usually engages in lots of transactions.
I am confident the tax money to run the government will be there. The tax base increases, the prices stay close, and the worker has more to spend.
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