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.
Certainly NOT the sort of "from each according to his ability to each according to his need" sort of "fairness" that Marx and Engles proclaimed in their Manifesto, which btw is the genesis of the modern progressive income tax. That is what liberals love. The ability of the government to use the tax system as a social engineering tool to reward the behaviors they like and punish the ones they don't.
The sort of "fairness" fairtaxers speak of is a level playing field where EVERYONE gets a bite at the apple without regard to what uncle sugar likes or doesn't like this week!
How so? FairTaxer FAQ indicates the fairtax has about the same level of progrestivity as the current system, and besides the fairtax does absolutely nothing as far as what goodies Uncle Sam doles out. You guys just love to claim benefits where there are none.
Whatever happened to YN's VAT? Was that thoroughly discredited or is it still on the table?Discredited? LOL! It's only being used in over 100 countries!
So is prohibiting citizen gun ownership but the last time I looked that was pretty well descredited.
Wow!! The Nightmare VAT is in use in over 100 countries ... I didn't know that. Last time I looked you hadn't specified all the particulars.
Guess you write awfully fast, eh?
Next thing you know you'll be telling us that the Nightmare Flat has a bill in congress I'll bet. And, oh yeah, Nightie - a flat tax is still an income-based tax that has almost all of the flaws of the present one.
Should we list some of those for you or would you rather not know?
Trying to pretend it is a consumption tax in the same way as the FairTax is merely your attempt to get some of the FairTax benefits incorporated by implication ... won't work, Nightie!
You know what? I pity you. I really do! You see NO benefit to exchanging the his communist inspired evil we currently labor under, where an agent of the government can destroy ANYONE he wants any time he wants with a mear allegation, for one in which the government need not know even so much as your name for it's administration!
I am VERY glad I don't live in that world with you sir. I sincerely doubt that there are many who do! Good day! And may God have mercy on your everlasting soul!
I swear the fair tax is a cult. What a bunch of self-righeous babble. You guys treat this stupid tax proposal as some kind of religion. I really think you are nuts. Save your pity for yourself. God has bigger things to worry about than a 30 percent sales tax. Puh_leeeez, get a grip on reality.
Ironically, God asks you to tithe based on your increase (that would be your income) not on your expenditures.
First there IS a difference between increase and income although I would not expect YOU to recognize that fact! Second it is ENTIRELY up to the individual tithe payer to determiner what his increase is! No agent with a gun will show up on your doorstep if you fail to pay your full tithe unlike the WONDERFUL income tax system!
You are a nut, simple as that. This sales tax is obviously a relgious obsession with you. No wonder it is so difficult to deal with you.
I suppose others will just have to decide for themselves who is right!
I just wish that these so-called 'Fair Taxers' would just ONCE comment on the transition phase between two different tax systems. Or else you will end up paying BOTH.
Your argument is vague. There is no transition phase, it would happen immediately any given January 1st. If you are referring to businesses, you are wrong.
You won't end up paying twice. You will be required to count existing inventory at the end of the year = X(most businesses do this already). You pointed out that you already paid taxes on that once, your right, but there is a provision in the bill that says you will not have to pay tax on the first X amount of $ you take in the following year.
If you are referring to something else, please be more specific.
If you want to have the gov't intrude into your life, keep more and more of your money, and chase businesses off with a huge, incomprehensible tax system. . . by all means lets keep what we have. I'll support the FairTax untill someone comes up with a better idea.
A few here make fine arguments against this plan, and to those I say "so what". The pros outweigh the cons. Yes the book has proven to be misleading, but don't discredit the whole idea because a talk show host and a politician got over-zealous. The fact that this bill is receiving real attention in congress speaks for itself, since it takes massive power away from politicians(they usually don't like that).
Dear groanup,
I'm not really willing to talk much about my specific investments or investment strategies, as already, one can see disparaging remarks posted even against the most abstract comments on the subject.
Suffice it to say, no, I was not heavily weighted in bonds or real estate, nor weighted much at all in either. As well, if I hadn't been cajoled into the purchase of a single dotcom by my (former) broker, I'd have actually come through the bear market ever so slightly to the plus.
Anyway, what's wrong with reducing risk? Nothing. As long as one addresses all the risks to which a particular investor and portfolio might be subject.
sitetest
Dear groanup,
I can understand why you wouldn't want to comment on #340. It does a little to expose the propagandistic rhetoric used by those pushing the NRST.
We're "Status Quo Lovers," and the NRSTers are backers of the "Fair Tax." LOL. If I were committing that type of premise-assuming and question-begging, I would prefer to avert my gaze, as well.
sitetest
Well, s-test, if you're so "not in love" with the present tax system and only so intellectually pure as to wish to have all those "nasty FairTax" lies exposed, I've a sggestion for you. Your #340 "exposes" nothing but your bias against the FairTax and its supporters, but if you really are so "pure" ...
Identify, specifically, what you think are the lies and then show us how the non-FairTax tax plan you prefer (a real one, please) corrects that and in addition how it improves the economy of the country.
Because it is loaded down with what you are accusing us of. There isn't a flicker of credibility in the post so why bother to douse it with debate?
1. The idiotic idea that you can raise money by taxing government expenditures. This is just a trick to make the fairtax rate lower than it really needs to be.
2. The idea that you can add money to everyone's paycheck and have prices come down. Although most fairtaxers are backing off this, you aren't.
3. Your gross exagerations of compliance costs of the current system and your underestimation of the costs of enforcing a sales tax that includes a monthly rebate check to every household in this country.
4. Statements about taxing the underground economy are just false.
5. The denial that people who have already saved after tax money under the current system, will now have to pay taxes on that money again. The fact is, people with savings will see the buying power of those savings reduced.
I see the problem as different than you. The biggest problem is not how we collect taxes, that is just a symptom. The real problem is the amount of taxes we collect. Any system that collects $2 Trillion in taxes has to be intrusive. The real solution is to make our government spend less and thus need to collect less money.
I would lay off these threads if the arguements were honest. But I am not laying off as long as snake oil is being pushed. There are legitimate advantages to the fairtax, but there are also real disadvantages that you guys want to brush off and not admit.
All 5 of those things have been explained and refuted - you just won't admit it.
You'll get no argument from any of the FairTax supporters I know about spending being too high - but that can't be seriously worked on until the tax system is under control.
And there is no "snake oil" being pushed. Merely because you choose to believe something does not mean is is incorrect - or dishonest. It just means you don't agree with it (which is just fine AFAIC).
You've never offered your own solution to any real tax plan that would be better as an alternative to the FairTax. That would be interesting to hear about. How about telling us about it?
You 'refute' them, but they are still accurate and truthful. No amount of spinning changes what the truth is. I wish you had one ounce of intellectual honesty.
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