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.
Say what????
Nope all 5 have been completely refuted. The fact you continue to call anyone who doesn't agree with you a liar and dishonest says more about you than anyone else.
Riiiiight. That is why Boortz backed off his claims after Money Magazine refuted the fairtax claim.
Can't speak for what Boortz did or didn't do. but the magazine writer refuted nothing at all. He merely was making the same CLAIM that RobFromGa was making. That's a claim - not a refutal.
And there is little solid basis for the claim.
If you don't ELIMINATE the 16th Amendment, you still have the very real possibility of an income tax. FairTax doesn't address this at all.
You don't know the power of the dark side (aka government).
Thank you for pointing out that link.
A Dick Armey-style flat tax would be much better. If we can't *reform* the current system, then a complete overhaul is, in my opinion, a non-starter.
Remember, ANY tax system, with Congress in session, can and will be amended, even a purely-passed 'fair tax'. Also remember, your fair tax has yet to be edited in a tax committee. There is a reason Bismarck compared writing legislation with making sausages!!
Your fair tax has yet to edited in a tax committee. You guys are dreaming if you think that your law will remain pure.
What prevents the House and Senate from imposing the 2nd slaughter house today?
Nothing at all. Which is why I am commenting on this topic.
I've seen vendors at flea markets. They are not likely to collect and remit sales tax at all.
Another Loophole?!?!
If you are the seller, and I am the buyer (or vice versa) let's just split the difference and call it a day!
Oddly, the current bill already has ONE exemption for college tuition, which opens up the floodgate. Why not health expenses too?
By golly, how many loopholes can we come up with together? Worse, how many loopholes can 535 members of Congress?
Come to my flea market!
Not really. The FairTax repeals the income tax, eliminates (and defunds) the IRS, requires all income tax records to be destroyed and calls for the repeal of the 16th amendment.
Bring the income tax back a few years down the path would be more than unlikely. If there are enough votes to pass the FairTax and repeal the 16th then the I. T. is gone for our lifetimes.
At present thee is nothing to prevent congress from from voting both upon us at the same time. The FairTax prevents that - read the bill.
As I said, you have zero intellectual honesty. No matter how thoroughly something is proven, you just close your ears and kick and scream and deny. It is so worthless to debate someone like that.
That's not an exemption, however. College tuition was not taxed from the inception of the bill as it is presumed to be an investment in human capital.
Think of all the exemptions you like - but the tough part is getting them inserted into the language of the bill. This bill has huge grassroots support.
OTOH, the Armer/Forbes flat tax has little graassroots support and Forbes himself has said it is not revenue neutral. All of the flat tax plans also retain the payroll taxes, do not tax the illegal economy to any great degree, and have no provision to allow border-adjustability of taxes to help our exporters be more competitive in other countries.
Why isn't food 'an investment in human capital'? Or health care? Or housing? What pointie headed socialist decided that college tuition was the one thing that qualifies as 'investment in human capitol'?
Nothing from the magazine article or Robbie was "proven" at all. Those were just their own opinions of what they though the situation might be. Go ahead and "prove" it if you think you can. And don't just give out the repetitive stuff from those two sources. Come up with some new more definitive material.
BTW ... stop the personal insults.
Education is not consumed as the other things you mention, but builds a base for most people, presumably, to build upon and improve their standing on the economic ladder.
Seems to me there is far more justification for that not being taxed that for things that are clearly consumed.
What more definitive source do you want???? They contacted your expert who fairtaxers paid to do their research???? There is no more definitive material than that.
BTW ... stop the personal insults.
Stop it, you are killing me. However, I will stop until you start. I'll give it a day, two days tops.
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