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.
KEY QUESTION: Tell me how we won't be stuck with ANOTHER tax system.
I am in favor of a Dick Armey-style flat tax, (reform of the current income tax). If we can't get even that passed, all of this fair tax theory is just silly.
Inclusive/Exclusive argument again? Aren't you getting tired of having your butt handed to you every time you try that bait-n-switch?
No my facts are rock solid and undeniable. BTW, go visit the fairtax FAQ, they admit the fairtax is a progressive tax scheme too.
You mean this? If that is the best you've got, stick to building houses and leave tax schemes to ANYone else.
Come on, even the "Fair Tax" proponents gave up on that lie long ago.
Honestly now, Do you really believe that??
What anyone thinks is not important and from your ping list I can see that you are one of the economically challenged Freepers.
The market will determine what the corporations do with the money. They may even outsource it by sending it to China. That ought to thrill you because you don't understand the economics of that either.
Pull my other leg.
Consider that the alternative is to continue on as we have. Even a Flat Tax leaves the very same system in place that got us where we are today. It will eventually bring us right back to the screwed up system we have now.
Only by gutting the beast can we get enough people aware of how bad the current system is to get some real change going. Remember that part of the NRST is that "in your face" sales receipt to remind every single consumer of the cost of government. Right now, most people don't see what is withheld so never miss it.
ROTFLOL.....MY BAIT AND SWITCH???????? 99.999999% of the universe understand sales tax as they way I quote the rate. You phoneys are the ones who con-cocked the 'inclusive' rate to mislead the people on what your sales tax really is. It is a 30% sales tax on all goods and services. If you call it a 23% sales tax on all goods and services, you are lying. You must state it as a '23% inclusive sales tax in all goods and services' to be accurate.
I sense sarcasm, but do you really think you can buy rock cocaine at Wal-Mart? Transactions in the underground economy can't be captured by a sales tax.
It works the same way as it does today. When the crook spends money in the legal economy, that money flows through and pays the embedded taxes. Until the fair tax figures out a way to collect on the services of the prositute, then they are still cheating the system. The tax base for the fairtax does not include the illegal economy. It does not add to or subtract from the tax base, just like today.
How many people have you ridiculed when they tried to tell you the truth?
Tell us some truth that is anti-Fair Tax. As an aside, a phony should learn how o spell it.
The government, under a 'fair tax', will keep records on ALL transactions.
In your attempt to 'gut the beast', you have just created a bigger monster.
If you don't like the rate, help reign in GOP spending and we can work on 'em to give us a tax cut. All of us. Not just a few or "targeted" tax cuts. One rate. Adjust it.
Furthermore, the government will continue to keep records on income in order to determine Social Security benefits. The government gets more records under a sales tax than it would under an income tax.
But,guess what, if Joe's car needs repair unexpectedly he can defer paying taxes for a month or more. He can buy used and he will be getting his pre-bate for necessities.Buy used what? Used car repair service? Used car parts?
Exactly.
Right now there are seven pieces of information that is required on every sales tax receipt under their plan. It is only a matter of time when compliance becomes a problem, when information on who the buyer is will be required on every receipt. That is the only way sales tax can be tracked.
A pretty massive difference especially considering that latter is still annymous from the consumers standpoint. Retailer are already audited up the ying-yang now. The reporting and complaince mechanisms for collecting sales tax are already in place.
I gather you "think" that when a prostitute buys drugs, the drug dealer will collect the "fair tax" and send that money to the government.
LOL!
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