Posted on 09/16/2005 5:15:32 PM PDT by Man50D
Dear Editor, I've just read a new best-seller, which I highly recommend to you and your readers: "The Fair Tax Book, Saying Goodbye to the Income Tax and the IRS."
The co-authors are "reformed lawyer" and syndicated talk show host Neal Boortz, and Congressman John Linder, R-Ga.
Linder is also the principal author/sponsor of The Fair Tax Bill (H.R. 25), currently before Congress.
In the interest of brevity (the book is only 180 pages, by the way), I'll quote from the back of the dust jacket.
"What the Fair Tax will do for America: eliminate the income tax and the dreaded IRS; jump start the U.S. economy; bring businesses and jobs back to the United States; and recapture billions of untaxed dollars currently lost to criminal and offshore businesses.
"What the Fair Tax will do for you: allow you to keep 100 percent of your hard-earned paycheck; let you choose to save all the money you want .... and pay taxes only when you spend it; eliminate countless taxes you don't even know you're paying; lower interest rates; and make April 15th just another beautiful spring day."
The authors provide ample citations from the works of various economic think-tanks to back each of those assertions.
The Fair Tax would replace all current federal, income-based taxes with one universal, federal "consumption tax," on both goods and services, at the retail level only. There would be no exemptions whatsoever. The proposed, "revenue neutral," initial tax rate would be 23 percent. Predictions are that the resulting economic boom would make it possible to lower that rate in short order.
As described so far, the Fair Tax would be so regressive as not to stand a snowball's chance in hell of passage. Here's the solution.
At the first of every month, every head-of-household, irrespective of income/net worth, would receive a federal "pre-bate" check equal to the taxes due on his or her appropriate "poverty level spending" for the coming month. To quote the authors, "'Poverty level spending' is, by definition, that spending necessary for a household of a given size to pay for its necessities. It is adjusted every year by the Department of Health and Human Services."
For example, if the Fair Tax were currently in effect, every family of four would receive a monthly pre-bate of $491.82 to cover the 23 percent tax on its first $2,138.22 spent -- its "poverty level spending." All spending above that level (that month) would have a net federal tax cost of 23 cents on the dollar -- be it for sneakers or a yacht.
The federal sales tax would be collected by the states' sales tax offices. Moreover, don't forget that everyone's "take-home-pay" would be their full, gross earnings under the Fair Tax.
It is a most interesting, concise and thought-provoking read that can be knocked out in two or three sittings. Suggested full retail is $24.95. There is at least one copy available at the Camden County Public Library.
I hope that you and your readers will both enjoy the book and come to support the bill.
That's not glossed over. What it is trying to tell you is what I was trying to get across earlier - but apparently didn't.
What that says is that you'd pay the hidden taxes under the income tax or pay the sales tax under the FairTax which is just about the same. It says you'll pay now or pay later but the difference is with the FairTax you have some control over timing and amount especially since not all things are taxed. If you're expecting to get off scott-free under the income tax, even, that won't happen as I've explained.
You can disbelieve the effect of embedded taxes if you choose, but they are there and they cost you what is, in effect, a tax right now. In fact, with your Roth there's a good chance you'll be hit with some regular income tax on some of the withdrawals in addition to embedded tax costs - and you seem blissfully unaware of that. It's quite likely you'll pay even more in taxes including the hidden taxes under the present system than under the FairTax.
You get to choose your own poison but a real big difference is that with the FairTax the US economy will be greatly expanded and costs of things will decline whereas under the income tax they will just keep climbing.
The statement in the last sentence is quite true but you seem to not understand it - or perhaps don't wish to.
Oh, so you are back to assuming workers will accept wage cuts so that prices will stay the same? Otherwise prices go up, and people with savings will see the buying power of those savings significantly reduced. Just stick to one set of assumptions so I can keep track of how you are trying to mislead people.
You may have misubnderstood what was posted in #96. There is no "highway robbery". Quite the opposite.
For starters you have looked at only corporations and even then only a selected subset of them. The post clearly explains that ALL businesses and not just corporations are involved. In addition looking at taxes paid as a percent of revenue is not meaningful for the purposes of looking at embedded taxes. Taxes are paid as a percentage of "income subject to tax" and not a percent of revenue.
The examples of embedded taxes show that "tax costs as % of revenue" in the example is the significant figure and the term "revenue" in those examples is merely the selling price to the next level in the chain and not overall busines revenue. A better term to use would have been "tax costs as % of selling price" since it is limited only to the example in an illustration of how embedded taxes build up. It is these embedded taxes - however much they may be - that you would pay in the form of higher prices when you buy things under the present system and that would be in addition to any income taxes. Your accumulated wealth will be hit with this "hidden tax" even under the present system and the amount of tax that might be paid under the FairTax (when spent for taxable consumption) is roughly the same. Keep in mind that in the example, there are other types of costs that are not included such as compliance costs or the intangible costs of changes in business operations due to income tax considerations. These things merely increase the embedded tax costs beyone what is shown.
One big difference is, though, that under the FairTax you can, by judicious consumption, reduce your taxes since not all things are taxed where you cannot with the paying of embedded taxes under the present system. In addition with the present system you still have compliance costs and requirements wheras there are none for the taxpayer with the FairTax.
You haven't indicated how your reduction in purchasing power comes about since, in fact, you'll actually be seeing either no real change or an increase in purchasing power if anything. And you're also not factoring in benefits available to you as a consumer or investor due to increased economic activity brought about by the FairTax. Your savoings could be invested, untaxed, and do much better than at present for this reason alone.
I believe that the point the good Dr. was making is that $6 billion + $232 billion is completly wasted each year by our current tax system.
Again useing his words, "If these Americans weren't fooling around with the tax code, they could produce the entire annual output of the aircraft, trucking, auto, and food processing industries combined..."
The controversy is the 20% price reduction and what has to be eliminated to achieve it...giving up wages is only part of it.
Of course employee costs are not 100% of retail prices. We are not talking about reducing costs by 100%
Gross employee costs are part of the 20% cost savings. Check out Wal-Mart's income statement to see what they would save by not paying income tax.
And the 15% FICA tax is still part of gross employer cost. You have to pay your employee his gross wage, deduct part of that and remit it to the government and match the FICA portion. Whether you think the employer or the employee pays it, it is still part of the gross employer cost to have that employee work for you. If the employer pays for the employee's health insurance, the gross employee cost would increase by that amount.
The $232 billion is a total fabrication. I figure that maybe 50 million households file a 1040 at the most, others a 1040A, might take about 1 hour if you're really slow. So the 1040 might take 8 hours if you are a real dunce. 8 hours X $25 per hour (tax free) X 50 million is a whole $10 billion. The proponents of the "Fair Tax" dissemble at every point.
Rubbish, you're position is that the retail sales price of the goods will go down sufficiently to compensate for the sales tax added. Obviously, the retail sales price is that which gives the corporations their gross revenues. And the retail price is that which sets the amount of the "Fair Tax".
If corporate income taxes were eliminated, the corporations could reduce their sales price at most by the percentage cited (and in some cases would have to increase their sales price). I gave you a sampling of the largest corporations in the US.
If I did a thorough analysis, I suspect I would arrive at the same conclusion, companies pay a small income tax compared with their gross revenues. And if their income tax were totally eliminated, the retail price (= company revenue) would fall only slightly. My guess is in the order of 5%.
Apparently, you are trying to sell money for nothing. That is, the "Fair Tax" will eliminate personal tax liability, because the companies in the supply chain can reduce their prices sufficiently to compensate for any taxes added for the ultimate consumer - who will be receiving more take home pay. They will realize a great increase in their pay, right?
It could be that a typical wage earner comes out about equal in the shift. But anyone on fixed income (retirement, Social Security, etc), and anyone with after tax savings, would be a big looser. Their expenditures would go up by the added sales tax minus the corporate tax savings, and their income would be as it was before the change.
Typical response from those on your side. If it doesn't fit MY agenda simply dismiss it as a fabrication or declare it to have been discredited but NEVER cite a source for the claim. Nothing new here!
Under the FairTax prices will decrease a good amount. As I pointed out it is not only due to reduced embedded tax costs due to income tax but also due to reduced compliance costs as well as cost reductions due to the present intangible cost effects of the income tax system.
Your offering of gross revenue figures for large corporations is not meaningful since taxes are paid not due to gross revenue but due to the tax rate times the income subject to income tax as I showed (and for all types of businesses). A portion of this tax cost becomes embedded in the price of everything. Removing it does not prevent a busines from having as great a profit as before but merely changes how they go about it. If a business can't figure THAT out, they probably don't deserve to profit.
You and your SQL buds keep harping on corporations as though they made up all of the businesses that pay taxes. They certainly aren't. The FairTax eliminates personal tax liability insofar as the tax (and entitlement withholdings) is removed from the employee's check before he receives it and without any possibility of the employees having any decision in the matter. With the FairTax the employee has far more options available to him that are his choices - not the governments. It's called feedom.
The income tax IS totally eliminated under the FairTax along with several other types of taxes. prices will decrease (before being taxed if they are taxable when purchased at retail), and the country's economy will greatly expand. That's far preferable to keeping the present system with its throttling down of all things economic and its degree control/influence of a private citizen's affairs.
Nor will those on fixed incomes be a "big loser" since, keep in mind, prices would drop. The fixed income folks would do quite well:
http://www.fairtaxvolunteer.org/smart/faq-main.html#13
Gross employee costs are part of the 20% cost savings. Check out Wal-Mart's income statement to see what they would save by not paying income tax.$5.5 billion from $288 billion in revenue. So income taxes were less than 2% of their revenue.
Gross employee costs are part of the 20% cost savingsIf you want me to understand what you're trying to convey then use words properly. "Gross" means exclusive of deductions,total. "Gross employee costs" to the employer would have to include ALL the wages including any benefits.
So in order for a 20% wage reduction to become a 20% price reduction the wage would have to be 100% of the price...It's grade school math and simple logic.
That's true but it is not an argument in your favor. And benefit packages, regardless of who pays for them, do not enter into the equation because the FAIRTAX will not change them.
FICA plus FUTA is about 8.5% of labor costs. That means, that if labor is 30% of your costs, as in a typical business, then the combined cost of federal taxes is ~2.5% of your total costs - not a very big deal at all. Even in a service industry where your labor costs could hit 80% of your gross costs, the federal tax bite is still less than 7% of your gross costs. Again, just not a big enough deal.
And before you bring them up, forget corporate income taxes since most small businesses are partnerships, LLC's or S-corporations and don't pay them.
Finally, forget compliance costs. Most businesses' accounting concerns profit and loss, cost structure analysis, accounts payable, accounts receivable, payroll (yes, still reported to the SSA under the FAIRTAX), benefits management, etc. and none of that will change under the FAIRTAX.
No income tax! With the income tax comes the gestapo-like IRS. Abolish it.
Why? Retailers already collect sales taxes for states and cities.
Dude! The fair tax is the best tax idea to come along in a very long time. It ought to be inacted just to remove the IRS.
So what ... that's meaningless for the purposes of realizing that they have a lot of embedded tax costs in their prices.
You'll note that Wal-Mart paid income tax at the rate of 34.8% which is even higher that I've used in the embedded tax cost examples I've given. That would bump up their "tax costs as % of sell price" which is the figure that relates to embedded tax costs that would be removed with the FairTax.
Tax as a percent of revenue means nothing from the standpoint of the artificial boost in prices caused by BUSINESS income tax (not just corporate).
"And before you bring them up, forget corporate income taxes since most small businesses are partnerships, LLC's or S-corporations and don't pay them. "
Nonsense, balrog666. In the different examples I've given that show the effect of cascading, embedded tax costs and how they affect prices, I have always shown hem to be BUSINESS income taxes - not merely corporate. he mechanism of artificially boosting prices is the same no matter the type of business entity nor does it matter whether they report and pay on a Form 1120, 1120S, 1065, 1040 or anything else. Those are still taxes derived from businesses and they go to boost prices adding nothing but increased costs for the consumer. With the FairTax, those are removed causing prices to decrease.
Dude! Slapping an overnight 20% increase on retail prices on everything will kill the consumer economy in short order and a depression will rapidly follow.
What will happen in your neighborhood when rents go up 30% overnight, when food costs go up 20% overnight, when medical and prescription costs go up 20% overnight, when gasoline goes up 15% overnight, and your utility, cable TV, and internet service bills go up at least 15% overnight. And that's just the start.
I think the idea needs a great deal more peer-reviewed study.
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