That's because the coat will cost you $130, not $123.
When viewed from the exclusive rate, which is how sales taxes are charged and how this question is framed, the FairTax rate is 30%, not 23% (which is the inclusive rate.)
And that's part of the point: we certainly want people to understand the huge bite that taxes take out of our economy, and seeing a 30% national retail sales tax will certainly get some attention.
(I am in favor of replacing our income tax scheme with a national retail sales tax, but the FairTax has provisions that I don't care that much for. I can support it and I do since it is still far better than the income tax, but I would much rather see a NRST without a prebate. I think the rate could be far lower than 30% if that were to occur.)
As to some sort of general deflation occuring if we were to remove the income tax (which is what the article is suggesting), that's not likely --- I hope. Deflation, as the Japanese can tell you, and our ancestors could also, isn't all cakes and tea.
Pricing isn't a direct function of seller costs; seller's costs do have some bearing since they set a rough sort of floor, but prices are what the market will bear, not what it costs a producer. If prices were simply based on producer costs, all major brand breakfast cereals would cost far less... ;-)
...as long as prices exceed costs as a rule.
A business must generate revenue sufficient to pay expenses. The only indefinite revenue stream they get is from sales revenues.
To say expenses play a part in prices is accurate. Connoting that prices do not include all expenses is not.
Right.
That's because the coat will cost you $130, not $123.
Uh, nope, it's now $77 plus 30% ($23) which equals WHAT? Will it have a $77 price tag with people expecting to pay the 30% on top of that, or a $100 price tag with people assuming the federal part of the tax is already included? I'm not sure.
Q: I know the FairTax rate is 23 percent when compared to current income taxes. What will the rate of the sales tax be at the retail counter?A: 30 percent. This issue is often confusing, so we explain more here.
When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” If that were the case, for $100 one earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.
Sales taxes, on the other hand, are generally quoted tax-exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax. This is a 30-percent sales tax.” Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.
-- from FairTax FAQ #47
The $130 number is not correct either for all the reasons just stated in $#38,
In fact, the tax inclusive revenue neutral rate right now is about 19-20% ratjer than 23. that's make the t.e. rate something like 23-25%.
Without the prebate the t.i. rate would be about 3% lower so I really don't think the description "far lower" would be appropriate. This (the 3%) has shown up in several studies BTW and seems to be fairly well agreed-upon.
Wih the removal of the income tax there will actually be (rather than a deflation) a very significant economic boom which helps almost all of us.