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I have run the numbers. When I included the corporate income tax and employer's half of SS and Medicare I only came up with around 8%. I was begging for a reason why the 8% embedded tax I calculated was so different from the 22% the Fair Tax book stated. Even adding 1-2% for direct collection costs didn't get close. It turned out the difference was Jorgenson's allocation of the employee's SS, Medicare and income taxes to the employer's embedded tax.

Your numbers jive with what I have been saying for years, with 8% being very generous. It is amazing that it took some work of a freeper to get Jorgenson to finally admit what his assumptions were.

You haven't "run the numbers" that I was suggesting. Listed below is the example; put it in your own spreadsheet and use what you believe are good values for the two variables "tax rate" and "net profit %". The resulting figure at, say, level 6 of "tax cost as % of sell price" is the amount contained in prices of embedded business income taxes and includes no payroll/withholding, no compliance costs but only business income taxes.

Perhaps you're considering corporate income taxes only - that's a subset of all business income taxes.

Here's the example:

	    level	       1       2       3       4	5	6
init. cost  sell price	       $2.01	$4.05	$8.15	$16.40	$33.01	$66.44
    $1.00   cost               $1.00	$2.01	$4.05	$8.15	$16.40	$33.01
tax rate    profit before tax  $1.01	$2.04	$4.10	$8.25	$16.61	$33.43
 34.40%     tax	               $0.35	$0.70	$1.41	$2.84	$5.71	$11.50
	    net profit	       $0.66	$1.34	$2.69	$5.41	$10.90	$21.93
            net profit %       33.00%	33.00%	33.00%	33.00%	33.00%	33.00%

accumulated                    $0.35	$1.05	$2.46	$5.30	$11.01	$22.51
   tax paid
tax cost as                    17.31%	25.91%	30.18%	32.30%	33.36%	33.88%
   % of sell price

Note that in this example the intention is to get a 33% net profit and see how the "tax cost as % of sell price" builds up in only a few levels. In addition, let's say the example represents the classical "bread" example with: L1 = Farmer, L2 = Miller, L3 = Baker, L4 = Distributor, L5 = Grocer, L6 = Consumer. As can be seen, by the time we reach L6, the embedded tax ("tax cost as % of sell price")has reached 33.88%. This would mean that the consumer is paying a very healthy step-up in the price of bread due solely to embedded tax costs.

At any rate, taking the example and setting the net profit to 10% and using the very common (and perhaps even low) tax rate of 25%, you STILL end up with something like 14.4% tax costs as a % of sell price at Level 6.

	    level              1	2	3	4	5	6
init. cos   sell price	       $1.15	$1.33	$1.54	$1.77	$2.04	$2.36
    $1.00   cost	       $1.00	$1.15	$1.33	$1.54	$1.77	$2.04
tax rate    profit before tax  $0.15	$0.18	$0.20	$0.24	$0.27	$0.31
  25.00%    tax	               $0.04	$0.04	$0.05	$0.06	$0.07	$0.08
markup	    net profit	       $0.12	$0.13	$0.15	$0.18	$0.20	$0.24
  15.38%    net profit %       10.00%	10.00%	10.00%	10.00%	10.00%	10.00%

accumulated      	       $0.04	$0.08	$0.13	$0.19	$0.26	$0.34
   tax paid
tax cost as                    3.33%	6.22%	8.72%	10.89%	12.77%	14.40%
   % of sell price

To see how this works, let's look at the example with the 34.4% tax rate & 33% net profit % to see what happens to taxes as they progress through the chain of levels. In Level 1 there is $0.35 in tax paid (or accrued - either way). This $0.35 is (and must be) part of the Profit Before Tax and this entire PBT of $1.01 (which includes the $0.35 in tax) is passed on to Level 2 after it has had the L1 input of $1.00 added to it, making L2 input $2.01 (of which $0.35 is tax from L1 remember - which tax has been paid/accrued by the L1 business from the $2.01 in sales to L2). The $0.35 portion in L2 that represented tax in L1 is now boosted by the markup in L2 (a multiplying effect which multiplies the entire cost including the $0.35 from L1) and adds to the input cost of L2 to give a new tax of $0.70 which is passed along - still with what was originally a $0.35 tax from L1. The upshot of the mechanism is that the cascading taxes both multiply and add and when sold to an end consumer, say at L6, the tax cost as a % of revenue will be (in this case) 33.88% which would represent the savings from removing the business income tax.

If we take the commonly-described "bread" example you can still easily see that bread would be a good bit cheaper for the consumer - not even counting compliance savings - were it not for these caxcading, embedded taxes.

This is really what the embedded taxes discussion is all about and it has nothing at all to do with income taxes on wages. So to pretend that a single economist was making such rash conclusions or that he was the only one used for economic information by the FairTax folks is simply not true. As can be seen here, there is certainly room within the business income tax area for a good bit of price reductions particularly when compliance costs are included as well.

Let us know what values you used and how the numbers come out.