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This is stream of consciousness.....pardon the rambling nature......I need to think about this some more and post a more coherent rant.....later.

I've not read the study, but as a FairTax supporter, Jorgenson's methods strike me as bizarre. Salaries and wages are set by the intersection of the supply and demand curve, not the tax bill of the employee. The tax bill of the employee is of no concern to the employer and any suggestion that the tax bill of the employee is transfered into a product cost is just, well, crap.

If the tax burden was transferred, think about what that would mean: wages and salaries would be set by the employees tax burden. Workers doing the same job would be paid different salaries, based on their associated tax burdens. Each worker on an assembly line would get a different paycheck. Clearly, that's not the case.

Here's my view: The 22% embedded tax rate is a short hand way of explaining two critical concepts simultaneously: revenue neutrality and the incidence of the corporate tax. While the standard explanation is not absolutely correct, Nominal price is a term that the majority will understand. Very few people have the background in economics or care to examine the proposal at any depth. So speaking in terms of real prices or real wages or purchasing power would just cloud the issue. Most simply want to know whether they will be better or worse off. That's why Nominal price is the best way to explain the following:

Because the FT is revenue neutral, it will extract no more from the economy than the current system, meaning the net purchasing power of the American people will remain unchanged, the tax wedge is unchanged. The incidence of the corporate tax is impossible to quantify or predict. When the corporate tax is repealed, pre-tax prices will probably drop a little, wages will probably increase a little, and stockholders return on investment will probably increase. When the personal income tax and the FICA/Medicare tax is repealed, take home pay will increase. The net effect is that when the tax is imposed on the goods, the purchasing power, or the ability to purchase a standard market basket of goods will remain unchanged. The difference is that the tax burden is fully visible.... no hidden tax component in price, no downward pressure on wages or return on investment.

Because the FairTax repeals the most regressive tax we inflict on ourselves, the Payroll tax, those at the lowest end of the earning spectrum will see an increase in purchasing power. Conversely, those at the upper end of the spectrum will effectively have all of their earnings subjected to the FICA tax. Likewise, those earning their beer money from tax free sources like Muni bonds or drugs/prostitution, will now pay their fair share of the tax burden when they spend their money. If memory serves, Ta-Ray-za Heinz Kerry Heinz paid an effective rate of 13% under the income tax scheme.....lower than my effective tax rate.

Someone has to pay the tax, but who? To the extent that individuals currently pay income tax / FICA / Medicare tax, they will pay tax when they buy goods. The nominal after-tax price of their market basket of goods will increase, but their purchasing power should keep pace. The people who will suffer a reduced purchasing power are those at the upper end of the earning spectrum. Is this clear as mud?

No system is perfect, but the FairTax is the best alternatvie I've seen.

I've not read the study, but as a FairTax supporter, Jorgenson's methods strike me as bizarre. Salaries and wages are set by the intersection of the supply and demand curve, not the tax bill of the employee. The tax bill of the employee is of no concern to the employer and any suggestion that the tax bill of the employee is transfered into a product cost is just, well, crap.

It was not a suggestion, it was an assumption. Jorgenson made that assumption to make his modelling easier. It was the cleanest way to extract all the taxes out of the price and keep everyone's take home pay the same. If Jorgenson had to model price increases and increases in take home pay for certain people, it would have made the model more complex. He would have to model behavior of people who seen the buying power of their nest egg dwindle. The real world effects are complex as most people (workers) will probably see more buying power while business owners and retirees will probably have less buying power.