The Fair Tax: Stop the Tax Cheats

chronwatch.com ^ | Feb. 19, 2006 | Jan Larson

[pigdog]

Careful - you'll force him to take his socks off ... and you know what THAT means ...

[Always Right]

Because at this point we're just wandering in circles. Suffice to say there is enough tax slack in the system to allow both real take-home wages to increase, and prices to decrease, under Fairtax.

Only if you blurr the term marginal tax rate to mean effective tax rate, and effective rate of income tax to mean effective rate of gross sales. Otherwise the fairtax numbers really don't add up. There is no free ride of everyone ends up with more money and prices come down. That is a fairytaxtale.

[BubbaTheRocketScientist]

And you base this belief on what?

On all the research, insightful arguments, and illustrative spreasdsheets I have posted in this thread today, in leiu of doing any productive work.

[BubbaTheRocketScientist]

Otherwise the fairtax numbers really don't add up. There is no free ride of everyone ends up with more money and prices come down.

I spent the better part of the day putting together spreadsheets based on reasonable assumptions which show exactly how it works. Shall we go over it again?

[Always Right]

I spent the better part of the day putting together spreadsheets based on reasonable assumptions which show exactly how it works. Shall we go over it again?

I've spend six years showing that the numbers that the fairtax promises don't add up. You can't have all the tax savings going to both raise take home pay and lower prices. The savings can only go to one place. There simply are not enough dollars saved to reduce prices 20 percent and allow everyone to keep 100 percent of their current gross pay. Not even close.

[BubbaTheRocketScientist]

I've spend six years showing that the numbers that the fairtax promises don't add up.

I'm not familiar with the specific promises to which you are referring.

You can't have all the tax savings going to both raise take home pay and lower prices. The savings can only go to one place.

Of course not. Obviously the total tax savings will be divided between increases real take-home pay and decreases in product prices - an economic equilibrium would be reached. However, the total tax savings includes not only "obvious" personal income taxes, but also the employer payroll taxes, corporate taxes, compliance costs - not to mention the opportunity cost of having trillions of dollars of capital locked up in tax-deferred arrangements.

There simply are not enough dollars saved to reduce prices 20 percent and allow everyone to keep 100 percent of their current gross pay.

Who said there would be? I'd be happy to double-check their calculations for you.

[Your Nightmare]

You disagree with the concept? Walmart has 1.8% of sales embedded as taxes. Suppose Walmart's suppliers have another 1.8% of their sales (measured as a percentage of retail value, just for convenience so it's fair to add the percentages together) embedded as taxes.

That wouldn't be cascading taxes, that would be accumulating taxes. Cascading happens when you tax a tax on multiple levels. That isn't happening here.

What's happening in pigdog's first example is that profits are accumulating at an execrated rate in nominal terms because he is using a set profit margin for every level. If you look at final price of $66.44, $65.44 is the sum of all the profits throughout the chain!! There is only $1.00 of value added costs in the whole damned chain.

It's not surprising that $22.51 of the $66.44 product price is taxes when profits are $65.44 of it!

[BubbaTheRocketScientist]

What's happening in pigdog's first example is that profits are accumulating at an execrated rate in nominal terms because he is using a set profit margin for every level.

I don't understand your point. A wholesale company's tax costs are reflected in the price of that company's products at wholesale. The retailer buys, incurrs it's own tax costs, and passes all of it on to the consumer. The final retail price includes corporate taxation at every level in the supply chain.

[Your Nightmare]

I don't understand your point. A wholesale company's tax costs are reflected in the price of that company's products at wholesale. The retailer buys, incurrs it's own tax costs, and passes all of it on to the consumer. The final retail price includes corporate taxation at every level in the supply chain.

That's a simplistic view of pricing, but for argument, let's assume you are correct. In pigdog's example, no one except the first level has any value added to the product whatsoever. They only have the cost of the input (which is, except for $1.00, only profits from the previous levels) and profits (which makes me wonder why the first level doesn't sell straight to the customer). The actual value of the product hasn't changed - it's still just a $1.00 product with $65.44 worth of profit tagged on to it. Nice gig if you can get it, but it's not very realistic.

If you look at each level, the accumulated tax paid is the same percentage as the accumulated profits. If this were cascading, the effective rate would be going up because you would be taxing a tax. The effective rate could be higher than the statutory rate.

Basically, this is a POS example pigdog threw together to look like something is going on that isn't. Notice how the "tax cost as % of sell price" gets closer and closer to the tax rate. It will keep getting closer and closer but never get above the tax rate as accumulated profits in his example come closer and closer to being 100% of the price.

[BubbaTheRocketScientist]

They only have the cost of the input (which is, except for $1.00, only profits from the previous levels) and profits (which makes me wonder why the first level doesn't sell straight to the customer).

Ever worked in a distribution business or field marketing organization? You'd understand why.

Basically, this is a POS example pigdog threw together to look like something is going on that isn't.

Uhhhhhhhhh, he pretty much admitted it is illustrative of the concept, but not exact, in his post.

New question: are you against Fairtax in particular, NRST in lieu of income tax in general, or both?

[Your Nightmare]

Ever worked in a distribution business or field marketing organization? You'd understand why.

I'm assuming distribution businesses and field marketing organizations actually have employees, and buildings, and trucks, and telephones - stuff like that. Am I right?

Uhhhhhhhhh, he pretty much admitted it is illustrative of the concept, but not exact, in his post.

And what, exactly, does it illustrate. It doesn't illustrate that business taxes or tax costs or whatever they're called today, cascade - because they don't. (If they did, don't you think we would have heard about first from someone other than pigdog? Maybe Milton Friedman, but not pigdog. He didn't make some new discovery - what he thinks he discovered doesn't exist.)

We know the FairTax base and we know how much is collected in business income taxes and the employer portion of payroll taxes. We can calculate the percentage that these taxes are of the FairTax base. No spreadsheet showing any real phenomenon is going to show that these taxes are a greater percentage of prices than that number.

New question: are you against Fairtax in particular, NRST in lieu of income tax in general, or both?

Both. A NRST will never work. The rate will be too high to enforce. And I am really against the way the FairTax is being hawked with lies, half-truths, and conjecture.

[FreeKeys]

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[Your Nightmare]

Here is a more realistic illustration with actual value added at each level and costs other than inputs. It also has one company breaking even and another, the retailer, losing money. Notice how the "Accumulated Tax as % of Price" fluctuates up and down with the profit margin? This wouldn't happen if there was cascading.

Level	1	2	3	4	5	6
Selling Price	$ 2.47	$ 4.11	$ 5.04	$ 9.17	$ 14.55	$ 17.05
Inputs	$ 1.00	$ 2.47	$ 4.11	$ 5.04	$ 9.17	$ 14.55
Cost of Value Added	$ 0.96	$ 1.01	$ 0.78	$ 4.13	$ 4.31	$ 3.78
Total Cost of Sales	$ 1.96	$ 3.48	$ 4.89	$ 9.17	$ 13.47	$ 18.34
Gross Profit (Loss)	$ 0.51	$ 0.63	$ 0.15	$ -	$ 1.08	$ (1.28)
Income Tax @ 34.4%	$ 0.18	$ 0.22	$ 0.05	$ -	$ 0.37	$ -
Net Profit	$ 0.33	$ 0.41	$ 0.10	$ -	$ 0.71	$ (1.28)
Net Profit Margin	13.5%	10.0%	1.9%	0.0%	4.9%	-7.5%
Accumulated Tax Paid	$ 0.18	$ 0.39	$ 0.44	$ 0.44	$ 0.81	$ 0.81
Accumulated Tax as % of Price	7.10%	9.51%	8.76%	4.82%	5.58%	4.76%

[BubbaTheRocketScientist]

And what, exactly, does it illustrate. It doesn't illustrate that business taxes or tax costs or whatever they're called today, cascade - because they don't.

Okay, if those tax costs are not passed down the supply chain, where do they go? They just magically disappear into the ether beacuse they're not being levied on a direct retailer?

Maybe Milton Friedman

Maybe Miltion thinks it's such an obvious point it needs no explanation. Perhaps you should ask him?

[wintertime]

When someone explains to me how my father, who spent a lifetime paying income tax and now pays virtually no tax on a fixed income, doesn't get totally screwed by a 20%+ sales tax, I'll jump on board. ( dollar-dog)
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

To dollar-dog,

Your dad is paying plenty of tax. It is embedded in everything that he buys. The cost of the manufacturer's tax compliance and all his taxes inflate the cost of everything he buys or uses.

If there were a fair tax, the cost of everything he buys and uses would go down.

[pigdog]

I'm not "assuming" anything ... YOU are. I've never mentioned "guest workers"; you have. You're merely trying to inject some BS into the discussion.

The bill is clear enough in what it say, I think. I'll let the court interpret it, not some jacklegged Squirrel with an agenda.

[pigdog]

The "fairytaxtale" is the woefully lacking set of misinformation you of the SQL Squad keep proffering.

[pigdog]

There you go again, tryoing to plant some straw man claim of "x%" again as an "impossible" decrease.

However many years you may have spent offering up invalid claims, Rightie, there have been many more FairTax supporters rebuting your claims and showing you to be wrong. Still are.

[pigdog]

I see that Nightie is illustrating his lack of understanding of what the cascading example shows. that's pretty typical.

I also wonder if he really knows what "execrated" means ... he's such an onager!!

[Your Nightmare]

Okay, if those tax costs are not passed down the supply chain, where do they go? They just magically disappear into the ether beacuse they're not being levied on a direct retailer?

The incidence of the corporate tax is one of the mysteries of economics. It can be borne by labor, capital, or consumers. Of the studies I've read, I can't remember one that says it is borne by consumers. Most say the incidence is on mainly capital (the investors), but may be shifted to labor (through lower wages).

Alan Auerbach recently wrote "Who Bears the Corporate Tax? A Review of What We Know." It gives a good overview of where the thought currently is on corporate tax incidence.