Posted on 02/20/2006 3:30:35 PM PST by Bigun
Written by Jan Larson
Sunday, February 19, 2006
The Internal Revenue Service reported [1] last week that $345 billion (not a misprint) in taxes owed for 2001 has not been collected. Not to worry, the report also indicates that IRS enforcement efforts will recover approximately $55 billion of this tax gap. Bully for the IRS.
Even if the IRS is successful in recovering the amounts they seek, there is simply no way that a $290 billion shortfall can be justified regardless of how it is spun. There are several reasons why taxes rightfully owed are not collected. Many taxpayers underreport income and/or claim undeserved deductions. In other words, a lot of people cheat on their taxes. Is anyone surprised?
Another factor that significantly affects tax compliance is the complexity of the tax code. According to a report [2] from the Americans For Fair Taxation [3], the federal tax code, rules and IRS rulings comprise more than 60,000 pages. While complexity undoubtedly leads to some paying more than they rightfully owe, that complexity also results in billions in unpaid taxes.
The report also indicates that individuals and businesses spent over six billion hours at an estimated cost of $265 billion dollars attempting to comply with the maze of tax rules and regulations. This is equivalent to a workforce of over 2.8 million people spending the entire year doing nothing but tax compliance.
To cover the uncollected taxes, the 130 million U. S. taxpayers are effectively subsidizing the tax cheats to the tune of over $2600 each. In other words, if the cheaters were prevented from cheating, the average taxpayer would see reduction in his or her tax bite by over 30%.
If the tax gap and compliance costs were in and of themselves not sufficient reason to scrap the tax code, the tax code also hurts the U. S. in other ways. The income and payroll taxes ostensibly paid by businesses (but are in fact simply passed along to consumers) make U. S. products less competitive on world markets. This leads to job losses in the U. S. and, as we also saw last week, record trade deficits. The complexity of the tax code also enables politicians to reward and punish via the tax code. This is probably the single worst aspect of the U. S. tax system.
The sheer lunacy of a tax system that fails to collect billions owed, enables political manipulation, hurts the economy and in general works against the taxpaying public is astounding.
There is a solution however. It is a solution that would eliminate individual compliance requirements and make April 15 just another day. This solution would greatly reduce business compliance costs and similarly reduce the size and scope of the IRS. This solution would lead to job growth and economic expansion. This solution would eliminate most of the opportunities for tax cheats and political manipulation. The solution? The Fair Tax.
The Fair Tax would eliminate all income and payroll taxes and would replace them with a national sales tax paid on the retail purchases of new goods and services. The Fair Tax protects low-income individuals and families by rebating taxes paid up to the poverty level.
The first reaction by many people to the idea of a national sales tax is that prices of goods and service would go through the roof. Under the Fair Tax, this is not the case. Consumers are already paying for the corporate income and payroll taxes embedded in the price of virtually all goods and services. It is estimated that these embedded taxes average approximately 22% of the retail price of goods and services. Make no mistake; you are paying these hidden taxes.
Under the Fair Tax individuals would incur no compliance costs and businesses would remit Fair Tax receipts similarly to the way state sales taxes are remitted today. No more armies of lawyers and accountants to figure out IRS regulations. The IRS (or some similar agency) would need to ensure compliance from just the approximately 25 million businesses instead of 155 million businesses and individuals, as is the case today.
Maybe most importantly, the Fair Tax would eliminate the patently unfair manipulations of the tax code that Congress uses to hand out favors to wealthy constituents and lobbyists. The elimination of the incentive and ability to tinker with the tax code would go much farther toward making members of Congress more ethical than any other type of reform.
The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The House version already has 48 cosponsors. The Americans for Fair Taxation estimate that it would require just 3000 active supporters in each congressional district to make the Fair Tax a reality. Each of the 435 districts represents approximately 300,000 taxpayers. That means that if just one percent of taxpayers became vocal supporters of the Fair Tax and took the time to write and/or call their representatives in Washington, the Fair Tax could become law.
The Fair Tax would be the most significant tax reform since the Boston Tea Party. Dont leave this reform to others. Take a few minutes to let those in Washington know that the time for the Fair Tax is now. Think about that as you pore over your 1040 this year.
[1] http://www.irs.gov/newsroom/article/0,,id=154496,00.html
[2] http://www.fairtax.org/pdfs/Tax_compliance_facts.pdf
About the Writer: Jan A. Larson is currently employed in private industry in Texas. He holds a bachelor of science degree from the University of Nebraska, a master of science degree from the University of Kansas, and an MBA from Colorado State University. jan@pieofknowledge.com.
"Right. You say something exists and I'm suppose to prove it doesn't. That's what's known as "proving a negative.""
Guess you're miffed because you think I'm using the tactic you seem to prefer.
Are you trying to say Nightie that, somehow, your mythical "business" is able to sell in a way that DOES NOT include the tax component??? REALLY??? How is this accomplished? Perhaps you're just saying it doesn't matter how the selling price is derived somehow?
So you can't give us an example that shows business does not embed taxes in prices. That's hardly a surprise. I've showed you the mechanism of cascading embedded taxes. It's your problem if you don't understand it. You've never offered an example showing a non-cascading non-embedded income tax. Since you're so sure I'm wrong, present one.
"... TAX, at any level, HAS NOTHING TO DO WITH INPUT COST !!!!! ..."
Actually Dimp-Dimp, one of your dumber statements. You are basically saying that taxes are not passed on in the form of costs to the next level. Nonsense!
" YOU KEEP INSISTING THERE ARE OTHER COSTS in the equations ... costs that NO ONE, NOT EVEN YOU have been able to identify or quantify ... costs that add NO MORE to the price of a product than the ACTUAL TAXES (and compliance costs) PAID do."
Even more nonsense. You merely persist in trying to put words in my mouth. What I have said (if you stop misstating my example) is that the taxes cascade and embed at each level and compound when passed to the next level. The example also clearly shows that these compounded, embedded taxes are the ones that appear as "tax costs as % of sell price" in the example and which can be removed with the onset of the FairTax (in addition to other costs).
These other costs are things like compliance costs and the ER portion of payroll taxes perhaps but unlike you I've never tried to say they will be x% but have used your own assessments for them. They are certainly additional costs over and above the cascaded income taxes.
Since you don't like my estimate of 15% on Nightie's example why don't you adjust the "real world" example to not have the bias it does and tell us what the percentage is (if not about 15). Be sure to double the profit margin since that doubled one is what he has claimed is "real" (but only used one half that high) and also drop out a couple of he marginal businesses he included so that the percentage of marginal businesses represent the same fraction in the chart he claimed was "real". He has 3 times as many marginal businesses. Do those things, Dimp-Dimp, and tell us what your "real world" number might be.
Input cost has nothing to do with the amount of tax due (if any) at the end of the day (other than if costs exceed price, then no tax is due.)
You STILL have failed to show a SINGLE example of a price reduction that is larger than the ACTUAL TAX (and compliance cost) paid.
If there is ANY cascading going on, such an example should be SIMPLE to construct.
Problem is YOU CAN'T, because there is NO CASCADING. Go ahead TRY it.
The "tax cost as % of sell price" in my example actually includes the cascaded amounts which is why their removal allows price to drop by that much ...NONE of your examples show any cascaded (multiplied) costs! ALL they show is how much ACTUAL tax is paid! Where's the "cascaded" amount over and above the ACTUAL tax paid??? (hint: there is none!)
Again, You've NEVER shown ANY example where prices will drop by MORE THAN THE ACTUAL TAX PAID. NOT ONCE!
It actually sounds now Dimp-Dimp that you are agreeing that prices will reduce when you say:You ARE dense. I've ALWAYS maintained that pre-tax prices will decline by NO MORE than that ACTUAL taxes and compliance costs ACTUALLY removed. AND that such a decline amounts to an average of NO MORE than 7.5% --- and is LIKELY LESS (around 5%) because NOT ALL savings will be passed on as price reductions. As a result, COMPARABLE after-tax prices will RISE by an average of 24% ... and I've provided REAL economic data to back that up, not some fantasy mechanism that purports to show something it does not."... prices decline by PRECISELY the amount of the ACTUAL TAX paid ..."
... Taxes are based on profits but are not a part of them but a separate thing ...Keep talking. The more you say, the more clueless you look.
You are basically saying that taxes are not passed on in the form of costs to the next level.No, that is NOT what I'm basically saying (weren't you just accusing ME of putting words in your mouth?) Tax is NOT calculated on the the amount of INPUT cost; it's calculated on the amount of PROFIT! For the SAME input cost, profit can be ANY amount (negative, zero, or positive!) the tax is calculated on the PROFIT amount REGARDLESS of what the input cost is or what components are embedded in it.
NONE of you examples show even a single PENNY of a cascaded amount. If they did, you'd have quantified that amount by now just to prove how much cascading adds to the ACTUAL tax paid. You haven't, because you CAN't, because THERE ISN'T ANY "cascaded" AMOUNT!!!
"... AND that such a decline amounts to an average of NO MORE than 7.5% --- and is LIKELY LESS (around 5%) because NOT ALL savings will be passed on as price reductions. As a result, COMPARABLE after-tax prices will RISE by an average of 24% ..."
You've certainly not provided real economic data to back that up and if you'll re-do Nightie's example with the modifications I suggested, you'll find out quite a different percentage. But then I don't expect you to do that since you like the little dream world you're in.
My belief is that disposable personal income to remain about the same or perhaps slightly increase over the short term - which certainly flies in the face of your "price increase" nonsense since you don't take both greater income and lowered prices into account but try some sort of 30%-6% simple arithmetic to promote a meaningless figure. Won't happen.
Stop putting words in my mouth. My example clearly shows that taxes are calculated based upon profits (DUH!!) but that those tax costs get passed on to the next level and are multiplied there showing up at that next level in "tax cost as % of sell price". Each of the levels in my example shows this effect while in he unreal example of Nightie this is obfuscated by has manipulative selection of numbers. The actual tax paid includes the cascaded amounts and my example shows this. That's why when income taxes are removed the prices will drop.
Redo Nightie's example as I said to make it more nearly "real" and see what comes out the end.
You've certainly not provided real economic data ...The amount of corporate profit tax (about $200 B) is real;
It doesn't get any more real than that.
... but that those tax costs get passed on to the next level and are multiplied there showing up at that next level in "tax cost as % of sell price" ...Multiplied by WHAT, exactly?
Producing WHAT amount, exactly?
How is that amount DIFFERENT, exactly, from the ACTUAL TAX PAID to government?
And by how much, exactly, will price drop, IN EXCESS OF ACTUAL TAX (and compliance cost) PAID? (Please point to that amount in ANY example: yours, Your Nightmare's, ANY example!)
True story: Client was paid SSI benefits due to living in care facility. Parents received SS payment for the same client. When the father died then the SS realized their mistake. Approx $400 per month for 25 years=$120,000.
Sorry forgot your quote. Now my post should make more sense.
and what about the UNDER THE TABLE Illegal workers in this country???
The "tax cost as % of sell price" in my example actually includes the cascaded amounts ...Really? a moment ago (in Post #524) you said:
You've completely missed the point that the "hidden taxes" are not taxes at all, but artificially-increased prices caused solely by the business income tax and compliance costs.In your example the "tax cost as % of sell price" is EXACTLY equal to the amount of ACTUAL TAX PAID. Where is the "cascaded amount?"The "hidden taxes" themselves (since they are not taxes but unproductive price increases) do not need to be replaced by a revenue neutral FairTax.
So which is it? do the ACTUAL taxes paid include "cascaded amounts" or do they not? The only way BOTH are true is if the "cascaded amounts" equals ZERO!
That backs up nothing Dimp-Dimp. Those are just meaningless figures you've pulled out of wherever you pulled them out of.
Those numbers may be real, but so are 23%, $500 Billion, $35 Billion, 21 million, and 7.92 - as is 10.5%.
Abnd BTW the Tax Foundation isn't MY source but even if it were, SO WHAT??? Throwing figures areound as yoiu lobve to do is a meaningless exercise. And once again I note you are using the old caveat of "corporate profit tax" as though it represented all businesses.
Like I said - your "numbers" are meaningless as are most of your arguments.
You buffoon. You seem to have "forgotten" that I've always said my example was merely about illustrating the mechanism of embedded cascading taxes to show there is a good bit of leeway for price decreases. I've specifically told you - several times, in fact, that I'll offer up no values to attack since it is the mechanism I'm illustrating and the numbers will be whatever they end up being - which neither you nor anyone else "knows" (though it makes you feel superior to pretend you do).
If you want "numbers" to attack, go take Nightie's example and correct it as I directed so that it is more likely to have a relation to reality. Then you can go argue with him about his numbers since that seems like all you wish to do.
The difference between you and me is I look at REAL data to draw MY conclusions, you look at a spreadsheet of an admittedly UNREAL example that can't possibly be used to conclude ANYTHING about how pricing operates ... and then guess.
And once again I note you are using the old caveat of "corporate profit tax" as though it represented all businesses.You really CAN'T read, can you?
...Note the second line: non-corporate business, $100 B, this comes directly from Tax Stats.The amount of corporate profit tax (about $200 B) is real;
the amount of non-corporate profit tax (about $100 B) is real;...
your "numbers" are meaningless as are most of your arguments.Let's see, my data, from real published, uncontraverted sources is "meaningless" and your spreadsheet that, according to you, is not meant to represent ANYTHING real, is the key to knowledge?
Get serious!
It's neither or both, Dimp-Dimp. It is as I showed in my example. The taxes cascade in the next level and are at that point merely increased costs of things due solely to taxes from the prior level. Once the business pays income tax on his profits (if he does) the income taxes accumulate and include the cascaded amounts. If there is no income tax paid, there is no reduction of the input cost which has been artificially raised solely due to taxes which means that prices remain artificially elevated due to the cascading.
Also keep in mind that I have never attempted to include compliance costs into the example. That doesn't mean there are none. It also does not mean that taxing all businesses at the same rate even when losing money is realistic - another problem your boy Nightie has with his example.
Go harrangue him with your nonsense. His example after all is "real world" (he says) yet you seem unable to view it critically at all. Does that mean you think it's correct?
I realize that you'll never understand the mechanism involved though lord knows you've had ample opportunities to do so. I see no reason to waste more time on you. You just keep stumbling along trying to dredge up any old thing to attack.
You've already admitted being a die-hard supporter of Status Quo so everything you come up with has to be viewed through that distorted prism.
But then you've know that all along, haven't you. Perhaps that why, after SIX year of asking, you've NEVER, EVER been able to even hazard a GUESS at how much those "embedded cascading business tax costs" might be. Not a clue; not wild a$$ guess; not a single authoritative source ...
... nothing but pigdog's magic glasses that let you see things that aren't actually there.
I guess without your delusions, you'd have nothing at all.
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