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. Don’t 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.
Does your post have some point???
The higher prices caused by embedded taxes are not taxes paid by the purchaser, ----but a higher price than he might have otherwise paid--- due to the seller's having had his costs raised by embedded taxes. The seller would already have borne this higher price in his incoming cost of goods. The portion of this higher price due to embedded taxes in the $100 example might be, say, $10 or $20. The profit on this higher amount using a 25% seller's margin would be something like (using the higher $20 amount) $20 x 0.25 = $5. The tax on this $5 would be something like $5 x 0.15 = $0.75 in tax "contribution" from the underground economy due to embedded taxes (or perhaps $3.75 optimistically in the buyer's favor in viewing the whole transaction) instead of $100 x 0.23 = $23.00 under the FairTax.So presently when the underground economy makes a purchase they, as if by magic, don't pay any hidden/embedded taxes which aren't really taxes just higher prices as a result of embedded taxes, which aren't really taxes just higher prices as a result of embedded taxes, which aren't really taxes just higher prices as a result of embedded taxes.In view of that, Looey, it's fair to say that the present system basically does not tax the underground economy due to embedded taxes since the FairTax obtains about 30 times more revenue on the same transaction than the embedded tax contribution under the income tax.
There's no "magic" about it, Looey, but I didn't expect you to understand the description ... and you last paragraaph comments indicate that you certainly do not.
Now, back to your #619 - was there some point to your post???
Ignoring your first 6 of your "no clue" comments as just more of your spleen venting (which you seem to so enjoy), the 7th one is answered by reading (with some understanding which is why you have no answer) the example. The example was always about the mechanism involved, not the specific numbers.
You merely wish to make it a numbers game so you can spout more endless trivia about "your numbers". IOW you wish to proclaim that you are rignt any anyone not agreeing with you is wrong and - somehow - mentally deficient amd must conclusively prove you wrong (using "your numbers", of course). I've told you that's preposterous nonsense. Your not being able to recognize the cascading effects of taxes and their embedment into prices is only because you choose to pretend otherwise.
You're welcome to play whatevesr silly little game you like but the taxes DO cascade and become embedded into prices no matter how you choose to misstate things.
That's what I said in my FIRST post on the topic almost 5 years ago, it's what I've said ever since. Your INABILITY to COMPREHEND what has been said is the problem here.
You have NEVER, NEVER, (did I say NEVER) been able to show ONE CENT of other savings from you're so-called "embedded cascading hidden tax costs" that weren't ACTUAL TAXES, ACTUAL PROFITS or ACTUAL BUSINESS COSTS; not one cent!
You refuse to answer any question about how big the savings are because YOU CAN'T FIND ANY!!! You see some "mechanism" at work but CAN'T CALCULATE ANY EFFECT, because THERE IS NONE!!!
Yes, I am discrediting YOU, your "mechanism" and any bogus claims that there are more savings to be had in the system than there really are.
Notice that you've offered not one solitary refutation. Your ONLY defense is the "because I said so" rebuttal. Unfortunately, you have neither the credibility, the understanding, or the skills to actually be considered an authoritative source on ANY topic, let alone this one. You never actually engage in any substantive debate because you AVOID EVERYTHING said to you.
You know, it's no surprise you're so mesmerized by the FairTax ... you and it have a lot in common: your arguments are built upon a foundation of FICTIONS, MISREPRESENTATIONS, even outright LIES. Kind'a like two peas in a pod.
I've asked you REPEATEDLY to make up ANY EXAMPLE that shows ANY savings from "hidden taxes" or "cascading" that isn't ACTUAL TAX PAID, ACTUAL PROFIT, or ACTUAL BUSINESS COST. Use ANY numbers you want!
You see, it IS a numbers game because you are making a claim about NUMBERS (prices) being TOO HIGH because of some fictitious "mechanism" only YOU can see. It is YOU who claim that NUMBERS (prices) will drop by some unknowable amount which even YOU CAN'T EVEN EXEMPLIFY.
There's nothing there, pigdog, despite your sacred visions. And every time you refuse to show us all WHERE it is, and HOW BIG it is ... even in a MADE UP EXAMPLE ... you prove again that there's really NOTHING THERE!
"... taxes and compliance costs removed by the FairTax amount to no more than 7.5% of aggregate prices, prices can drop NO MORE than 7.5% ..."
]
... and try to fool others by adding a claim intended to boost your own pre-eminence by saying:
"That's what I said in my FIRST post on the topic almost 5 years ago, it's what I've said ever since. "
... in fact what you said at that earlier time, Dimp-Dimp was:
"... In summary, while the NRST will likely result in a reduced prices (on a cost-before-taxes basis), it appears that the magnitude of such reductions will be no more than 10.5% to 13.5% ..."
Now of course that assessment of yours was done using your own specious numbers, questionable assumptions, and threw in for good measure the additional de rigueur predictions of financial catastrophe (unemployment, loss of disposable personal income, and general malaise). That's called the Chicken Little Economic Attack and yours is hardly the first we've seen (and, no doubt, not the last), but it does seem to me (being a country boy and not much fer ciphers) that 10.5 to 13.5 is bigger than 7.5. But, hey, who's to quibble since they're only numbers and not anything meaningful.
So read my example and see what I actually said about the subject as opposed to your own hyper-ventilation. In fact let me put a couple of the pertinent passages here from #323:
"On earlier threads I've given examples to show the cascading, embedded tax mechanism and how it works so I'll give it below again for your interest, but keep in mind this is to indicate how this sort of thing happens. I've never presented this illustration as a claim of any particular hidden (embedded) tax rate. The example does make it clear that there is a good amount of room for price reductions when business income taxes are removed. How much is not yet known but I would imagine that some studies are going on to try to pin this down more explicitly."
... and this ...:
"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."
And just so we're clear in view of your penchant for developing straw men out of what I have not said, note the the 33.88% is merely the rate in the example and not offered as any sort of actual rate ... it is an illustration of the mechanism (is there an echo in heree?).
As can be seen from the example, your phantom straw man claims are just that --- nonsense. I'm sure you'd have liked me to have those claims in the example, but they are not there.
In fact your toadie Nightie with his malformed and biased "real world" (so-called by him) example points to even substantially higher percentage in his "real world" than your claims and as I've pointed out by correcting his example to make it more nearly "real world" by using the net profit he postulates as an average rate and by making the marginal businesses in the example in proportion (something like 1 iof the 6 rather than 3 of the 6) to the real data he claimed as showing that, the figure would be a good bit higher indeed. You'd better get him back on the reservation since his words discredits you almost as much as do your own.
And I've told you repeatedly (in answering your foolish assertions) that I'm not in the business of giving you numbers to snipe at and that is not the intent of the example which merely shows the mechanism of cascading embedded taxes. Correct Nighties example as I've sugggested if you want some "real world" numbers and you can go argue with him till the cows come home.
It will do you no good to continue such an inept, one sided set of assertions as though there is some sort of argument going on that you are "winning". That's not what things are all about. Let's not forget that many of your toadies still think (as probably you do) that prices will rise, wages will decline, and the sky will fall. You fruitcakes seem to think Chicken Little was right.
If anything, Dimp-Dimp, you're discrediting yourself for anyone who can read the example.
10.5% if ALL compliance cost savings, INCLUDING savings by INDIVIDUALS was applied price reductions across the GDPSince then two things relevant to the analysis have changed:and
13.5% if ALL tax and compliance savings, INCLUDING savings by INDIVIDUALS, for the entire GDP was applied to price reductions IN JUST THAT SECTOR!!!!
First, the Bush Tax Cuts have REDUCED the amount of tax costs in prices: Individual income taxes have gone down reducing the tax burden in non-corporate business prices,) Corporate income taxes have gone down(reducing the tax burden in corporate business prices,) and even Payroll Taxes have gone down as a % of GDP/Prices (reducing the ER Payroll tax burden in ALL business prices.)These two changes combine to lower the original 10.5% estimate to 7.5%.Second, ONLY business compliance cost savings (and not individual savings) can be applied to price reductions
The 13.5% price reduction for JUST THE CORPORATE NON-FINALCIAL SECTOR was NEVER possible because it required ALL savings from the ENTIRE GDP (AND individual compliance cost savings) be applied to JUST THIS SECTOR. I included it in the discussion just to prove that 20% minimum price reduction claimed by the FairTax was NOT AT ALL POSSIBLE: you couldn't get 20% even if you applied ALL the possible savings to only 60% of the GDP !!!
But if you actually would have read the post, you'd have known that.
"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."Problem is, pigdog, that 33.88% of yours has no "cascading" in it!
You've got $1.00 of COSTWHERE DID THE "cascading" GO???
You've got $65.44 of PROFIT
You've got a 34.4% TAX RATE$65.44 x .344 = $22.51 of ACTUAL TAX PAID to and received by the gub'mint.
22.51 / 66.44 = 33.88%
Where's the "hidden tax" that not actual tax but just artificially inflated price??? WHERE IS IT???? If it's in the ACTUAL TAX, then the potential saving is limited by the total amount of tax collected by the government (you claim it's not.) If it's in the ACTUAL PROFITS, then savings can only come from REDUCED PROFITS (you claim it's not.) If it's in the ACTUAL COST, then the savings is limit by the total amount of cost (in your example, that limits savings to 1.5% .. and only if COST goes to ZERO!)
From your example the 33.88% is the amount of the ACTUAL TAX PAID to and received by the government, yet you keep claiming that your "cascading" mechanism raises price by MORE than the amount actually paid to and received by the government (the "hidden amount")
You STILL haven't shown us where it's "hidden."
But to me, it's worth it. If something goes terribly wrong, Block pays the interest and penalties, I'm only liable for the additional tax. And for an additional fee, they'll pay that too, if you're audited and forced to pay more taxes.
Mark
I once asked this question of my accountant, and his response was that you can only take the deduction if you've declared taxable winnings, and the loss deduction can only be for the amount that you actually won. So, for example, if you declared that you won $5000, but you've got $8000 in losses, then you can deduct $5000.
But I agree with you, that medical expenses should be deductible from the first dollar.
But I'd prefer the "Fair Tax."
Mark
"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 taxLOL! You call that an "upshot"? You have no room to talk about anyone elses math skills .
"cascading taxes both multiply and add when sold to an end consumer, say at L6, the tax cost as a % of revenue will be (in this case) 33.88%"pigdog:
"it's fair to say that the present system basically does not tax the underground economy due to embedded taxes"The bottom line is you're lying through your teeth on all counts.
Like I said, there's no "cascading."
I notice that now in over 50 posts, you have yet to show us ONE CENT of "hidden tax" from "cascading." You're not even TRYING any more.
As for my "balderdash" are you suggesting that the Bush tax cuts did NOT lower taxes as a % of GDP???? (talk about clueless ...)
Are you suggesting that compliance cost savings realized by individuals DO apply to price reductions ???? (talk about "balderdash" ...)
Are you suggesting that all the savings by all the entities across the entire economy WILL be applied to lowering costs in ONLY 60% of the economy ???? (talk about desperate ...)
Look, you can't even find your "hidden tax" in your own examples ... why should anyone listen to you about anything else you believe?
The example #323 clearly shows the cascading and embedding of business income taxes - just as I've always said.
You're welcome to think as you like. I have, however, told you in what must be more than 50 posts that the example is not about claiming numbers but rather to show that there is a good amount of room for prices to reduce with the elimination of income taxes.
Why might it be if you want "numbers" (which you seem fixated on) that you don't align Nightie's example with reality as I suggested and get some numbers from him that way? I can only suppose it is because your agenda is to attack and villify anyone you can who supports the FairTax. Fine with me, trooper, but just stop pretending otherwise.
As for your balderdash, it's STILL balderdash aimed at supporting your Chicken Little Agenda. And I see you're still trying your old straw man stunts - can't seem to do anything else so I can only think your arguments are even weaker even than they have shown themselves to be.
I'm quite willing to wait and see some definitive data exercised by some economists who are real rather than some backwoods balderdash expert trying to pretend he knows something. It's like I said in #323.
No, Looey, the bottom line is you haven't the slightest idea what you're talking about ... but then that's nothing new.
Stick it in your ear, your nose, or some other orifice that's handy. That way you'll have it for future reference.
That's why the numbers ARE so important. If you use the wrong ones (particularly in exemplifying some mechanism) you'll wind up with erroneous conclusions (as you have) about what's actually going on.
Same mechanism; different numbers; different outcome; different conclusion.
This is not a question of "belief" as you keep suggesting, it's a question of analysis. The data is right in front of you. Closing your eyes to the real thing doesn't make your example credible.
Nor does claiming that only YOU are right, Dimp-Dimp.
The mechanism remains as illustrated in the example whether you wish to admit it or not. You CLAIM to have "correct" numbers but how would anyone be dumb enough to accept them after the antics you've displayed (and are continuing to display)? All you're trying to do is launch personal attacks.
There's still a good amount of room as your toadie Nightie showed in his example even though it was biased against the FairTax. Had it actually represented the real world as he claimed it would have been much higher (and higher than your claims). You don't even agree with him - and you are no more correct than he despite you continued insistence of omniscience.
Go fly a kite - or do something else you're capable of. Economic analysis ain't it ... and you've amply demonstrated that.
You're pretty funny. I attack your data, your conclusions, your methods, and MOSTLY your unwillingness or inability to actually defend your own concoction and you call it a personal attack ... you shouldn't take your work so personally, that is unless the quality of your work is truly reflective of the quality of your character.
You're pretty funny. You spend DAYS telling us how REAL data doesn't tell the story; that your fictitious example tells the story. Then you go on and on about how Your Nightmare's example is not REAL ENOUGH! (as though YOUR concoction had ANY shred of reality in it!)
Apparently you missed or don't understand the conversation about Your Nightmare's example. It is representative of many business segments in the REAL economy: Stages 1, 2 and 5 represent traditional corporate businesses; Stage 3 represents a transportation company (that doesn't actually buy, or "markup" to use your terminology, the products they transport); Stage 4 represents a non-corporate business where profits are distributed to the owners (their profits, individual income, are included in the "cost of value added" segment; and Stage 6 represents either a struggling retailer (like a GM, for instance) or a Startup Business that doesn't foresee a profit for the first couple of years in business.
All these are typical businesses. This example is FAR more realistic than your 98.5% profit, 33.88% tax scenario ... not even Microsoft or Exxon-Mobile makes THAT kind of money.
You gotta get out more. There's a REAL world for you to learn all about; it's actually pretty exciting; you should give it a try!
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