What we get..
Posted on 05/14/2006 1:59:13 PM PDT by RobFromGa
FAIRTAX: A Primer Now that the author of the bill, John Linder, admits in his co-authored book "The FairTax Book" that there in no such thing as "Keep 100% of your paycheck, while prices stay the same", let's examine where that leaves the FairTax:
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60.
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved money.
Does this sound like a utoia to anyone? Isn't it very likely that a 36% sales tax will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
Here's where I think we are with how the FairTax would actually work in practice...
Feel free to comment.
Incoming!
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Fair Tax Misrepresentation PING
Besides, the nrst makes illegals pay tax % exceeding any legal citizen's percentage.
Also, the nrst allows US manufacturers to better compete in the world market. It's hard enough for us to compete against labor costs so much lower than ours!
While the nrst is not perfect, it's a far cry better than any income tax... border adjustable too.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
But if payroll runs 35% of your gross, that means the payroll savings is only 3% of the gross. And nobody is going to waste time lowering prices for a 3% (or even 8% change in costs) when they don't know how their customers are going to react to paying the 30% sales tax surcharge.
What we get..
Lets look at the "Prebate" part of HR 25. Along with keeping the "whole paycheck", comes a monthly $189/ per citizen in "your household".
My widowed Mother-in-Law will have that $189 to cover the increase in prices, each month. My kids will see their allowances go up; but by far less than their "prebate value". Our monthly "household budget" will have an extra $600 from "prebate money" to pay those "Higher Prices".
The tiny Corporation that I work for won't be paying income tax. The Price of its service won't need to include those Dollars, either. There is no "Corporate Income Tax in HR 25.
I did leave out the PREBATE, that socialistic monstrosity that puts every American on the dole.
And as for your tiny corporation paying corporate taxes, if they are an S corp they pay no corporate taxes which is they way most tiny businesses are structured.
This is my main hangup with the Fair Tax and have yet to see it really addressed. It's very clear to anyone who looks at it clearly can see the problem with post tax savings.
Whenever I raise this on FR, I am consistently told that I don't understand, that I am missing something, etc. No real attempt to explain this problem, though.
One advocate of the FT on FR a few weeks ago was honest and point blank said that it would just be a bullet that people would have to bear. I have no interest in taking that bullet, but at least he was honest and direct about it. KUDOS to that Freeper (who's name escapes me, sorry)!
It wouldn't be an issue if the "prices will stay relatively the same" with the FairTax included had been true, because then there would only have been inflation on imported items. It is only because that was a lie and prices are really going to have to go up by 20%+ that the after-tax savings take a hit.
Amd that hit all by itself is enough to kill the plan.
Rep. Linder is fond of calling his plan a "Tax on Accumulated Wealth" and this is exactly why it is so.
Typical FairTaxer tactic, every once in a while one will admit some part of the truth but the rest will disagree with obvious facts staring right at them.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
It's very clear to me that post taxes savings is handicapped by a second tax bite, that newly earned income doesn't have to absorb.
$1 saved is worth less than $1 newly earned.
That stinks, though I love earning money! :-)
Our monthly "household budget" will have an extra $600 from "prebate money" to pay those "Higher Prices".WOW! I guess that means we'll all have EXTRA money from the magic money tree...
I vote we RAISE the amount of the (GAG!) "prebate" so we don't pay any taxes at all and EVERYTHING IS FREE!.
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