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?
You haven't addressed any of the issues that prevent me from supporting a Flat Income Tax. And you do realize that most of the 55,000 pages are concerned with simply DEFINING income, right ? That is where the politicians get their power, and unless that is defined ONCE, simply, and then the power to refine is taken away from the politicians, those 55,000 pages will back in a decade.The Flat Tax doesn't tax personal income (it's not an income tax, it's a consumption tax), it taxes wages. How hard is that to figure out?
It exists is every market. What businessman is so stupid as to not know (or even want to know) what his competitors are charging for similar products?
At the same time, not every business caters to the retail bottom and margins get very high among many companies without so-called collusion.
Textbook terms, income - savings = consumption. However, it is also the case that textbok terms are not what's being used. Some innate ability allows native speakers to discern such. The condesencion is not helpful.
Knowing what he charges is trivial. Knowing the other seller's constraints is what eveyone wants to know - how much longer will he survive selling at that price? how is he able to profit at that price? etc.
But the price is no secret. Just walk in the store and look at the price.
I've worked in a very competitive business for 20 years. As much as we always promise we won't participate in cut-throat competition, it always turns out that way. We try to focus on our new designs where profit is higher because head-to-head competition doesn't yet exist. But the edge doesn't last long before competitors have alternatives to offer customers and the cutthroat competition cuts the profit again. We stay in a market until the net profit is down to 8%-9% and then we exit. That is the reality I've observed over 20 years.That's basic supply and demand. Competitors enter your market raising the supply and lowering the price. Your price goes down even though your costs didn't. You didn't want to lower your price - you had to.
Textbook terms, income - savings = consumption. However, it is also the case that textbok terms are not what's being used. Some innate ability allows native speakers to discern such. The condesencion is not helpful.Huh?
That is where the politicians get their power, and unless that is defined ONCE, simply, and then the power to refine is taken away from the politicians, those 55,000 pages will back in a decade.What planet would a person(?) be from to think those same politicians are going to vote their power away in favor of a phoney sales tax? The lack of forward thinking and logic amongst the Fairtax crowd is astounding
BWAAAAAAAAAAAAAAAAAAAAAAHAHAHAHAHA!
D@mn! You FairyTaxers have no idea how a business works!
If he runs his business as well as you do, you should be worried; if not, squeeze the hell out of him.
But, on the whole, you know what his employees cost (you swap the occasional employee, if nothing else), you know what his suppliers charge (after all, you buy from them too), and you know who his primary customers are (as you plot and plan how and when to steal them during their busy season). It's no secret. And, sometimes, you have an unspoken agreement about certain customers, items, territories, or products - it makes life easy and guarantees us all our Christmas gooses.
And any upstart newcomer gets his nuts profit-margin squeezed until he leaves or joins the party.
But the edge doesn't last long before competitors have alternatives to offer customers and the cutthroat competition cuts the profit again.Sorry but based on that sentence it doesn't sound cutthroat. It sounds like you have an overpriced low quality (maybe one of a kind for awhile) product and your competitors know it. I'll bet they can't wait for your next new product... BONANZA! for them. Why don't you reduce your pay so you can lower your price to increase your sales? That's what you preach here.
Not being satisfied with net 8 or 9% profit or not willing to "offer alternatives" (IOW compete) sounds whiney and greedy, but since it's worked for 20yrs, so be it...hopefully it will last.
That's why they want the monthly entitlement check.
Bingo.
My example is "crap"??? Better check your own Nightie since the federal government DOES tax other entities right now (including even itself) through the existing tax system and you seem unaware of that.
The tax on an individual IS in effect a tax on his employer who must raise his expenses to pass on the money for the employee to pay the tax.
In addition, the governmental unit is also taxed in another manner by having to pay for example the ER portion of withholding at 7.65% ... or perhaps you think all governments are somehow not obligated to pay this to the feds (or even the feds themselves by shorting their employees of that payment)?????
That certainly puts the lie to your "crap" statement and it's something you Squirrels ALWAYS ignore when attempting your Chicken Little approach to tax-terrorization of the uninformed. You seem to think that 7.65% of all government wages is chopped liver. Got news for you - it ain't! In addition, as has been pointed out to you more than once by other posters, not all governmental employees' wages would be subject to the FairTax ... but you've chosen to ignore that too and go on pretending 100% would be taxed while the ER portion is merely ignored.
And you SQLers talk about FairTax supporters double-counting and misstating!!! That's exactly what you do. You merely try to warp the Income Tax Unfree Lunch all out of proportion.
From Dimp-Dimp's #131:
"I didn't say ALL expenditures would increase by 30%. So we then agree in principal: states and localities will have to raise MORE tax money than they currently have to pay their FairTax prices. Nowhere in the FairTax propaganda is that noted."
And from his earlier post on #117 of this thread:
"States and localities must now pay 30% FairTax on consumption purchases and salaries; nowhere in all the FairTax propaganda nor in the ramblings of its proponents is this fact EVER acknowledged. States and localities will need to RAISE tax rates to compensate."
We see here a wonderful example of the anti-FairTax crowd's duplicity and disingenuousness when the poster claims with equivocation to never have said something he clearly said without equivocation (states & localities have to pay 30% tax on salaries... which isn't true IAE). He then jumps from his disguised misstatement to the interpretation than the recipient of the post agrees with him (which was not the case) and projects that non-truth to mean there must be an inrease in tax money raised (which also is not true).
This sort of misrepresentation and balderdash is usually known as the Chicken Little attack mode to try to scare the uninformed away from the FairTax. It's basic assumption is that people are stupid. They aren't.
It's like old Abe said:
"You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."
And the Squirrels are fooling very few people jusdging from the feedback I see.
I see no such implication in the post you refer to.
Up to your old tricks, I see.
[...or the taxing authority would have to spend far too much of their budget to collect it (like it does now).]
You're kidding, right ? Most Americans believe themyth that the only cost to collecting the income tax is the $12B in the IRS budget. A collection cost that is 1/2 of a percent has not dissuaded anyone that I can see.
So it has no rules on what portion of SS income is really "taxable income" ? when to consider investment income, stock options or bonds as "taxable income" depending on who issued them, when purchased and when sold ? there is nothing a business needs to keep track of in terms of capitalized vs. depreciated costs so that "taxable income" can be figured ? what about not-for-profit businesses ? is welfare income ? how about food stamps or housing assistance ? if you sell your home, are there rules about how much of any gains are "taxable income" ? do they depend on marital status ? what if you were married and divorced several times while you held the house ? what about rental income, depreciation, gains on selling, etc. ?
I'll bet it ends up being harder than you think to define "income".
[What businessman is so stupid as to not know (or even want to know) what his competitors are charging for similar products?]
That isn't what is necessary. What would be necessary is knowing how his competitor would react to changing prices.
If you start with the basic truth that no nation ever taxed itself into prosperity, you'll see how the lowest compliance cost (in real dollars, not percentage) is of substantial benefit to the taxing authority.
Public outrage can be raised to a level to get ONE crop of Congresscritters to sign away their power.
What CAN'T be done is to maintain a level of outrage that prevents them from gradual changes in a system that allows for gradual changes.
Oh, you and I can see the compliance cost as a burden on the economy as a whole. But that isn't what you said.
You said Congress wouldn't make up a bunch of new rules because it would cut into their budget by causing collection to cost too much. The mess we have now is only 'costing' $12B of their budget as far as Congress and 95% of Americans are concerned. If $12B will cover the costs to collect in this convoluted mess, that doesn't seem to be much of a deterrent to additional convoluted rules.
I can just hear Congress debating adding a bunch of new rules to a clean-slate Flat Tax: "Sure we can clarify things a bit here and there. The whole 55,000 pages of clarifications in the old system didn't cost much to implement, these few changes won't cost hardly anything at all !"
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