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?
Of course. The Flat Tax being high enough to cover the cost of SS/M without a separate tax is exactly the same as the way the FairTax does it. What is difficult to understand ?
Did you think I said "eliminate the SS/M program" ? No, just the separate tax. Although eliminating the program would be fine with me as well, but that is a different discussion.
Eliminating the SS/M spending boondoggle would let the FairTax rate be 15%, and I'll save for my own retirement.
BTW - A real "flat tax" folds in the state and local taxes for basic government services at rates of 10/5/2 for a very "palatable" 17% total tax rate.
BUT... and it's a Big But (think Hillary)... like the the mexican border and a hole in the boat, you have to close the gaping hole before you can start to bail or send them back, spending control is "job one". Nothing in the fairy tax even begins to address that.
So you are talking about a different Flat Tax than Nightmare ? Where SS/M is eliminated and there is no new tax because the program itself is gone ? That's fine with me.
Yes, it would be nice to strip government spending down to bare bones and get to the tax rates you suggest. Do you think that is a realistic possibility with the socialist system we have now ? Your magic wand must be much better than mine.
The FairTax doesn't directly address spending because it is an actual Bill before Congress and not pie-in-the-sky. A tax Bill cannot directly address spending. In fact, it must be revenue-neutral even to get onto the floor. Those are the rules in the House of Representatives.
The FairTax in-directly addresses spending by making taxes visible with every purchase, and thereby giving everyone an incentive to vote for the type of politicians we want -- those that will cut spending and taxes.
Think about how the FCA works. People will look at it and say, "So I can live in poverty and pay no taxes, but anything better than poverty is going to cost me xx%." That seems like a pretty good incentive to reduce the xx%.
Boy are you misinformed about flat taxes, xcamial! The entitlement taxes would be paid over and above the flat amount, making the actual combined % something like 35-40% tax inclusive (54-67% tax exclusive) even without the state/local nonsense you try to throw in there.
You probably haven't even read the bill for the Nightmare Tax either.
To clarify the tax rate - 10% Federal, 5% State, 2% Local.
as for "So I can live in poverty and pay no taxes, but anything better than poverty is going to cost me xx%."
Not when the existing government system under the fairy tax would be unable to resist market manipulation of prices of "necessities" (think about the "milk cartel" we already have - gets a bit scary, eh?)
The "prebate" would indeed become a massive welfare system.
I don't like that ... I'm surprised you do.
[The "prebate" would indeed become a massive welfare system.]
Nonsense. If the only way to get a large prebate is to raise the rate, then the only ones that will want a higher rate are the ones that don't aspire to live above poverty.
I don't think it will be tough to sit on the HHS poverty figures.
SS/M is a welfare system already. It might make you feel good to see how much you paid into it, but since it bears little relationship to the benefit you'll get, what good is it ?
So you split the 25% rate into 15% for general fund and 10% for SS/M. Fine, go ahead. Makes no difference, since you are only applying the Flat Tax to wages anyway.
I was really just pointing out that the Flat Tax proposals always post a low rate and then compare it to the FairTax without mentioning that the Flat Tax doesn't replace SS/M taxes while the FairTax does. The Flat Tax proposals also don't mention that they will continue the fallacy that businesses pay taxes rather than pass them along in prices.
The vicious circle is that prices would rise on necessities, generating greater revenue, also generating screams of "unfairness" by the "lower 1/3 of wage earners". Demands for their prebate to increase as a percentage of necessities to luxuries based on their income would rise dramatically. Viola! welfare.
Nobody I know has ever said poverty would disappear under the FairTax.
88% of the people live above the poverty line, which means that any increase in the tax rate hurts them more than the FCA benefits them. That is a super-majority voting to keep the rate from rising. Increasing the poverty-level definition would effectively require an increase in the tax rate on the remaining tax base. Again you have a super-majority to oppose such a re-definition.
Not gonna happen. If the rate starts at 23%, it will be down to 20% within five years, and 15% in ten years. Government spending correspondingly smaller.
Never happened in the history of taxation within the realm of unlimited spending.
We've never before had a tax scheme that hit every voter and hit the super-majority of voters hardest. In the past, Taxation has always been about defining some small group and pouncing.
Have you subscribed to the Johnnicakes "get out of tax jail free" scheme as well as his "tax plan", or are you just unable to think up something meaningful?
I can hardly wait to hear you tell us HOW the government will do that "manipulation".
The SSMC tax load is indeed visible and is clearly specified in the bill as a percentage of the total rate.
In the present version of the bill it's 8.09%. Oh, yeah - for all you inquiring minds, that's tax inclusive.
I vote w/Kellis on this one and would rather see both of those entitlements abolished - which would get us down to about 10 or 11% ti. I doubt it'll all come about as a single thing since spending is really a separate issue but the FairTax helps us get there.
"... and everything would be happiness and springtime...."
Only from the standpoint that once it is passed we won't have to waste time listening to birds (or animals) like you Squirrels).
Of course YOU are the only one making that claim as it is ... typical Squirrel chatter - convoluted and misstated!!
"Viola!" BS
Oh, but it has scamial. You need to look back in the history of taxation. You just flunked your test.
Except the current one.
I "got" no part of it - nor will I coming from such an arrogant xcamial. I'll cointinue rebuffing your comments as I see fit thanks.
At least you could make them on-topic and sensible instead of such childish blather.
What are you ... a Wookie???
Ah ... but roggie ... the current system, when rates are raised, hits only those selected by Congress to be hit. It is used as a weapon intentionally.
That's one of the great benefits of the FairTax. It does not succumb to that sort of manipulation by political mischief and treats all the same from the rate standpoint.
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