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?
By the way, the SAME problem exists for the Federal Government: its cash flow turns negative under the FairTax "revenue neurtal" rate leaving an operating deficit. While the Balance Sheet may show revenue neutrality, the cash flows don't balance.What!?! You mean you can't move money from one pocket to another and call it net income? Shocking!
Read #279 again, and reply when your brain is actually turned on.
None of the VAT taxes in the Euro countries started out as anything like a true consumption tax applied at the end consumer level - as is the FairTax.
... and they all have additional taxes and massive corrpution as well.
Sorry, Looey, tax rates DO influence (not dictate) interest rates,
Removing the increased in interest rates caused by the income tax will lower tax rates a couple of points.
If you spens some time reading the FairTax website information, you'll see that if the FairTax were enacted today that the revenue neutral rate would be something like 19% rather than 23% due to the Bush tax cuts.
The point is not - and never has been prices (ythat's a red herring). It is disposable personal income that matters and the FairTax will help most people in this regard.
And there is no "admitting" involved despite your one-sided Chicken Little "analysis" of only part of what happens, And the FairTax supporters have been saying the same thing for a good bit more that seven years.
Prices will decline with the removal of the IT and then rise after wage earners get their sizeable wage boost/prebate and then prices inclusive of taxes will go back up probably to a bit less than they are now with little difference overall. The taxpayer will have a good bit more money to deal with this and far more control over what and when he pays tax, That combination is far preferable to the situation we now have.
As for being higH or low wage-earning, that is not the most meaningful point, but the fact that you can control your own consumption under the FairTax and therefore the timing and amount of tax - unlike at present. Unbridled and greedy consumption would of course lead to paying large amounts of FairTax ... but that's your choice. With the FairTax, there is far more incentive for a person to save and invest that under the present system which actually penalizes you, if anything, for such frugal behavior. Your observations about purchasing power and its change are nonsense and intentionally skewed to try to backstop your claims - which they don't.
Living on non-wage income does not cause one to "get screwed" as you so artfully put it. It is the consumption habits of someone doing that anyone with half a brain would save and invest some of this sort of sort of resource, earn tax free income from it, and see it build dramatically through compounding. Someone living off of non-wage income would do just fine unless he allowed someone like you to convince him that he should go on spending willy-nilly above his means by going deeply into debt with questionable plans like adjustable rate mortgages, etc. and spending like a drunken sailor. There can be ample consumption without that sort of risk exposure to the individual.
There may be some winners and losers as you so fondly like to harp on with your Chicken Little economic analysis but there will be far more winners than losers (and very few of this latter group) simply because the economy will be expanding - and rapidly so.
Your next to last paragraph that starts with "The reason the price effect ..." is merely a bunch of meaningless gobbledebook. It is yet one more of your attempts to scare those who might know no better. If anything it will be a big deal because it will help far and away MOST taxpayers have greater disposable personal income and greatly boost the American economy. The aggregate will NOT be - as you erroneously state - a net zero effect, but will be a rising tide that floats all boats. Any decent dynamic analysis would show this to be true. It sounds as though you've never read "The Broken Window" by Bastiat/Hazlitt and that you know nothing about how an expanding economy help most people that live in it.
If you'd like, I have permission to post that entire chapter from Hazlitt's book for you to study.
Sorry, Looey - that's jsut the government taxing itself much like it does now under the income tax.
It's "new" to you only because you apparently weren't aware of the situttion at present.
Yes, Looey, honesty is best - for you too.
On the FairTax website it says nothing about any specific number of people that would have a negative tax rate, but only that anyone having a certain income level who would, because of that low income, have a negative tax rate due to the prebate.
The FairTax website has always shown that fact, Looey. Are you only now becoming aware of it? At any rate, there's no hypocrisy involved - as least from the FairTax side. Can't speak for you though.
Well, actually, Looey, it is not the employees that are pay the tax. they get a large boost in takehome due to the FairTax and prebate. The state will have to pay a FairTax portion on a small subset of its employees
Speak for yourself.
That's not what I said, strawboy. YOu really, really rely on that strawman thing a lot.
You've amply and repeatedly demonstrated that you're no economist Dimp-Dimp, so why do you keep on putting out these analysies of vast situations using half-vast numbers.
Most readers have seen enough of your Chicken Little nonsense to realize that your "stuff" is biased, convoluted, and intentionally intended to attempt to distort and discredit anything FairTax. Your pattern is to make gross malasssumptions of things that are not true and then claim they are and to "overlook" things favorable to the FairTax and try to claim any such benefit is minimal - not matter what it might be.
In short, you don't know what you're talking about - and don't present it in an unbiased manner in any event. Biased data presented in a biased manner is your speciality it seems.
Tax will be paid either on the investment income (interest) under an income tax or on taxable goods under the nrst. Not both. Geezus.
That's how it could be viewed as a swap.
A person living in poverty would have a negative tax rate under the FairTax and you said "All those people you think will have a negative sales tax rate don't exist." How could there be people living in poverty while no one has a negative tax rate under the FairTax?Speak for yourself. That's not what I said, strawboy. YOu really, really rely on that strawman thing a lot.All those people you think will have a negative sales tax rate don't exist.We all know there's no one living in poverty in the whole United States.
No! Why do you continue to ask the same falsely-premised question? Are you not reading my post?
I said purchasing power will remain constant - real prices will remain constant.
IF prices rise (note here that I said IF), then there will be a corresponding increase in wages/ROI. Again, this doesn't mean prices will rise. They may rise or they may fall. It may vary across industry. Again, I'm not saying prices will rise, I'm saying purchasing power will remain constant. Get it?
Now, for purchasing power to remain constant we don't need to have price increases. We may. But we don't have to. Prices are as likely to fall.
Wages aren't the only place one may see an increase in purchasing power to offset any possible price increase. As one example, my pretax investments will gain.
Of course there will be winners and losers. If you're looking for a system without losers, you're looking for something that doesn't exist.
Do you think there are any winners or losers in our current system?
It is trivally obvious that each person's "mileage will vary". Sun rises in east too. Did you think people need to know that up front?
My pretax investments will gain.
I omitted the "AND ROI" from the post to which you replied. I added it above with emphasis. It wasn't in my original post but should've been.
Those taxes are only new in name. They're already being paid.
I don't expect you to get it though.
Then you take something off their website and claim it true.
And you call me hypocrite? I don't even use their website.
Wrong.
The folks in this bls data who live below the poverty line spend up to the poverty line.
The folks in this bls data who live below the poverty line spend up to the poverty line.We've been through this before. That table is wrong and it totally skew by people living off of savings or flat out lying about their income (that data comes from surveys). Or maybe you would like to explain how else someone could spend more than they make in income.
So, let's wee, Nightie, only you Squirrels have access to "correct, unskewed" data and anything used by FairTax supporters is automatically incorrect and skewed???
Got it!!!
Let's SEE, also! :-)
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