A FAIRTAX PRIMER

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?

That table is wrong and it totally skew by people living off of savings or flat out lying about their income ...

There is nothing that indicates that the table is wrong. There is no "corrected table". This is what bls has.

BTW how is someone who is living off savings going to profit from the rebate? They're not. Under the income tax, they could profit from tax credits. Under the nrst, they don't. If you're worried about entitlements, you would prefer the nrst.

If they're flat out lying about their income and are reporting only this much, then they're profiting from income tax credits or evading tax making all honest folks pay more. They couldn't do that under the rebate.

It's much easier to cheat the income tax by underreporting income than it is to evade sales tax. That's why lewis is opposed.

There is nothing that indicates that the table is wrong.

Not if you're willing to believe that 55% of the people who make less than $5,000 went to college and only 31% of the people who make $5-10k went to college. Nothing funny there. No sir. Going to college usually means you make less.

There is no "corrected table". This is what bls has.

Their methods for collecting data are flawed.

BTW how is someone who is living off savings going to profit from the rebate? They're not. Under the income tax, they could profit from tax credits.

What credits are those?

If they're flat out lying about their income and are reporting only this much, then they're profiting from income tax credits or evading tax making all honest folks pay more.

This isn't information from the IRS - this is the Consumer Expenditure Survey from the BLS. This has no relation to their tax return. It's not cross reference with their return. A person could lie on the survey without any penalty.

It's much easier to cheat the income tax by underreporting income than it is to evade sales tax. That's why lewis is opposed.

Except most people's income is reported by someone else. Double reporting does wonders for compliance. There is no double reporting with the FairTax.

Oh, yes ... that wonderful paper you cite which is so informative as to name congressman Linder as "Linden" severlal times throughout. No doubt the rest of their "work" is as lthorough, too.

Sort of like they teach at Squirrel U., eh?

And I notice you never mention that the papeer is clearly biased toward the Status Quo nor do you point up any of the errors in it - yet you're fantastically quick to pounce upon and error (actual or supposed) relating to anything FairTax,

It would be more intellectually honest of you to admit that the paper was actually anti FairTax and slanted that way in its descriptions and analysis. But, hey, so are yours.

For only one example of this obvious slant, it is only necessary to see this sentence from the paper:

"One must question whether taxpayers will perceive the states to be akin to the tax farmers of the Roman era."

that statement is blatantly and grossly incorrect since the taxpayers (those doing the consumption) never have any contact with the states collecting the tax.

There are numerous other errors and inconsistencies - many of which we have already heard from the Squirrels on these threads when they procclaim them as gospel truth.

That's no more convincing or accurate than your earlier ramble, Dimp-Dimp.

I'd far rather believe a view by real economists and taxation PhDs than some back of the envelope DU blowhard intent on disrupting these threads.

Sorry, no cigar.

Once again, we see Nightie in his "your data is bad, only our Squirrel data is good" mode of manipulation.

Fits right in with the Chicken Little approach since if the opponent has no valid data then by implication you win and can then scare the pants off of those knowing no better.

That's nonsense. And of course people lie on their tax returns, too, though Nightie'd only grudgingly admit that (now that it's been pointed out).

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.

Interesting. pigdog, temporarily out of a schizo moment, is saying the ER portion of the payroll tax is part of the employee wage yet never brings that up in any of the "100% paycheck" arguments. That would put him at odds with his bosses at AFFT and his cohorts (and himself) who use the ER portion for their price reduction calculations.

Just exactly what is included or not included in a "100% paycheck"?

Guess you really don't grasp that the ER portion goes to the employees' entitlement accounts, not to the employees and if it's not paid presently then the employee is shorted in his entitlement.

It does not go to the employee himself and never has - nor has anyone supporting the FairTax claimed that ... only you so far as I know; but that's your M. O.

It would appear that AFFT is also schizophrenic about the disposition of ER payroll tax as well. In the AFFT rebuttal to a "Tax Notes" commentary by Gary Fleischman, the AFFT argues that actual gross wages would INCREASE by the amount of the ER Payroll Tax in an effort to show how much easier it would be for a family to save down payment money for a home purchase.

See Paragraph 24 on page 5, and Paragraph 28 on page 6.

Looks like the AFFT is at it again double counting the alleged benefits.

In the AFFT rebuttal to a "Tax Notes" commentary by Gary Fleischman, the AFFT argues that actual gross wages would INCREASE by the amount of the ER Payroll Tax in an effort to show how much easier it would be for a family to save down payment money for a home purchase.
It gets worse.

Karen Walby, AFFT's Director of Research (obviously either not the brightest bulb or just going along with the lie...or both) does the same thing here on pages 2 and 4 for a chosen few.

She also adds the (GAG!) "prebate" to the gross in every example giving each one more "spendable income" than they actually earned, including one earning $100,000.LOL!

I wonder where all that extra cash would come from....So much for "it's not an entitlement".

Even economists do not agree on this point (and you're not one IAE). Some think the ER portion will go to reduce prices, some think it will go to increase wages and some think some combination of the two.

Sound to me like you're merely wishing to take potshots. Weren't you one of the tribe that claimed the ER portion went to reduce prices to the exclusion of all else???

The cash you inquire about isn't "extra" but merely part of the tax revenue obtained under the FairTax.

And sorry (GAG!) Looey, the prebate isn't an entitlement as you been told countless times - but it is a refund of some part of tax paid. And you're right ... it becomes added on as spendable income since that's what it is and it helps lessen the tax burden (even on someone spending at several times the poverty rate).

The methods used by Walby is also suspect in her accounting of the costs of the current tax system embedded in prices. As we all (except for pigdog) know, the 22% figure used to calculate this cost comes from Jorgenson's model. As we have also confirmed, this 22% is made up of the personal income tax and payroll tax withheld from employees paychecks and the profit and payroll tax paid by employers.

Given that Walby is expecting employers to pass the withholdings, including the ER payroll tax back to employees, the only tax left is the corporate profit tax. It not clear how much Jorgenson allocated for compliance costs, but using the oft stated $200 Billion figure and realizing that employer wage costs remain entirely unchanged, the actual cost of the current tax system embedded in prices is only about 4%.

So to be fair, instead of subtracting 22% from Spendable Income, only 4% should be deducted. The rest is all wage cost that remains in the cost structure under the FairTax.

To correct Walby's examples, simply multiply the "Current System - True After Tax Purchasing Power" figure by 1.333.

As usual, the AFFT is double counting.

Nonsense, Dimp-Dimp. It is the Squirrels who are doing the double counting. Your interpretation of what Jorgenson said (and what he meant) is merely that - your own interpretation.

And since we know most of you specialize in the Chicken Little method of misstatement any interpretation you have is certainly suspect. Most people would surely believe the assessments of an economist before your grab-bag style of mis-choosing numbers and facts so your claims of "4%" is complete nonsense with no semblance of "fair" at all. It is merely more of your grotesquely-loaded attacks on anything FairTax.

I don't even buy your analysis of what you think "Wallby does or does not do" in her examples since you are far too eager to have another name to attack (such as Boortz). Whipping boys seem to be a favorite of the SQL Squad.

When the dust finally settles I believe we'll find that under the FairTax not only will disposable personal income go up but that the economy will be greatly assisted by the new tax system. All of this tripe aboput what you think is or is not included in one figure or another pales in comparison to those benefits.

Still posting garbage after all these years pigdog. Your view has been totally discredited-- there is no Free Lunch with the FairTax-- just a bunch of misrepresentations designed to confuse people into supporting a cockamamie idea.

If the FairTax was sold like a new car, it would long ago have been returned as a "lemon". And the salesman would be facing fraud charges.

BS, Robbie ... but that's what you so love after all.
The only ones describing the FairTax as offering a "Free Lunch" has been you guys since supporters have never made those claims.

It's just one more example of your false interpretations and false information that you promulgate - and then claim FairTax supporters have said that when they have not.

You guys are like some of the characters in the Wizard of Oz ... especially the Scarecrow therein since that's what you're always doing - delivering straw men.

pigdog: (post #305) 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...

This delusional combination of "sizable wage boost", "prebate" and "prices inclusive of taxes...a bit less than they are now" that you keep spewing is a FREE LUNCH scheme whether you use those two words or not.

The idea of higher wages, free prebate money, and lower prices is impossible and has been abandoned by almost everyone but you (and the thousands of other FairTaxers that read the book and otherwise don't follow the facts that have since blown the central premise of the book to smithereens).

I wonder if Boortz will make a clarification at the beginning of the rally to explain the changes he made in the second edition which destroyed the central reason that so many jumped on the bandwagon-- "Keep 100% of your packeck, prices stay the same". It was a mistake when he said it before, to repeat it now is just an out and out lie.

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