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?
It is simultaneous.
That's right. This is why some say purchasing power will remain constant. Folks still pay tax, just pay the nrst instead of income, payroll, and embedded taxes.
Is it? You said otherwise two posts up.
We really don't know if taxes will rise under a FairTax system.Then you also don't know or rather do know it's wishful thinking that businesses will arbitrarily pass on all savings to consumers.----
What I'm talking about isn't wishful thinking but rather patterns of human behavior and economic rules that have driven life for thousands of years.
TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES
SEC. 101. INCOME TAXES REPEALED.
SEC. 102. PAYROLL TAXES REPEALED.
SEC. 103. ESTATE AND GIFT TAXES REPEALED.
THe first things legislated by the bill are above. If this is what you were referring to, you were wrong. If there is some other reason you believe the tax will be added onto existing prices with repealing the old taxes first, please share.
Not wishful, dumb. It's not "arbitrary" at all. Savings must be passed on in the form of lower prices, higher wages, or improved ROI (all benefit the individual). Competition dictates the breakdown and it most certainly will vary by industry and business.
You appear to be confused.
I responded by saying existing taxes would be repealed first and that not all retail purchases are taxed under the nrst. What did I confuse?
It's the ultimate "catch-22" Prices go up 30%, my sales go down 50%, I'm stuck with the embedded tax cost of my pre-existing inventory, I go bankrupt.
Go ahead and declare bankruptcy while your competitors laugh. Read the bill.
There we go with the "You're just too stupid again..."
Now answer the question, or reply intelligently to the statement.
See section 902. THen when you've read it, you can come back and make something up about why it isn't really there.
I was responding to a poster saying we don't don't know if taxes will rise and I told her where the starting point is, which is 30%. You came along and read more into that than is there.
And bills are meant to be read that things are all happening simultaneously, unless vebiage shows timing. Like with the Constitution, we have all three branches of Govt, all established simultaneously, even though they are listed in order in the Articles.
You're not too stupid, you're emotionally involved to the extent that reality doesn't matter on an anon board. Read 902. DId you even know it was there?
Right. But how, if tax is first (or simultaneously) eliminated, will the price increase be the full amount of the replacement tax?
I didn't say that, I said the tax would start at 30%. I made it clear in the post that started this thread where I think prices will start relative to today. I think you are just trying to sow confusion since you have no facts or analysis of your own to offer.
A rising tide may raise all boats, but a tsunami sinks everything.
Well, you're wrong there. I thought you were saying that prices would increase by the amount of the tax. Perhaps I've confused you with Lewislynn who says this regularly. If that has happened, I sincerely apologize.
Oh so now you've read it. Now you're here to tell us it doesn't matter. Predictable!
You didn't even know 902 (crediting inventory) was there, did you? Ever think it would help to read hr 25?
ANd just when would the seller get the money to pay his bills if there were no switch to an nrst?..... sagebrush rolling... crickets chirping...
When he sells the product, of course. When will he get is money under the nrst (with the credit for embedded costs)? When he sells the product, of course.
I think you'd be wise to let us all think you a fool rather than opening your mouth and proving it. LOL
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