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 depends a great deal on several factors. First, is the $200k job a safe one, or is there a good chance it could disapear? Is it less stable than the lower paying job?
Second, how hard do I have to work at each of these jobs? Almost anyone can make more than they presently make if they are willing to work harder and longer.
Third, how much do things cost under each scenario. If things cost twice as much in the $200k job world compared with the $75k job world then there is no advantage to the higher take-home pay job.
$1,030B / $12T = 8.6% which is what prices should fall while maintaining current after-tax profit levels for all American businesses.Using the current high prices of gasoline coupled with RECORD high profits for the oil companies as my guide I would prepare for what is written and what I know. That is, there would be a 30% sales tax added to whatever the price is the day of implementation. If my competitors are of the Fairtax mind to lower their prices the amount of the income tax they would no longer pay, I'll be that much stronger in less than a months time.
There are a number of circumatances (which Kellis91789 and I have been through before) where prices would rise by the FULL amount of the tax ... gas prices are one (non-competetive markets in general) and certain imports without domestic competition (Flat Panel LCDs for instance.)
In short the 8.6% pre-tax drop is a BEST case and not likely to happen. Oh ... and a portion of that $200 B compliance cost is FairTaxable goods and services currently counted in the so-called "revenue neutral" tax base. The elimination of that portion of the base necessitates a higher FairTax rate to maintain "revenue netrality."
Not at all, sGlob, and we've been trhough this with you before including a link to a post that shows this to be not the story at all.
Present savings will pay taxes in the form of embedded taxes when used to buy presently plus any income tax laid upon such savings by Congress in the meantime due to constant tinkering which is quite easy under the present system.
With the FairTax there is no tax on income and any saved funds can be invested and increase tax free. they are only taxed when spent for consumption of taxable items - and not everything is taxed. In addition, the effective tax rate is less - in many cases much less - than the marginal FairTax rate due to the prebate.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?Most likely the first incremental, boil the frog step, would be the re-institution of the employer half of FICA and SE tax "to save Social Security".
Oh ... and a portion of that $200 B compliance cost is FairTaxable goods and services currently counted in the so-called "revenue neutral" tax base. The elimination of that portion of the base necessitates a higher FairTax rate to maintain "revenue netrality."Hence the 23% first year only teaser rate.
Yes, and only one of several reasons the advertised rate is too low:
- unacknowledged increases in state and local taxes to pay FairTax... to name a few others.
- entitlement autopilot increases
- government-taxes-itself shell game
- no accounting for evasion or avoidance
- predicted but unacknowledged decline in total personal consumption
- ...
MORE BEER!!! Oh Joy, Oh Rapture!!!
That must be a correct analysis - especially since the ones we've seen from the Squirrels always assume that corporate income taxes represent all business taxes (they don't) and that no part of income taxes embedded in prices will be removed (they will). In addition to the ER portion of withholding and compliance costs all of these things will combine to reduce prices substantially (prior to adding the FairTax).
The biased analyses that have been repeatedly offered by those opposing the FairTax are much to low in the price reduction area. Of course they can't admit that since it spoils their little game.
I find it pretty clear that disposable personal income will increase with the onset of the FairTax, not decrease, and in addition the economy will rapidly grow due to its other beneficial effects.
BRING ON THE BEER ... AND THE FAIRTAX!!!
Erroneous right down your list Dimp-Dimp.
You SQLers think up the most ignorant observations of "why" the FairTax rate is too low.
In fact, the actual revenue neutral rate right now would be about 19% rather than 23 - despite all your nonsensical observations.
I find it pretty clear that disposable personal income will increase with the onset of the FairTaxThat's odd you find that "clear" in the calculations you're reading when in kellis91789 own numbers he both reduces my personal gross income AND my disposable income while at the same time increased the prices to my customers.
And since I too would be a customer of someone elses services I don't find that excitable or inviting.BRING ON THE BEER
Perhaps too much beer in the slop this morning.
We all know your had "problems" with numbers Looey and that's obviously still continuing since you misunderstand what #71 says.
Got a church key I can borrow???
"... and if wishes were horses then balrogs would ride ..." but as it is they just throw up misinformation and fall flat on their faces.
Of course anecdotal analysis is weak, but enough of it gives an empirical weight rather than just theoretical assumptions. I wish each person that looks at the FairTax would run their own real-life numbers rather than buying into just logical arguments. I did ask lewislynn for specific numbers and he told me to go ahead without them.
But you didn't read lewislynn's claim that my example was refuting. He did not claim that he should get to keep his PIT and Employee-side payroll taxes [(EE/owner gets to keep PIT and EE FICA ... that's what the FairTax book told him anyway)]
He claimed he would need to increase his prices by 30% to maintain HIS PURCHASING POWER.
I allowed for a 10% price drop and you allowed for 8.6%, but I allowed lewislynn a full 20% increase in take-home, not the 18.7% that an 8.6% price drop affords. So using your 8.6% figure and 18.7% increase in take-home spendable income:
Under FairTax
[You're right, post your tax returns here then we'll talk about it.]
I think you skipped a beat. I point out that I asked for no personal information that could be tied back to an anonymous poster, and you turn around and suggest I post what I never requested you provide ?
What sort of substitute for logical thinking do you rely on ?
[... why did you arbitrarily choose to reduce my takehome from ...]
Do you even remember what you wrote that my post was a response to ?
You claimed you would need to charge your customer 30% more than current prices in order to maintain your purchasing power. You said NOTHING about getting the same formulaic benefits as an employee that relies entirely on wages, while the business owner has both a wage and profit component to his income.
If you are about to sputter that you don't have profits and it is all personal wages, then don't bother. From my standpoint, your wages are only the portion that you would have to pay an employee to perform those functions of managing the business.
[ ... and if the "basic rate" was 4% you'd pay an additional 30% tax on the remaining 6% earned...Yes there would be a sales tax on some interest earned AND or paid not to mention the new 30% tax on any bank fees.]
Where do you come up with this nonsense ? There are no taxes on earnings. Period. There is a FairTax on borrowing, not investment earnings.
Whether they do or not is beside the point.
That wasn't lewis' claim. He claimed he needed to charge his customers 30% more just to maintain his purchasing power. That simply isn't true.
Ping
The assumption was 'all other things being equal' would you refuse a job with that left you with higher purchasing power just because the taxes were higher ?
Clearly, nobody would so focus on the taxes that they would pass on the higher purchasing power. Yet that is what lewis was doing -- focusing on how much more taxes were collected and ignoring the purchasing power.
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