Posted on 09/08/2006 2:39:55 AM PDT by Man50D
Yesterday The Fair Tax Act added two new co-sponsors to HR 25, the House version of The FairTax Bill. One of them is Republican Study Committee chair Mike Pence (IN-6) and the other is Democrat Dan Boren (OK-2). Boren is the first Democrat to sign the bill.
These two make 58 total sponsors/co-sponsors of HR 25, plus 4 for S 25 in the Senate, for a total of 62 Members of Congress promoting our bill. That's great momentum! Please keep up your enthusiasm for Fair Tax.
The Fair Tax train continues to gather momentum!
Fair Tax ping!
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
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. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
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 after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) 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?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
Maybe before we figure out how much money the government needs we should figure out what is the most moral way for the government to take it.
If taxes are eliminated all along the production chain as the fair tax proposes, why should prices rise as you ASSUME?
Because only at most 8% can be removed from prices counting all levels along the production chain, under the assumption that employees keep their full 100% salaries. The embedded taxes which are the employee income and payroll taxes would not actully be REMOVED from the prices of goods and services, but would be passed along to the employee in the form of higher take-home pay.
Once the 8% max is removed from the shelf prices, then you have to add the 29.87% FairTax on top of that and this gives you about a 20% increase in prices. As I showed in my posts, that 29.87% rate is too low, and a rate of 42-50% is more likely what it would come out too. Wage earners would have bigger paychecks, but prices would rise. What about people who are living on after-tax income and fixed pensions, and not collecting wages?
I know the current PROGRESSIVE system is consistent with Karl Marx's utopia but inconsistent with a free people. It has grown into a monster that sucks the lifeblood of hardworking people and horribly distorts economic decisions.
I do not believe the rate will have to be 50%. That is what the socalled wealthy pay now, while the socalled poor pay nothing.
the socialist prebate is what keeps the poor from still paying nothing, and no one on the FairTax side is proposing that this plan is designed to spread the tax burden more evenly across the wealth/income spectrum.
And I agree that there are things that need to be impoved with the present system, that is not an argument FOR the FairTax however. The FairTax plan as presented is not viable, and your "belief" that the rate won't have to be 50% doesn't count for much.
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).
If we assume that the govt wil keep the employer half of FICA, under the FairTax they would write a check to the employee each year for $50,000, plus they would write a check to the government for $14,935 to pay the FairTax (at the 29.87% level). This $14,935 is counted in the revenue neutral calculation of the 23% inclusive FairTax rate as tax revenue, and the $50,000 salary is included in the taxable base. So, what now costs the government $53,825 would cost $64,395 under the FairTax, this is a 19.6% increase in the cost of govt salaries.
Since they will need to increase the FairTax rate about 20% to cover this shortfall, this means that the $14,395 FairTax amount will be about $2,879 more, so the new cost to government is about $67,274, which is about 25% more than now...
fairtax ends class warfare.... the rich and the poor have the same rate ... thats alot more fair then over taxing the rich and giving the poor a free ride.
putting more money into peoples pockets will lead to more investments, in turn, more economic growth/power which we all know creates more tax revenue. Might be a rocky start for our government who spends too much as it is, but eventually the explosion in the economy will more than make up what they currently take in as tax revenue.
Not true, there is a socialist "prebate" (the largest entitlement program yet created) which is paid to each and every American every month, which is designed to completely untax the poor just as the present system.
The sellers of the plan claim it is a boon to the poor since they escape payroll taxes. They claim it is a boon to everyone, and this simply cannot be true.
Not if everything costs a lot more...
This is encouraging news. Thanks for posting.
You're one of those rare creatures that can spew out a bunch of complex lies and distortions and make it sound like you know what you're talking about.
But FReepers, generally, are a pretty sophisticated group, and most can still see through your distortions.
Without devoting much time to you in what is shaping up to be a very busy day for me, I'll take five minutes and point out a couple of reasons that your arguments are pure bunkum:
No matter how much you whine about the rate needed under the FairTax, that rate remains irrelevent. Why? Because the FairTax is "revenue neutral". In other words, by current law, and the law created by the FairTax bill, the FairTax rate must be set to replace all current revenue collected by the communist-inspired income tax you love so much in all of its current derivations. And, in fact, that rate is likely to be lower than projected in recent years, because of the Bush tax cuts.
When we have a visible tax like the FairTax, and the current hidden form of taxation is dead and buried, the political pressure, finally, will begin to drive the rate downward, and to politically coerce Congress to begin to get extraconstitutional spending under control.
Having Congressman Pence on board is a very big deal.
Now he needs to bring along the entire Republican Study Committee - over a hundred conservative House members.
And we need to help him...
Wow, that's one heck of a personal attack. Lose another campaign did you?
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