Embedded taxes consist primarily of payroll taxes, do they not?
If the company keeps paying out this amount, just directly to the employee rather than to the government, how do their costs and prices drop?
If they stop paying this amount, won’t the employee’s top line income drop by 23% or thereabouts? (15% income tax + 7+% SS.)
What is taxed?
The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed. A rebate makes the effective rate progressive.
Exactly what taxes are abolished?
The FairTax is replacement, not reform. It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
http://www.fairtax.org/site/PageServer?pagename=about_faq
Now, think of the hundreds or thousands of individual parts, tools, and other items needed to manufacture an automobile -- and the number of times the ingredients in those items are bought, changed and sold from the raw material stage to their final installation into the finished products.
At every level, the seller is subject to one or more of the above bold, underlined taxes which he in turn adds to the selling price of his product, and which is thus passed on to the buyer.
When these several levels of taxation are eliminated, a goodly portion (but not all) of which will be paid over their employees, it still doesn't take too much imagination to see that the protion retained by the seller, accumulating through the many levels of sales, can and will total quite a savings -- creating the ability to lower prices on the end products.
And competition will see to that.
Thanks for the courteous reply. I’m not convinced, though.
In any revenue-neutral change in the taxation system, by definition some will come out ahead, and some will get screwed. Those differences in themselves will have some profound effects on the economy, as well as on individuals, and I seriously doubt anyone has thought through all the implications.
Law of Unintended Consequences and all that.