Posted on 01/23/2008 3:28:27 AM PST by xcamel
What about that Bruce Bartlett guy?
“Sure, there are embedded taxes that we need to consider as well.”
Sure, there are embedded taxes????
The embedded taxes have been estimated by leading economists to be 22%-23% of current pricing inclusive.
That’s the point. Whether the current system or the FairTax system, taxes are paid on purchases.
Businesses up and down, far and wide in the supply chain recover their tax liability from who they sell to. By the time this recovery accumulation reaches the retail level, the taxes are embedded into pricing at 22%-23% inclusive.
All the FairTax does is to say “stop with the siphoning all along the chain and shunt the collection to the retail end”.
So the argument that you are engaging, to wit:
“I say that because under the current tax system, the gains on Roth IRAs are not taxed and ***taxes are not paid on any future purchases***.”
This is a gross misunderstanding.
The current system taxes each stage of production and causes those taxes to be recovered in the form of higher prices.
Many business owners I have talked to in liberal Seattle understand this perfectly. They know that if they were no longer obligated to pay tax on profits, payroll tax and associated compliance costs, then they would see lower prices in their cost of goods sold and their overhead. In turn they know they can lower prices to the level that eliminates all the embedded taxation that accumulates in the production chain.
Then the FairTax is added to bring pricing back to parity.
The argument you are engaging is being circulated to scare retirees and would-be retirees into thinking their tax benefit will be lost under the FairTax. The financial services that deploy marketing schemes to lure people into Roth IRAs, regular IRAs, 401(k)s, Roth 401(k)s and tax-free annuities and a host of other marketing instruments will need to retool their marketing schemes. That’s a restructuring they would sooner avoid.
But our world is not under command of these financial marketeers.
In case you have wondered or not, the FairTax has won the economic debate in committee. What is left is educating the public and the battle now boils down to skirmishes between FairTax proponents and 23,000 Beltway tax gaming lobbyists spewing propaganda.
And yes, some of these lobbying miscreants post on FR with all kinds of distortions.
We’re up against the lobbies of special interests and they have over time developed silver tongues to close transactions for buying and selling tax favoritism. They know very well how to confuse you into thinking the United States would not exist were it not for their 64,000 page IRS Tax Code and especially their tax exemptions, deductions, distributions and other tax-free or tax-minimal instruments that they have spent decades carving out as their exclusive turf.
Thanks for highlighting that part of my post. I get what you're saying now.
As a self-employed software contractor, I'm familiar with paying taxes some people don't even realize exist, but after reading your post I'm reminded of taxes I'd forgotten about. Thanks again.
Please share your insights with taxes that could be eliminated because that is what these threads are for.
Many of these threads deteriorate into flames among the same cast of characters. It’s been that way for years.
The difference now is that the FairTax movement is growing at an increasing rate. It is the largest tax reform movement in Congress today and is a true people movement.
In other words, the FairTax is winning.
Many other reforms in Congress in the past had far fewer sponsors than the FairTax has today.
So you launch into a diatribe about “poor math skills” and then proceed to calculate your ‘exclusive’ rate by taking the numerator I gave you $10,561 followed by placing the ‘inclusive’ denominator of $50,000 to calculate the ‘inclusive’ rate of 21.1% which you call ‘exclusive’.HUH? Where?
...10561 (the parts of the whole) is the numerator, 50,000 is the denominator, 21.1% is the result. There is no other way to properly express the rate.Keep digging.
Actually I think I said your math skills are worse than poor and you demonstrated it here in your calculations AND practical application:
Gross Income: $50,000
Standard Deduction: $5,350
Personal Exemption: $3,400
Taxable Income: $41,250
Income Tax: $4,386.25 plus 25% of the amount over 31,850 =$6,736
SS/MC Tax: 7.65% of $50,000 = $3,825
Total Taxes: $10,561
Net Income after taxes: $30,690
The tax payer had $50,000 gross
Mailed a check for $10,561 To The United States Treasury (anyone that's mailed a tax check knows you don't send it to IRS)
Net income after taxes $30,690 $39,439
----
Your bogus "exclusive" calculations:
$10,561 (tax paid) / $30,690 ("Net Income after taxes")= 34.4% (of what? Or more important, SO WHAT?)
You had $50,000
$10,561 + $30,690 = $41,251...Where's the other $8,749 Einstein?
So is that an inclusive rate or an exclusive rate?
So is that an inclusive rate or an exclusive rate?LOL! I'm not here to school you. You better learn the difference before you embarrass yourself further.
I'll just say this once again. You cannot calculate your income tax using an exclusive formula...You can't even lie about it. The math will prove you wrong.
It’s very simple to take an inclusive amount and calculate from it the exclusive amount as long as you have a denominator.
It’s exceedingly simple.
Take your taxable income, figure the tax, subtract the tax from your taxable income to get net income after taxes and take the ratio of tax to net income after taxes.
And no one said anything about calculating the tax using an exclusive formula. The subject was calculating the exclusive rate, not the tax using an exclusive rate.
So that’s one more error posted for all to see.
You calculated an inclusive rate to compare with an exclusive rate FairTax, and you won’t admit it.
As for your rantings about denominators, it was you that interjected about using taxable income:
http://www.freerepublic.com/focus/news/1958093/posts?page=485#485
Now if you want to use gross income, just say so; but you wanted taxable income and that’s what you got.
The fact is the FairTax rate, whether inclusively or exclusively expressed is far smaller than the combined Income and Payroll Tax rates.
It’s very simple to take an inclusive amount and calculate from it the exclusive amount as long as you have a denominator.Of course it's simple, bogus but simple.
First I gave you credit by saying you're ignorant, now I can say you're just plain stupid.
Your way is bogus because BOTH your numerator and denominator are the result of calculations from the same whole, the whole you consistently omit from your excercises in stupidity.
What you Fairtax idiots are trying to say is the tax paid from income is really a tax on what is left after paying...
No matter how hard you try, the practical application of the math proves you're either trying to lie or just plain stupid.
This poster has for the last 5 or more years as being incapable of doing even simple arithmetic such as converting inclusive tax rates to exclusive tax rates - or the other way around.
It was even pointed out to him on different occasions that (from the income tax rate tables) a 28% ti rate equals a 38.89% te rate and a 33% ti rate equals a 49.25% te rate. But these yo-yos only like to pretend that the FairTax when expressed on the same basis is, somehow, misleading. The 23% ti in the FairTax is a 29.87% te rate so comparing apples to apples using either ti or te makes it very clear which is lower - and it ain’t the income tax rates.
And these are all marginal tax rates by the way, not effective ones (what it actually costs you in taxes). But the pretense is always that you pay the marginal rate only with the FairTax and do so on everything you buy ... neither pretense is correct (nor honest) since many things are not taxed under the FairTax so that the effective tax rate is quite low.
It was even pointed out to him on different occasions that (from the income tax rate tables) a 28% ti rate equals a 38.89% te rate and a 33% ti rate equals a 49.25% te rate.Pointed out by whom? Does "pointed out" now mean its a fact?
"Pointed out to him on different occasions"? You know the exact percentages pointed out to me but can't seem to find or know where or by whom?
Let's see your math for exclusive tax rates ON income...Oh I almost forgot,"it's not math, it's arithmetic". Right?
It was even pointed out to him on different occasions that (from the income tax rate tables) a 28% ti rate equals a 38.89% te rate and a 33% ti rate equals a 49.25% te rate. But these yo-yos only like to pretend that the FairTax when expressed on the same basis is, somehow, misleading. The 23% ti in the FairTax is a 29.87% te rate so comparing apples to apples using either ti or te makes it very clear which is lower - and it ain’t the income tax rates.Income tax tables are for taxable income not gross income and don't include payroll taxes either. The Fairtax would be paid using gross income.
(from the income tax rate tables) a 28% ti rate equals a 38.89% te rate and a 33% ti rate equals a 49.25% te rate.As if you were savvy enough to answer, what was the gross income?.
So using your own words, we've established that neither one of you knows what you're talking about regarding "apples for apples" as well as any kind of tax.
Then all the subtleties would be flushed out and one could do a NPV on way A vs. way B. In my mind all sorts of things count, but total tax $ would be number one.
As you point out tax $ = rate(s) x base applied to. Arguing one without the other IS ludicrous. Then there are the timing effects that could easily extend over decades.
Not at all simple. "read the book" should be "do the spreadsheet"
The fact is that the conversion of tax inclusive to tax exclusive is widely available and easily done.
The fact that that escapes your ken is your fault, not mine. If anyone with any sense tries to compare income tax rates to other tax rates, they should be stated on the same basis to be meaningful.
The income tax rates are tax inclusive so to compare them in any meaningful way to the FairTax the FairTax would have to be tax inclusive also, but since so many of the opponents like to hop with glee upon the idea of a "30%" FairTax, that figure is tax exclusive so that the income tax rates to be comparative would need to be expressed as tax exclusive also.
And, yes, that has been pointed out to you a number of times on these threads. Trying to pretend otherwise is merely indicative of the desperation of the FairTax opponents.
Expressing one on one basis and one on the other merely distorts the comparison and makes it invalid - precisely what the FairTax opponents do with their demagoguery.
Excellent post. I am opposed to the fairtax for this very reason. I have nearly all of my savings in various roth vehicles. Some people counter and say that we will no longer have to pay the embedded tax, we won’t be taxed on what we don’t spend, or what spend on used goods. But that’s all HOGWASH. If you have put $500,000 into accounts that either are or have been converted and rolled into Roth vehicles, and you were at the highest income tax rate, you have already paid 125k+ in taxes. In fact, much more than that in real terms when you factor in inflation and the opportunity cost of not having the taxed money to invest separately. Someone could have 500k in traditional vehicles AND also have had the 125k+inflation to invest all along. THis is where the inherent unfairness comes in.
Among all of the fairtax opponents on FR, me included, I doubt you’ll find many people who like the current IRS system. 64000 pages is ridiculous and we DO need to reform it. See the post right above this, and the post I responded to, for some objections to the fairtax. I am all for other kinds of tax reform. In fact, I still kinda like the Steve Forbes flat tax plan. Or, more reductions in income tax brackets, capital gains brackets, and the elimination of the death tax would all be fine with me. Of course, the best thing to do is reform these entitlements and lower spending year over year.
The Flat Tax is an Income Tax.
The Income Tax started out as a Flat Tax.
The 16th Amendment allows any Flat Tax to be transformed into the mess we have today.
There have been five major tax reforms since the 16th was passed in 1913. Each reform attempted to ‘flatten’ the Income Tax. Since Ronald Reagan signed the last major tax reform in 1986 there have been more than 16,000 amendments to the tax code and a quadrupling in the number of tax lobbyists.
I started out supporting the Flat Tax for the simple reason that it was simple. But then I learned the Income tax started out as a flat tax and the reason we can never hold onto a flat tax is because the 16th allows for unfairness in a direct tax by having the resources and power to define what is taxable and what is not.
The Flat Tax is a treatment that causes the Income tax metastasis to go into temporary remission but it is not a cure. The root of the cancer is in the 16th and to cure the country of an unfair tax system, we must repeal the 16th. That means there will be no Flat Tax ever because the Flat Tax is an unapportioned Income tax and therefore unConstitutional in the vision of the Founders.
The Founders were interested in one thing and one thing only when it came to taxation. They wanted it to be devoid of favoritism. They left it to Congress and the People to worry about funding government but they wanted to ensure that taxes were fair. The 16th allows for special interests to get special favors by defining away taxable income. They system is unfair and reeks of favoritism, just what the Founders sought to avoid.
The 16th was passed in a time when people were made aware that the very wealthy landowner gentry of America were paying no taxes as their wealth came from rents that were not taxable without apportionment. The first Income tax after the 16th was ratified was levied on less than 2% of all income receivers and was a flat tax at 7% maximum. Most Americans were not even aware there was an income tax.
Today a large bulk of the income tax has shifted from the very wealthy to the middle and upper middle classes. And though statistics show that the top 5% of income earners pay the the bulk of the taxes, the key is to understand ‘income’. The truly wealth have no income. They have ‘distributions’ and in some cases dividends or tax-free munis. Their lawyers and financial planners have steered them away from the word ‘income’. So it is left to the high income earners that are paying the bulk of taxes such as doctors and successful business people.
This is not what it started out as. It started out as a tax on the likes of JP Morgan and the Aldrich’s, etc. It was definitely not in the province of say dentists.
As Thomas Sowell said regarding rent control: rent control produces a short term benefit for renters but a long-term housing shortage because developers will not build housing in a rent control district. Builders will not suffer as they move to commercial development or residential development in non rent-control areas.
The point is that things are not what they seem. The Flat Tax will be simple at first and within a decade will be on the road to a 64,000 page code.
Ok, that’s all I have in a short space for the Flat Tax. My advice is to study tax history and to realize the Flat Tax is not a cure.
As for the flawed logic of the ‘taxed once and taxed again’ applying only to the FairTax. It also applies to the current Tax Code. Retailers and their suppliers add taxes on labor and profits into their prices. Prices are higher because of taxes. There is no getting around it. These embedded taxes have been estimated by leading economists to be 22% to 23% of retail prices. All the FairTax is saying is stop the siphoning of taxes everywhere and on anything that moves in the supply and production chains, and shunt all of that taxation activity down to the retail end of the chain; then replace all that activity with a National Retail Sales Tax (NRST).
The FairTax is a REPLACEMENT tax, not a tax on a tax. There fore it will tax nothing that was not already present in retail prices via embedded taxes. So the “gee I saved my after tax earnings and now those scammers want to tax me again” argument is propaganda designed to scare retirees and would-be retirees. That is what the debate has come to, propaganda on the part of Income Flat taxers against the FairTax. The FairTax has already won the debate in committee among analysts and in academia. The lobbyists that will be put out of work by the FairTax are pulling out all stops to spread disinformation about the FairTax to get people such as yourself believing things like retirement savings will be taxed twice.
And these lobbyists do not mind a Flat Tax because they know a Flat Tax leaves the 16th in place and the 16th is their tool. A Flat Tax is job security to tax lobbyists.
The after-tax savings issue is VERY real. Please counter my points below.
Some people counter and say that we will no longer have to pay the embedded tax, we won’t be taxed on what we don’t spend, or what spend on used goods. But that’s all HOGWASH. If you have put $500,000 into accounts that either are or have been converted and rolled into Roth vehicles, and you were at the highest income tax rate, you have already paid 125k+ in taxes. In fact, much more than that in real terms when you factor in inflation and the opportunity cost of not having the taxed money to invest separately. Someone could have 500k in traditional vehicles AND also have had the 125k+inflation to invest all along. THis is where the inherent unfairness comes in.
The only way I could get behind a fairtax is if people with Roth 401ks and Roth IRAs would could have those accounts linked to a debit card and checking account that would allow them to NOT pay the new sales tax on anything purchased from that card or account. How you would track or enforce that without invading people’s privacy is beyond me.
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