The Fair Tax has researched the embedded tax that people pay and never see when they buy an item and have put that into the HR25 bill. The hidden tax is average of 22% of the cost of an item.
I stand corrected. Like many folks, I was assuming 35% to be a standard corporate tax rate when it’s merely the top marginal rate.
So, to put it in real-world terms, let’s say that without the existing hidden taxes, a company could sell a loaf of bread for $1.00 and make enough profit to stay in business. Once we factor in that 22% hidden tax, the price jumps to $1.28 (22% of $1.28 is about 28 cents).
Under 9-9-9, we scrap all of the hidden taxes and tack on a 9% corporate tax, thus allowing that bread to be sold for $1.09 with the same amount of profit as before. There’d naturally be a settling-out period, but competition ensures that the price would come down to $1.09 fairly quickly.
Okay, so to recap, today we have bread selling with a shelf price of $1.28 with no federal sales tax. Under 9-9-9, the bread goes for $1.09. But then comes the federal sales tax of 9%, which comes out to about 10 cents. So now our bread costs us $1.19 under Herman’s plan.
So, maybe I’m missing something, but it seems to me that $1.19 is actually less than $1.28.
Oh, wait. I know. It’s the state sales tax that’s added on. Right?
Okay, cool. So, let’s say you’ve got a state sales tax of 10% (yeah, that’s a lot, but it makes the math easier). Under today’s system, the bread selling with a shelf price of $1.28 now has a state sales tax of 13 cents, bringing your total out-of-pocket expense to $1.41. But under 9-9-9 the state sales tax would be applied to the shelf price of the bread ($1.09), which means your state sales tax is only 11 cents. Add that to the 10 cents in federal sales tax, and your bread now costs $1.30 ($1.09 + .10 + .11).
Again, I’m thinking people would rather pay $1.30 for a loaf of bread than $1.41.