Tax Reform Panel Picks Apart FairTax Proposal

There is no "exclusion" of real world cases by me. You, otoh, believe your "real world" experience is definitive.

If you can't understand an argument it looks circular I presume. I have argued in no such way. Don't accept others' versions of what I have said.

As I said it is worse than I thought. There is a mathematical fallacy involved in it which I haven't time to figure out at present.

I have not claimed anyone said the WTO would reward for converting to the FT. Nor do I agree with you about the disadvantages to US exports under the current regime.

Whatever you say is fine with me.

Depends on how you l;ook at it. The "price" of something is what you pay for it - including tax. Paying $50,000 in the one case or $129.87 in the other is merely lising the total price you pay.

The tax in either case is 23% t-i (or 29.97% t-e). It is the same amount of tax in either case for the particular item. Are you 6 feet tall or 72 inches tall??

Instead of the odd example you gave you could have just divided $100 by (1-0.23) which gives 29.97% directly. Same result. The amount you p[ay is the same also - $129.87 for your example.

Depends on how you l;ook at it. The "price" of something is what you pay for it - including tax. Paying $50,000 in the one case or $129.87 in the other is merely lising the total price you pay.

It's not the total price I pay because I also pay state sales tax. So what's the point of using the inclusive rate again?

The tax in either case is 23% t-i (or 29.97% t-e). It is the same amount of tax in either case for the particular item. Are you 6 feet tall or 72 inches tall??

I'm 6'2", and if I grow 10%, how tall would I be.

Instead of the odd example you gave you could have just divided $100 by (1-0.23) which gives 29.97% directly. Same result. The amount you p[ay is the same also - $129.87 for your example.

Let's see. I could either figure the tax by:

price * exclusive rate = tax

or by:

(price / (1 - inclusive rate)) - price = tax

Gee, tough choice.

Terms of Trade = "The conditions under which a nation carries on foreign trade, with reference particularly to the question whether such conditions are favorable or unfavorable." Dictionary of Economics.

Yep if one is negotiating such.

A change in internal tax system is hardly an item for negotiations where sovereign nations are concerned. Especially in the removal of an impediment to competitive pricing of one's exports through replacing a tax system that disfavors one's competitive stance for a tax system that treats all products alike, domestic manufacture as well a imports.

Such a replacement requires no negotiations or agreements under GATT/WTO or any other agreements.

You are speaking of changing those conditions by making them more favorable.

Not at all, modifying a nation's internal taxes are a matter of sovereign right, in doing so if a nation remove a trade impediment against its own interests which happens to assures equal treatement of all parties there is no "more favorable" it is merely a byproduct yielding a more competitive capability to trade on equal basis instead of from a self-imposed disadvantaged basis.

Your excerpt should be read throughly with particular attention to the admission that elasticities will determine the effect of a FT. It does not support your view as much as you might hope.

The elasticities involved that yield anything at all interms of moving net exports towards balance in the particular situation work against the importer not the U.S. I suggest you analyse the situation abit more carefully as to what is actually being stated. For the elasticity to work to any advantage to an importer an increase in import volumes must occur to close any net export deficits, importer must decrease their tax included price to get anywhere at all, anything else they remain at disadvantage to domestic manufacture.

Sorry but your arguments operate only on the bare margins and at that yield no substantive change in the results of the anlysis of our nation going from an origin-based tax system(e.g. income/payroll taxes) to a destination based tax system (e.g. border neutral consumption taxes) that result in net gain to the U.S. when it undertakes such a transition.

You think there's no such thing as tax exclusive rate, and you insist on using the tax exclusive rate.

Not for income tax. An "exclusive tax rate" on, of, or against income isn't possible.

Shall I continue?

Continue making a fool of yourself over this nonsense? Who's stopping you?

Dale Jorgenson of Harvard who predicts that prices will drop in the 14 or so business classifications he did an ecomnomic model for.

From memory, he expects prices to drop by 20 to 25 percent as a result of a tax like the FairTax.

No, it isn't - we still have IT components embedded in prices which cannot be border-adjusted ddownward. The VAT countries have already done that downward adjustment.

Why wouldn't a property tax be the fairest tax of all? The more property, the more taxes.

You should look up the ecxonomic model done by Dale Jorgensof of Harvard. It shows price reducions with a tax like the FairTax of 20 to 25% if memory serves.

Dale Jorgenson of Harvard who predicts that prices will drop in the 14 or so business classifications he did an ecomnomic model for.

That wasn't from the corporate income tax, that was from all taxes. Jorgenson's model allowed for nominal wages to drop.

You should look up the ecxonomic model done by Dale Jorgensof of Harvard. It shows price reducions with a tax like the FairTax of 20 to 25% if memory serves.

You probably should. The misunderstanding of this paper is the genesis of the price drop myth.

The Economic Impact of Fundamental Tax Reform

But it IS the total price you pay with respect to the product cost and the federal sales tax - state sales tax was never part of the discussion. I repeat - the price is what you pay for the item, including the tax.

Gee - a real mind-bender there ... lessee; would you be 10% taller? That'd be either was you meansure it BTW.

You could also just divide your $100 by 0.77 and that would give $129.97. We were trying to arrive at the purchase price, not the tax.

A "sales tax" taxes a sale. Hence the tax is on the price of the article, this is a tax on an article and a tax on a tax no matter how you cut it.

Such spin.

A tax rate is what one applies to calculate the amount of a tax, always.

One uses a tax inclusive rate to calculate the amount of tax that is presumed included within final payment for goods or service such as that amount that must be tendered by the consumer in order to perfect his claim on products he receives.

One uses a tax exclusive rate with regard to price that has no tax included )e.g. the producers price) to determine the amount of tax to add on to obtain the final tax included payment to be tendered for the product by the consumer.

Either way the amount of any given final payment tendered to receive ownership of goods sold, includes the tax as well as the value of the base untaxed item is the same for any given product in an excise tax situation wether that exise be on goods or services.

In fact that is the forla; relationship between consumer price and producer price of a supply/demand equilibrium with an excise levied, which you, who claim to be trained in economics should well know.

Algebraic Solution of Linear Supply and Demand Models
R. Wigle
Director Masters Program in Business Economics
Wilfrid Laurier University
May 9, 2001

http://info.wlu.ca/~wwwsbe/faculty/rwigle/ec238/ref/pe-algebra.pdf

1 Market Equilibrium
In a market equilibrium with no taxes or subsidies, two things are true. First the producer price is the same as the consumer price, and the quantities supplied and demanded are the same. ***
2 Taxes and Subsidies
Now suppose that instead of the market equilibrium we are looking at a case with a tax or subsidy. In these cases, we can again solve for an equilibrium. In this case things are a bit trickier. ***
2.1 Tax
When a tax is present, there is a difference between the price the consumer pays and the price that the producer receives. In simple terms, the consumer pays the producer price plus the tax. ***
2.2 Subsidy
When a subsidy is present, there is once a again a difference between the price the consumer pays and the price that the producer receives. In this case the producer gets what the consumer pays plus the subsidy. ***

A more graphical explaination of the relationship between excises imposed, the price received by sellers (i.e. the producer), and the price paid by consumers(total cost to consumer for goods or service) can be found here:

http://www.economist.com/surveys/PrinterFriendly.cfm?Story_ID=850962

The hidden cost of taxes
Sep 18th 1997
From The Economist print edition

THE first diagram shows a demand curve and a supply curve for some hypothetical good. Usually, as the price of a good comes down, the quantity demanded increases; the demand curve therefore slopes downwards from left to right. Usually, as the price of a good goes up, the supply of it rises too; so the supply curve slopes upwards. With buyers and sellers free to trade, a balance of supply and demand will be established at the point where the two curves cross—point X, where the price is P and where the same quantity, Q, is both demanded and supplied. That point of equilibrium gives the market’s answer to how much of the good will be traded and at what price.

Turning to the second diagram, the shaded area between the demand and supply curves, to the left of the point where they cross, has a special significance, because it represents the net addition to social welfare that is created when the good is bought and sold at the market price.

If you divide the area into two, the upper part, A, represents the so-called consumer surplus. Every unit of the good sold when supply equals demand—the whole of the quantity Q in the diagram—is sold at the market price, P. But smaller quantities of the good could have been sold for more than P. Only for the last (or marginal) unit sold is P the top price the consumer would be willing to pay. In effect, therefore, all but that last unit have been sold for less than they are worth to the consumer. The area A adds up all these surpluses, unit by unit, showing the value of all the transactions to consumers over and above the price they paid.

By the same logic, the lower part of the area between the demand and supply curves in the second diagram, B, represents the producers’ surplus. Only the last unit supplied costs its producer exactly P. Other producers would have been willing to supply at a lower price, enough to deliver some smaller quantity of goods to the market. When these not-on-the-margin units are sold at the market price, their producers are paid more than they would have been willing to accept. The area B adds up all the producer surpluses.

The third diagram shows what happens when a tax is imposed, raising the price paid by consumers from P to Pc, and lowering the price received by suppliers to Ps. At these new prices, Qt is demanded and supplied. The amount of the tax (the difference between Pc and Ps) multiplied by the number of units sold (Qt) gives the revenue raised for the government (area C in the diagram). Both the consumer surplus, A, and the producer surplus, B, are accordingly smaller than before.

That was to be expected. The point is, though, that the two surpluses, added together, have shrunk by more than the amount taken away in tax. Now that the quantity of goods supplied has fallen to Qt, the triangle D has disappeared: it is not part of the government’s tax yield, and it is no longer part of the economic surplus; it has simply vanished. This part of the reduction in the surplus is a pure loss to the economy, known in the jargon as the deadweight cost of the tax. The implication is that if the government raised the area C in taxes and then handed the money straight back as lump sums to consumers and producers, the economy would still be poorer than before because the area D would still be missing.

In the last diagram the tax is twice as big as before. The price to consumers has increased once more, and the quantity supplied has fallen further. The consumer and producer surpluses are also smaller. The government’s tax revenue, C, may quite possibly be smaller too, despite the higher tax rate, because of the smaller quantity traded. The deadweight cost, however, has increased fourfold.

If the demand and supply curves were indeed curves rather than straight lines, the relationship between tax rise and pure economic loss would not be quite so simple. But the basic point would be the same: in general, the deadweight cost of a tax rises exponentially as the tax goes up.

But it IS the total price you pay with respect to the product cost and the federal sales tax - state sales tax was never part of the discussion. I repeat - the price is what you pay for the item, including the tax.

So it's my total of what I pay except for the other stuff I pay. Look up total.

P.S. "forla" = "formal" on those days during which I type on the keyboard with my fingers tangled.

This gets my vote for the most irrelevant post of the day! Way to go, Geez!