Posted on 08/24/2005 9:40:44 PM PDT by RobFromGa
August 24, 2005
U.S. Representative John Linder
1026 Longworth House Office Building
Washington, DC 20515
Phone: 770-232-3005
Fax: 770-232-2909
Copy: Neal Boortz, WSB Radio,
Dr. Dale Jorgenson, Harvard University
Dear Representative Linder:
I wrote to you two days ago regarding what I consider to be serious misrepresentations of the Fair Tax plan contained in your book, “The FairTax Book”. On page 2, you state “Let’s agree up front that this book is about honesty” and I intend to hold you at your word. Since that time, I have been in contact with Dr. Jorgenson in an attempt to clarify his understanding of this Plan and his calculation of expected price declines.
On pp. 22-23, your book states: “An extensive study of tax costs was completed a few years ago by Dr. Dale Jorgenson, then chairman of the Harvard Economics Department. On average, Jorgenson concluded, 22 percent of the price paid for a consumer product represents embedded taxes.”
You then went on to show a Chart (Fig 5.1) which shows the expected price decline without embedded costs for various goods and services as prepared by Jorgenson during his study.
On page 55, you go on to explain that these embedded taxes are “in addition to the money taken out of your check in income and payroll taxes.”
On page 59, you again invoke Dr. Jorgenson’s study: “If you’re looking for scholarly support for the proposition that prices will fall once the embedded taxes are removed, we can check back with [Jorgenson’s] “The Economic Impact of the National Retail Sales Tax” and you quote his report:
Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers… would fall by an average of twenty percent”
In this statement, Jorgenson seems to say that one of the reasons for the price drop at the producer level was the elimination of the tax on wages paid to workers. So, naturally if the business is going to realize this benefit it must reduce the workers gross pay be the amount that is currently being paid in the form of income and payroll taxes. This only makes sense because how can the business reduce costs if it gives the worker tax savings to the worker?
Later on page 59, you state: “Once the FairTax takes effect, you’ll be receiving 100 percent of every paycheck, with no withholding of federal income taxes, Social security taxes, or Medicare taxes and you’ll be paying just about the same price for T-shirts and other consumer goods and services that you were paying before the FairTax.”
Dr. Jorgenson’s report clearly showed that under his study the worker would not get their complete paycheck, because if he/she did, there would be no cost savings to the business and therefore no price drop associated with worker taxes.
You continue this theme on page 83: “Remember that the poor, along with everyone else—will no longer have Social Security taxes or Medicare taxes removed from their paychecks. Whatever they earn, they get on payday. For most of those we categorize as poor, this would mean an immediate 25 to 30 percent increase in their take-home pay.”
On page 84, you make it clear though that even though the workers will keep all of their paychecks for a big raise, you still believe that because of “the disappearance of the embedded taxes, the total price paid for consumer goods will remain very nearly the same”.
By assuming these two things together, you are misrepresenting Jorgenson’s report and double-counting the tax savings, first by giving them to the worker as a pay raise, and then at the same time assuming that there was a cost savings to the business.
On page 85 you make it clear the worker will get the pay raise.
And then on page 111, you tie it all together with a Quick Review in which you erroneously assert that “Here’s what happens when we pass and implement the FairTax plan:”
“We start collecting 100 percent of our earnings on our paycheck.
“We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
“The prices of consumer goods and services remain essentially the same, with the removal of the embedded taxes compensating for the added consumption tax.”
Dr. Jorgenson’s report seemed pretty clear to me, but I felt it was necessary to ask him directly what he meant so I sent him this e-mail:
At 09:29 AM 8/24/2005 -0400, you wrote:
Dear Dr. Jorgenson,
I am a private US citizen who is concerned that the FairTax proponents are misrepresenting your conclusions. Would you please comment on the attached letter I sent to Mr. Boortz and Rep. Linder? I think that they are being dishonest to imply that the wage earner will keep his entire paycheck, while at the same time businesses will be able to reduce costs? Your March 1996 testimony stated, in part:
5.Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart, would fall by an average of twenty percent
Are you expecting business to reap a benefit from the taxes that that the worker no longer pays? It certainly sounds like that is part of where you see the business reducing its costs.
Rob
Dr. Jorgenson responded:
From: Dale Jorgenson [mailto:djorgenson@harvard.edu]
Sent: Wednesday, August 24, 2005 10:28 AM
To: Rob xxx
Re: Fair Tax- Is your 1995-6 Testimony being misrepresented by Boortz/Linder book?
August 24
Dear Rob,
A more reasonable interpretation of my 1996 testimony is that workers would keep that after-tax pay; producers' prices would fall, but retail prices would be increased by the national retail sales tax. Any gains by workers and investors would be the result of increase economic efficiency.
[He then went on to recommend his book called LIFTING THE BURDEN, about another tax reform plan he calls Efficient Taxation]
Best,
Dale
I wanted to be perfectly clear what he was saying, so I asked him to clarify his email:
At 06:41 PM 8/24/2005 -0400, you wrote:
Dr. Jorgenson,
Excuse me for my lack of understanding of your answer, when you say "workers would keep that after-tax pay" are you saying that if they are making $1000 a week now, and paying $200 payroll+income taxes now, that under the FairTax you were assuming that workers would get paid $800 and keep all of that? Or are you saying that you meant they would make $1000 under the FairTax?
Regards,
Rob xxx
Dr Jorgenson responded:
August 24
Dear Rob,
I am saying that the worker would continue to receive the after-tax amount of $800. Prices received by producers would decline to cover the cost of after-tax wages to workers and after-tax dividends and interest to investors. However, taxes paid at the retail level would include the Fair Tax.
Best,
Dale
So, Dr. Jorgenson, whose report you are relying on to support your calculation of embedded taxes, is stating that in making those embedded tax calculations he was not assuming that the worker would keep his current after-tax amount, NOT that the worker would keep all of his current gross pay-check. By reducing the gross pay of the worker to the current after-tax amount, the producers would see a cost reduction that would allow them to reduce selling prices. There would be no increase in take-home pay.
I think you need to carefully review the misrepresentations in your book and offer a retraction and modify subsequent printings to remove these errors. You have spent a large amount of time on this plan, and it is still a viable option for debate even without the bug windfall pay raise for everyone. I would enjoy the opportunity to discuss this with you further if you have questions.
Sincerely,
Rob xxx
xxxxxxx
Which is exactly the point I am trying to make, without splitting hairs between the EU definition of value added, and our sales taxes in various locales.
Therefore I'll just write "sales tax," and we are in agreement, semantics aside..
The difference between a retail sales tax and a VAT is fundamental, not merely splitting hairs. Thus leaves us at substantial disagreement in a very basic manner.
A retail sales tax is collected only an point of sale for final consumption and is fully visible being collected from the consumer/voter openly at point of sale. That is why government prefer the levy of income taxes and VATs the mechanics of which are mostly out of sight of the average citizen.
A VAT, unlike the retail sales tax, is imposed throughout the full chain of production operating on business purchases effecting the economy in profound manner throughout acting in a less visible and more insidious manner causing dislocations and problems throughout an economy.
Definition [ http://www.encyclopedia.com/articles/13330.html ]:
value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.
That VATs main claim to fame is its capacity to extract revenues from an economy at much higher levels than other tax systems as it operates generally out of the view of the general population and provides endless opportunites for political machinations behind the curtain of commercial activity.
http://www.ncpa.org/pi/taxes/pdtx31.html
*** VAT is the most efficient tax ever devised, since it doesn't discourage production as much as other taxes that raise the same revenue. It is also nearly invisible and therefore easily raised.
The revenues from VAT have helped expand the welfare state. In 1965, government spending as a share of gross national product in Western Europe averaged 34.5 percent; but by 1993, spending had risen to 52.1 percent. Business welfare also expanded, with industrial subsidies at least four times as high in Europe as in the U.S. And for European workers, VAT helped create a poverty trap, as direct taxes discouraged work, and generous benefits cut the cost of not working. Source: Bruce Bartlett, "Shadow of VATman," National Review, March 25, 1996. |
If you ignore me I will assume you are an IRS agent who carries a loaded gun to point at my head to either get my money or send me to jail.As if would care what YOU assume...
I have stated in numerous threads and even TO YOU in a mannerly way that the only savings would be from 10 to 18%.I missed the part where you said employee's would NOT get 100% of their paychecks while employers saved 10 to 18%...would you like to show where you said that?
This is oxymoronic. There's already a tax on marijuana, how well do they do at collecting that? There are already any number of taxes due from the underground economy that don't go collected. What makes you think that the same people won't buy off the black market?
Fully taxed? This country already has markets in illegal drugs, illegal labor, illegal cars and parts, illegal booze, illegal cigarettes... With an NRST and open borders for goods due to CAFTA, that market will explode.
The only reason those goods are sold illegally is that the amount of the tax makes it worth the risk of getting caught.
Realize the National Retail Sales Tax implemented under the FairTax legislation does not exempt products or services. Instead it provides a sales tax rebate mechanism paid to all legal residents equally to provide for payment of the sales tax on expenditures at the HHS poverty level defined for size of household. This avoids the necessity and problems of making such definitions and specific exceptions as you mention which obviously are the source of much manipulation and political wrangling in the state sales taxes.
Given the byzantine tax code we have, you are asserting that Congress won't insert line items into budget bills altering sales taxes for specific goods before the ink on the NRST is dry? What planet are you living on?
When you clean the slate it becomes more difficult to favor a specific group without raising the hackles of everyone else.
"More difficult" will likely last about 45 minutes. Until you've seen the machinations of the California State Board of Equalization over sales tax minutae (an Orwellian name if there ever was one), you can't tell me that Congress will leave this alone. No way.
Look, I have been an advocate of sales taxes for twenty-five years. I applaud the intent to have the public recognize the cost of government in every purchase. I wait for the day that every spending bill will be discussed in terms of its impact on a visible tax that every citizen confronts every day. But until we can get spending down to about 10% of sales, I promise you, the size of black market you'll see will be mind boggling, the number of exemptions for specific uses and products will be daunting, and the mechanics of enforcement will make the WOD look like a garden party. The burden of calculating tax collections on thousands of goods at a myriad of rates under various conditions will fall heavily upon all but the largest of retailers, who, I am certain, love this proposal.
When the advocates of NRST start to deal honestly with the public, I'll pay more attention to what they have to say.
Yeah I know. I didn't have time. Its a long story.
Read the Fair Tax Book.
If I have an income of 100 dollars and a tax of 10 dollars, then I have 90 spending dollars after taxes. I have a take home of 90 dollars that I am used to receiving.
If Company X produces a car that costs 100 dollars and it charges that 100 dollars instead of 90 dollars because 10 dollars represents imbedded taxes, then some car company might charge 90 dollars for the car if the 10 dollar tax is removed.
If this is incorrect, I would appreciate it if someone would spell it out in simple terms for a simple mind.
Prior to the tax removal, my 90 dollar income would not pay for the 100 dollar car. After the tax removal, my 90 dollar income might pay for the car if the company responds to tax cessation by reducing it's price to 90 dollars.
The burden of calculating tax collections on thousands of goods at a myriad of rates under various conditions will fall heavily upon all but the largest of retailers, who, I am certain, love this proposal.Maybe not.
Statement of Del Threadgill, Vice President of Taxes,...."I am here today to express the retail industry's strong opposition to a proposed National Retail Sales Tax (NRST)"....J.C. Penney Company, Dallas, TX, and
Chairman, Taxation Committee, National Retail Federation
Read the Fair Tax Book.It's fiction or haven't you been paying attention.
"The book" is your bible not mine. I've been studying this for years, what makes you think I need to read a book written by a talk show host about taxes?
Yeah #1 on New York times because its fiction... Did I tell you I have some beach front property in Iowa for sale? Yeah I can tell you have been studying it for years since you are so articulate...... LOL!
Here read his daily news,
http://boortz.com/nuze/index.html
Yeah #1 on New York times[sic] because its fiction... Did I tell you I have some beach front property in Iowa for sale? Yeah I can tell you have been studying it for years since you are so articulate...... LOL!I seem to have a huge impact on you. You even did a search on my name...Who's the fool in that picture?
So your "#1 on New York times"[sic] "read the Fairtax book" mantra is as articulate as you've been so far.
Did you have something of substance other than me you wanted to know about?
Here read his daily news,Why?
To educate you on the Fair Tax
To educate you on the Fair TaxAs the saying goes, I forgot more than you and your lover Boortz know about the fairtax combined.
What you really mean is you want me to believe, as you do, what he's written...I've seen it all regurgitated too many times.
You and Neal should really think about getting a room somewhere.
I was referring to the Wal*Mart's of the world as the exceptions.
mark
I was referring to the Wal*Mart's of the world as the exceptions.My mistake...
All you do is hurl insults. You can't even make one valid point on why you love the current income tax so much. Don't bother replying back since you make no points and only insults.
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