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JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
self | August 25, 2005 | RobFromGa

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


TOPICS: Government; Your Opinion/Questions
KEYWORDS: boortz; embedded; embeddedtax; fairtax; hr25; jorgenson; liar; linder; nrst; retraction; robpropaganda; scam; taxes; taxfraud; taxreform
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To: Your Nightmare

"If you believe that out of a ~$2 trillion discretionary (non-SS) budget only ~$750B is spent on goods, services,
and employees, you are nuts."

Not nuts, just better informed than you are. And if I'm nuts, then apparently so is the Census website.

The Federal government doesn't really "spend" all that much on consumption. It doles out a lot of money,
but it doesn't "consume" all that much. It pays retirement benefits to former employees.
It gives money in block grants to states. It pays out disability, unemployment, and SS benefits.

It would only pay FairTax on what it "consumes" plus wages for current employees.
If you don't beleive the Census numbers, then how about the NIP tables ?

14 Federal government consumption $ 658.6 NIPA Table 3.10.5, line 12
15 Gross purchases of new structures $ 15.5 NIPA Table 3.9.5, line 9
16 Gross purchases of equipment and software $ 78.1 NIPA Table 3.9.5, line 10


681 posted on 09/06/2005 11:58:05 AM PDT by Kellis91789
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To: Your Nightmare

I went to the Census numbers because you apparently didn't believe anything that came from the AFFT site.

"So, $827B minus $30B education expense equals $797B - multiplied by 29.87% is $238B! You were a little off."

Well, you haven't broken this down into how much was wages and salaries with the 7.65% savings vs. the 11% price drop savings for everything else. I'll do it for you. Save $16B on salaries. Save 11% times $587B = $65B on everything else. So our new FairTax base is $716B. Times 30% = $214B. Total is now $214B + $716B + $30B = $960B. Which is $133B. Subtract the $70B in interest savings on the national debt. We have a net increase of $63B.

So using your own figures, I was a heck of a lot closer than you were.


682 posted on 09/06/2005 12:09:07 PM PDT by Kellis91789
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To: Kellis91789

More FairTax, pie-in-the-sky math. Like the price of an aircraft carrier is going to go down 11%...


683 posted on 09/06/2005 12:24:33 PM PDT by Your Nightmare
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To: Your Nightmare

Like the contractor that builds aircraft carriers doesn't have income and payroll taxes and neither does anybody in their supply chain.

Give it up, Nightmare. All you can ever prove is that if you deny the obvious, the FairTax can't work. Denial. It's not just a river in Egypt.


684 posted on 09/06/2005 1:14:06 PM PDT by Kellis91789
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To: Kellis91789

Just for fun, I went and checked the financial statement for Nortthrup Grumman -- major contractor for a new aircraft carrier "CVN 21" starting construction in 2007.

2004 revenue was $30B. Income Tax paid $500M. Payroll tax on 125K employees was probably $600M. 11% savings on subcontractors and materials is another $2.5B so we have a total cost reduction of $3.6B on $30B revenue. Looks like 12% to me.


685 posted on 09/06/2005 2:06:48 PM PDT by Kellis91789
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To: Kellis91789
You give it up. FairTax supporters have been claiming for years that everyone would come out ahead with the FairTax. There are no losers. Even the federal and state governments can pay a 29.87% tax on their purchases and wages and still come out ahead.

It's all a shell game.
686 posted on 09/06/2005 2:16:37 PM PDT by Your Nightmare
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To: Kellis91789; Your Nightmare
Well, you haven't broken this down into how much was wages and salaries with the 7.65% savings
What makes you think there would be a 7.65% savings on wages and salaries?...

Where is it written that the payroll tax paid on the employee's behalf won't be given to the employee where it belongs?...Especially when the Fairtax rate would be determined by Social Security bureaucrats based on 15.3% of the Social Security wage base.

`(d) OLD-AGE, SURVIVORS AND DISABILITY INSURANCE RATE- The old-age, survivors and disability insurance rate shall be determined by the Social Security Administration. The old-age, survivors and disability insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 12.4 percent tax on the Social Security wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the Calendar year for which it applies.

`(e) HOSPITAL INSURANCE RATE- The hospital insurance rate shall be determined by the Social Security Administration. The hospital insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 2.9 percent tax on the Medicare wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the calendar year for which it applies.

Add them up, it's 15.3% not 7.65%...
687 posted on 09/06/2005 6:38:00 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: lewislynn

You really are confused. You need to stop reading only every third word and read what the bill actually says.

"... same amount of revenue that would have been raised ..."

has nothing to do with where the money comes from. It is strictly a guarantee that SS and Medicare will still be funded -- but from general revenue instead of a separate special employment tax.

The employment taxes are finished, eliminated, don't exist anymore. There is no way for the givernment to force employers to give employees money that was never paid by the employee and never counted as compensation to the employee. Employers will continue to pay their employees their contractually agreed upon gross wages, period. Which means the employer see a COST for the employee 7.65% lower than it was before.

If you can't make an intelligent statement, you should just keep quiet.


688 posted on 09/06/2005 6:55:02 PM PDT by Kellis91789
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To: Kellis91789
I should have known you couldn't see the logic of extracting the equivalent of 15.3% of payroll and self-employment income taxes and not giving the full 15.3% of the payroll taxes to the actual taxpayer/consumer..

Did you ever stop to think that if the 7.65% retained by employers did lower prices it would trigger the SS bureaucrats to raise the rate to raise the -"same amount of revenue that would have been raised"- when the employer was paying it?....

You aren't capable of seeing that if the employer retains 7.65% of the Social Security wage base that the Social Security wage base would be 7.65% short, resulting in higher tax rates (without a vote from Congress) for consumers (that's not a question).

689 posted on 09/06/2005 9:08:13 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: Kellis91789
There is no way for the givernment to force employers to give employees money that was never paid by the employee and never counted as compensation to the employee.
Really? No way? Not counted as compensation?
Employers will continue to pay their employees their contractually agreed upon gross wages, period.
That's a nice AFT talking point but if there is such a thing as a "contractually agreed upon" (unless you're a union member) wage the government enforced part of the contract requires the employer to pay 7.65% of the wage base on the employee's behalf..it's in the contract.
690 posted on 09/07/2005 7:25:23 AM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: lewislynn

No, I can see it isn't a question. It is just an incorrect conclusion.

You can't seem to get it through your head that the SS administrators are going to simply tell Congress how much money they need -- calculated based on the equivalent of the revenue raised from the old rates.

As long as the FairTax 23% raises enough total revenue to cover the SS obligations as well as all other obligations previously funded by income and payroll taxes, there is no "missing" 7.65%.


691 posted on 09/07/2005 2:27:20 PM PDT by Kellis91789
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To: lewislynn; pigdog; Your Nightmare; RobFromGa; Dimples

"the government enforced part of the contract requires the employer to pay 7.65% of the wage base on the employee's behalf..it's in the contract."

I'm going to have to start calling you "Loonie-Lewie".

What country do you live in ? There is no contractual agreement for the employer to pay 7.65% of the wage base on the employee's behalf. None. There is a separate law requiring employers to pay WHATEVER rate Congress decides. That rate can be 10% or zero or whatever Congress decides -- and the employee has no claim on the money that would have been paid at a different rate.

Economists may argue about who bears the "burden" of the employer-side payroll tax, but there is no legal claim the employee can make and receive it. Even tax protesters that refuse to pay income tax and "opt out" of the SS tax do not receive from the employer the amount the employer would have paid the government. That's just silly.


692 posted on 09/07/2005 2:37:34 PM PDT by Kellis91789
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To: Kellis91789
I'm going to have to start calling you "Loonie-Lewie".
Here we go, another idiot with the name calling...
What country do you live in ? There is no contractual agreement for the employer to pay 7.65% of the wage base on the employee's behalf.
You're right it's not a contractual agreement it's a federal law whether the employer agrees to it or not.
there is no legal claim the employee can make and receive it.
Sure there is. It's called Social Security/medicare benefits
There is a separate law requiring employers to pay WHATEVER rate Congress decides.
And right now that rate is 7.65% of the employee's SS wage base...
693 posted on 09/07/2005 5:02:37 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: Kellis91789
You can't seem to get it through your head that the SS administrators are going to simply tell Congress how much money they need
Nope, you're wrong as usual. I'll have to post it again.
`(3) COMBINED FEDERAL TAX RATE PERCENTAGE- The combined Federal tax rate percentage is the sum of--

`(A) the general revenue rate (as defined in paragraph (4), and

`(B) the old-age, survivors and disability insurance rate, and

` (C) the hospital insurance rate.

-----

`(d) Old-Age, Survivors and Disability Insurance Rate- The old-age, survivors and disability insurance rate shall be determined by the Social Security Administration. The old-age, survivors and disability insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 12.4 percent tax on the Social Security wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the Calendar year for which it applies.

`(e) Hospital Insurance Rate- The hospital insurance rate shall be determined by the Social Security Administration. The hospital insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 2.9 percent tax on the Medicare wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the calendar year for which it applies.

`(f) Assistance- The Secretary shall provide such technical assistance as the Social Security Administration shall require to determine the old-age, survivors and disability insurance rate and the hospital insurance rate.

Not one word about "simply telling Congress how much money they need".

What part of "shall be determined by the Social Security Administration" and "shall be that sales tax rate" confuses you?

694 posted on 09/07/2005 5:37:06 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: lewislynn

"... to raise the same amount of revenue that would have been raised..."

That says it all. Your misinterpretation is not my problem.


695 posted on 09/07/2005 8:00:18 PM PDT by Kellis91789
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To: Kellis91789
"... to raise the same amount of revenue that would have been raised..."

That says it all. Your misinterpretation is not my problem.

No that only says part of it. this says it all:
"The old-age, survivors and disability insurance rate shall be determined by the Social Security Administration. (not by Congress) The old-age, survivors and disability insurance rate shall be that sales tax rate (determined by unelected Social Security bureaucrats)which is necessary to raise the same amount of revenue that would have been raised by imposing a 12.4 percent tax on the Social Security wage base (including self-employment income).....

The hospital insurance rate shall be determined by the Social Security Administration. The hospital insurance rate shall be that sales tax rate (determined by unelected Social Security bureaucrats) which is necessary to raise the same amount of revenue that would have been raised by imposing a 2.9 percent tax on the Medicare wage base (including self-employment income)

The Fairtax definition of 100% paycheck only includes 7.65% of the SS wage base but the very same Fairtax people include 15.3% of the SS wage base in their sales tax...That's a loser for the consumer.
Your misinterpretation is not my problem.
Actually YOUR misinterpretation is your problem...I only posted the actual words YOU misinterpreted them.
696 posted on 09/07/2005 8:30:16 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: lewislynn

You are still misinterpreting the rates shown in sections 904(d) and (e). This is only to establish that funding will be provided that matches what the old system provided. The more relevant sections are 904(b) and (c) which just says the total 23% is allocated to fund 5 separate obligations as defined in (a):

"
`SEC. 904. TRUST FUND REVENUE.

`(a) Secretary to Make Allocation of Sales Tax Revenue- The Secretary shall allocate the revenue received by virtue of the tax imposed by section 101 in accordance with this section. The revenue shall be allocated among--

`(1) the general revenue,

`(2) the old-age and survivors insurance trust fund,

`(3) the disability insurance trust fund,

`(4) the hospital insurance trust fund, and

`(5) the Federal supplementary medical insurance trust fund.

`(b) General Rule-

`(1) GENERAL REVENUE- The proportion of total revenue allocated to the general revenue shall be the same proportion as the rate in section 101(b)(4) bears to the combined Federal tax rate percentage (as defined in section 101(b)(3)).

`(2) The amount of revenue allocated to the old-age and survivors insurance and disability insurance trust funds shall be the same proportion as the old-age, survivors and disability insurance rate (as defined in subsection (d)) bears to the combined Federal tax rate percentage (as defined in section 101(b)(3)).

`(3) The amount of revenue allocated to the hospital insurance and Federal supplementary medical insurance trust funds shall be the same proportion as the hospital insurance rate (as defined in subsection (e)) bears to the combined Federal tax rate percentage (as defined in section 101(b)(3)).

`(c) Calendar Year 2007- Notwithstanding subsection (b), the revenue allocation pursuant to subsection (a) for calendar year 2007 shall be as follows:

`(1) 64.83 percent of total revenue to general revenue;

`(2) 27.43 percent of total revenue to the old-age and survivors insurance and disability insurance trust funds, and

`(3) 7.74 percent of total revenue to the hospital insurance and Federal supplementary medical insurance trust funds.

`(d) Old-Age, Survivors and Disability Insurance Rate- The old-age, survivors and disability insurance rate shall be determined by the Social Security Administration. The old-age, survivors and disability insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 12.4 percent tax on the Social Security wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the Calendar year for which it applies.

`(e) Hospital Insurance Rate- The hospital insurance rate shall be determined by the Social Security Administration. The hospital insurance rate shall be that sales tax rate which is necessary to raise the same amount of revenue that would have been raised by imposing a 2.9 percent tax on the Medicare wage base (including self-employment income) as determined in accordance with chapter 21 of the Internal Revenue Code most recently in effect prior to the enactment of this Act. The rate shall be determined using actuarially sound methodology and announced at least 6 months prior to the beginning of the calendar year for which it applies.

`(f) Assistance- The Secretary shall provide such technical assistance as the Social Security Administration shall require to determine the old-age, survivors and disability insurance rate and the hospital insurance rate.

`(g) Further Allocations-

`(1) OLD-AGE, SURVIVORS AND DISABILITY INSURANCE- The Secretary shall allocate revenue received because of the old-age, survivors and disability insurance rate to the old-age and survivors insurance trust fund and the disability insurance trust fund in accordance with law or, in the absence of other statutory provision, in the same proportion that the old-age and survivors insurance trust fund receipts bore to the sum of the old-age and survivors insurance trust fund receipts and the disability insurance trust fund receipts in calendar year 2006 (taking into account only receipts pursuant to chapter 21 of the Internal Revenue Code).

`(2) HOSPITAL INSURANCE- The Secretary shall allocate revenue received because of the hospital insurance rate to the hospital insurance trust fund and the Federal supplementary medical insurance trust fund in accordance with law or, in the absence of other statutory provision, in the same proportion that hospital insurance trust fund receipts bore to the sum of the hospital insurance trust fund receipts and Federal supplementary medical insurance trust fund receipts in calendar year 2006 (taking into account only receipts pursuant to chapter 21 of the Internal Revenue Code)."

Whatever the total Sales Tax rate is, it will initially be split up by the Secretary of the Treasury based on the percentages given in 904(c)(1-3) for the Calendar Year 2007. Section (d) only shows that this split of the 23% revenue is supposed to match the funding provided by the old separate Payroll Tax rates.

This split could change as FairTax revenue increases due to economic growth or as baby-boomers retire, and the wage base falls.

None of this has anything to do with 15.3% vs. 7.65% being returned to the wage earner. It is simply to guarantee that the SSA's calculations for these liabilities will have the same funding as before.

The phrases "shall be that sales tax rate" and "would have been raised by" are the keys. This does not give the SSA any leeway to raise rates just because they want to -- or even need to. The rates can only be what is "necessary to raise the same amount of revenue" as in under the previous wage-based tax.

All the SSA can do is say "The wage base was 'X' and 12.4% of that would be 'Y', so we need that much money. The FairTax base is 'Z', so tell the consumer that 'P' of the Sales Tax is to fund SS." Same for the other funds.

I've said before that I am not happy with the handling of the SS program within the FairTax. But the 15.3% vs. 7.65% and whether the employer-side 7.65% belongs to the employee is not one of my concerns. Only the self-employed even think about that 7.65% as belonging to them. With any agreed-upon wage, it is never included as part of the employee's gross.

If you want to worry about the SS after the FairTax, then worry about something relevant, like the fact that the FairTax breaks the myth that your SS account is like a retirement account with money in it. And although the FairTax ensures funding, there is no longer a direct link (though never proportional) between taxes actually contributed and the benefit received. This makes it clear that the SS program is just welfare. Most of us knew that already, but it will be painfully obvious under the FairTax. It also makes implementing private accounts a very dubious affair. To say that somebody is entitled to place 'X' amount of money in a private account because they 'theoretically' paid 'Y' amount in Sales Taxes is just ridiculous. So saving for retirement will not be through private accounts paid for from FairTax revenues. Just not gonna happen. Worry about that if you want to focus on SS.


697 posted on 09/08/2005 2:33:41 PM PDT by Kellis91789
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To: lewislynn

I missed this comment earlier:

"Did you ever stop to think that if the 7.65% retained by employers did lower prices it would trigger the SS bureaucrats to raise the rate to raise the -"same amount of revenue that would have been raised"- when the employer was paying it?...."

I think I finally see where your misconception comes from.

There are two entirely different tax bases involved here.

If you look at the total revenue from the 15.3% payroll taxes, it is around $700B. That means the taxable wage base was $700B/.15 = ~$4.7T

The taxable base for the FairTax is roughly $9.7T, so obviously 15.3% is not necessary to raise the same $700B revenue. Only $700B/$9700B = 7.2% is actually necessary.

This means that if we were only replacing the payroll taxes with a FairTax, the FairTax rate would only need to be 7.2% instead of 23%. The remainder of the 23% is going to the general fund and to provide the "prebate/rebate/refund/welfare/subsidy/whatever-you-want-call-it."

The FairTax section 904 you keep quoting only guarantees the funding at the same level as wage-base tax rates. 7.2% does that, no matter whether the employer-side 7.65% went to the employee, reduced prices, or was kept as additional profit by the employer.


698 posted on 09/08/2005 2:48:39 PM PDT by Kellis91789
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To: Kellis91789
The more relevant sections are 904(b) and (c)
`(c) Calendar Year 2007- Notwithstanding subsection (b), the revenue allocation pursuant to subsection (a) for calendar year 2007 shall be as follows:

-----

`(2) The amount of revenue allocated to the old-age and survivors insurance and disability insurance trust funds shall be the same proportion as the old-age, survivors and disability insurance rate (as defined in subsection (d)) bears to the combined Federal tax rate percentage (as defined in section 101(b)(3)).

`(3) The amount of revenue allocated to the hospital insurance and Federal supplementary medical insurance trust funds shall be the same proportion as the hospital insurance rate (as defined in subsection (e)) bears to the combined Federal tax rate percentage (as defined in section 101(b)(3)).

`SEC. 101. IMPOSITION OF SALES TAX.
`(a) In General- There is hereby imposed a tax on the use or consumption in the United States of taxable property or services.

`(b) Rate-

`(1) FOR 2007- In the calendar year 2007, the rate of tax is 23 percent of the gross payments for the taxable property or service.

`(2) FOR YEARS AFTER 2007- For years after the calendar year 2007, the rate of tax is the combined Federal tax rate percentage (as defined in paragraph (3)) of the gross payments for the taxable property or service.

`(3) COMBINED FEDERAL TAX RATE PERCENTAGE- The combined Federal tax rate percentage is the sum of--

`(A) the general revenue rate (as defined in paragraph (4), and

`(B) the old-age, survivors and disability insurance rate, and

`(C) the hospital insurance rate.

`(4) GENERAL REVENUE RATE- The general revenue rate shall be 14.91 percent.

So where is the combined rate rate for 2008?

699 posted on 09/08/2005 5:18:43 PM PDT by lewislynn (Status quo today is the result of eliminating the previous status quo. Be careful what you wish for)
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To: lewislynn
Don't you ever tire of trying your same-old, same-old on posters you think might be new to the threads in hopes you'll fool them??

This "stuff" didn't work the first 27 times you tried it - it surely won't now. The poster Kellis91789 is definitely no newbie poster as you'd like. But I guess you'll find that out the hard way ... lotsa' luck Looey.

700 posted on 09/08/2005 6:05:41 PM PDT by pigdog
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