I contacted Dr. Dale Jorgenson, the Harvard economist who did the FairTax models, earlier today. He said that he assumed workers would keep their current after-tax income, NOT their current gross pay.
There is no pay raise with the FairTax plan, as many of us have stated, and been ridiculed for stating.
RobFromGa
Here is what I found out today. It backs up our contention that the FairTax Book is misrepresenting Dr. Jorgenson's testimony and report.
Dude, you have way too much time on your hands!
Dude, you have way too much time on your hands!
While I'm generally in favor of FairTax, I'm glad to see this post. I've always felt something didn't quite add up with this. I mean, if the government is taking in a certain amount of money via the current tax system, and after the FairTax they are still taking in the same amount of money, how can everyone be paying less taxes? You can alot a certain amount for the overhead that is eliminated, and you can also expect a certain amount of growth, but I don't think the proponents are counting on the growth in their models, and the elimination of the overhead doesn't account for all the benefits they are touting. It just doesn't add up.
That depends entirely on how you are currently paid. My brother's business, for example, pays his employees as contracted labor at a set rate. He does this to limit mandates and red tape from the government being imposed on him. The individuals are responsible for their tax burden, and the Fair Tax would eliminate that burden from them.
I have my own concerns about how the monthly stipend the Fair Tax advocates would be abused by the class warfare crowd, but increased take home pay is possible for many.
I had done some quick calculations and couldn't get the embedded tax above about 9% (employer SS+Medicare + tax on profits) + costs of collection and no one could convince me that the cost of collection was up around 15%. That would have implied that the total cost of collection in the entire economy was around $1.5 trillion/year. It might be a lot, but not that much.
Even with this I still like the FairTax. I could accept an 18% net increase in prices to keep my gross paycheck and eliminate all income and payroll taxes.
"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."
I think I'm failing to see the problem here. A person's income is a rate agreed to between the employer and employee. The taxes that are taken out of the salary of the employee are taken out after it's been accounted to that employee. It's a cost to the company through labor costs, not an tax paid outside of the person's wages. To assume that an employee would still receive their current take home pay is to assume that the employee would receive a pay cut and/or that a person's wages are artificially inflated to take taxes into account.
With labor costs remaining the same, a company might not elect to drop their products prices. Heck, a company might just enjoy trying to reap a bigger profit margin by keeping their prices the same. That would increase the consumers' prices with the large sales tax added on.
The point of the fair tax to me is to wrest back some form of control from Congress regarding our money. While Congress will still try to spend, more people will be aware of just how much the fed takes from them. It might make people more responsible, especially in elections. The talk of wage increases, price drops, etc. are not unlike President Bush throwing out an exact dollar amount of how much an average family would save with his tax cuts, instead of giving people a more accurate percentage figure.
I I raised that very question on this thread four years ago:
Can the NRST Really Reduce Consumer Prices by 20% to 30%?
It seemed pretty clear to me that Dr. Jorgensen was being misrepresented, or at best, misunderstood. Though I contacted Dr. Jorgensen about this at the time, I never received a response. I'm glad this has finally been cleared up.
Stop talking sense, dammit! DRINK THE KOOL-AID!!!
;o)
The "FairTax" crowd is deluding none save themselves.
The fallacy in this argument lies in this statement. Businesses pay an additional tax over and above what you as a worker pay on your money. There is no reason to believe that employers would decrease anyones pay. Their savings would be on the amount they pay in on you over what you pay in (approximately the same amount held out of your wages). Check all the facts before you decide someone is right.
I believe labor contracts are for gross pay, not after tax income. By what mechanism does the Fair Tax eliminate every labor contract in the country?
What's to keep this 23% tax from increasing the minute we switch to the national sales tax?
Roughly a third of my work effort goes to pay tax, a tenth goes to pay accountants and another tenth (at least) is taken up by planning, managing and recording for taxes, and god knows how much worrying about the whole stupid maddening meddling mess.
Give me a consumption tax, no accountants and no recording, reporting or auditing, no muss, no fuss, and I'd gladly take the net salary I have now and kiss you for it.
you lost me at "August 24, 2005"
bttt
You are so focused on the specific numbers that you seem to have missed a vital point in Dr. Jorgenson's first response to you:
Your analysis of employee income, producer costs, and consumer prices is based on a static view of the world that does not take into account the dynamic impacts of the changes to the tax system. Without taking those effects into account, your numbers aren't going to make sense no matter how you apply your assumptions.
?????????? Just how does this happen? Under the current system, assuming no state or local witholding of any type, two employees each have a gross salary of $1000 per period. One has a wife and three kids, claims M-5 on his W-4 and has a "take-home" of $800 after Income & FICA. The other is single, claims S-1 on his W-4, and has a take home of $750.
Are you saying that with the Fair Tax, they keep getting 800 and 750 respectively? Who makes that call?
I do not support a tax on the individual at the federal level in ANY manner, whether it be a tax, license fee, processing fee, use tax, sales tax, income tax, nor any other means of getting the individual income earner to pay for any beauracracy. If the federal government cannot support a task by tariffs on imports and business tax, then cease that task.