That is well over twice the total amount of Federal tax collected from all sources.
Dimples, from what I am gathering from the example given is that tax related costs are accumulating, not just federal tax collected. It is clear that in the view of many economists across the board that the cost bearing on businesses related to the income tax system actually exceed the amount of revenue the government receives.
You appear to see this example of one of cummulative or cascading tax where what is portrayed is how total costs increase throughout the chain.
That having been said however, the discussion in light of Dr. Jorgensons work, regarding the percentage decrease in producer prices, such tax related overhead cost do not appear to even be a factor in his calculations. His model is a simplified view of taxes per-se from what I can put together, and he allows gross income (before tax) to fall for labor as well as for business allow a decline in overall prices of 22%. The net result is essentially constant purchasing power on the part of the consumer modified for gains in productivity that result from higher efficiencies achievable in going from an income tax system to a consumption tax system.
My analysis after reviewing both RobFromGa's representations of Jorgenson's statements and Jorgenson's NRST studies of where I am at on this issue are as follows:
It seems to me, for lack of description or explainations in Dr. Jorgenson's papers concerning the simplifying assumptions made, I know I have made significant errors in interpretation of his results in assuming his calculations took business tax related overhead costs into account and gross wage would be what the employee would receive under any real world scenario involving contracted compensation for labor.
It appears that the impact of tax planning, compliance, and litigation costs were not a factor taken into account in Dr. Jorgenson's studies. Something that I, for one felt ,that any useful study would account for. Apparently Dr. Jorgenson did not address that level of detail in his IGEM.
It appears the net effect of the IGEM study was to aggregate all federal taxes per-se, as they reflect in price of goods, discounting individual income for individual part of the taxes (lowering the tax component of pricing for that factor) and discounting business sales revenue (i.e. aggragate of prices) for the total of business and individual taxes replaced by the NRST proposal. I do not see where he indicates that he did take any tax related overhead cost into account per-se in his studies, only the effects of adjusting price to the producer by the total amount of taxes replaced.
A simple check on that conclusion is to simply divide 1996(base year) federal tax revenues from corporate, SS/Medicare & personal income taxes by PCE,
NIPA Personal Income and Its Disposition:
1996 PCE = $5258.6 billion
NIPA Federal Government Receipts & Expensitures:
1996 corporate taxes = $ 190.6 billion
1996 SS/Medicare payroll taxes = $ 542.8 billion
1996 Personal Income taxes = $ 663.4 billion
=================================
Total replaced revenues = $1396.8 billion
Federal tax revenue replaced, as a percentage of PCE (retail price of goods and services purchased) = 100*1396.8/5258.6 = 26.56%
I know I had over analyzed Jorgenson's results assuming he took more into account regarding business and individual costs than he apparently did and by my assuming that gross wage would remain constant using sticky wage view of how wages respond in the real world as a consequence of contract requirements most folks receive their wage under.
In re-evaluation of Jorgenson's work:
In his email response to RobFromGa, Dr. Jorgenson describes his IGEM simulation results as:
"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."
In response to RobFromGa's query for clarity:
"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?"
Dr. Jorgenson responds:
"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."
The bottomline in reviewing his papers; Jorgenson's simulation appears to have not taken tax related overhead costs into account at all!! It merely addresses the replacement of income, payroll and gift/estate taxes one for one and then applies it to price decline with the simplying assumption that personal gross income would fall to 1996 net(after tax) income.
Tax related overhead costs appear not to be a factor entering into Jorgenson's calculations and as such overhead cost due occur in the real world, real world would actually do better than the simulation provides in that aspect.
As far as I see it any tax related overhead costs saved by business becomes a plus to the bottom line purchasing power of the individual whether it be realized as increasing net personal income(wage and investment), in additional decline in prices or a combination of both.
I plan to read this more carefully later, thanks for pinging me. I am busy with the Hurricane threads (and heavy rain/tornado warnings in my county right now).
Hope you and yours are safe from Katrina.
Well, the table has four core rows: Input (cost), Profit Margin, Tax Rate and Selling Price. It also includes two rows that show running totals: Accumulated Tax, Tax as a percentage of Price. So, yes, I see the table exactly as it is labeled and subsequently portrayed by its poster: an example of how taxes cascade and accumulate throughout the chain. It attempts to show nothing else. It does not attempt to include "compliance costs" or any "tax-related" cost that is not a direct tax levied on profit.
Unfortunately as I and others have repeatedly pointed out, and as the poster and his allies have yet to address, the table is flawed in both its algorithm and its fundamental input data.
As for Dr. Jorgensen's work, I'm glad you now realize that he did not model what many are claiming he did. Many have and continue to represent things about the models and outcomes that are simply not true.
Please do not misinterpret what I am saying: I do NOT say that the cost to business resulting from the implementation of the current tax scheme is insignificant. I AM saying that the table and supporting arguments posted by pigdog and others does not model those costs at all, and what the table does attempt to model is done so incorrectly.
Other threads have attempted to include discussions of compliance costs, etc., (to little common ground), but THIS thread is principally about whether the magnitude of take home pay increases and price decreases as represented by the FairTax proponents are possible. As you apparently now agree, Dr. Jorgensen's work does not support the claims that have been made.