It is not "corporate" taxes that are being saved, but business taxes. There are many other types of business entities than just corporations and they all pay taxes in some form even if it is via a 1040 in some cases.
And there's plenty of room for embedded taxes in busines income taxes for price reductions. Without even considering compliance costs or reductions of other intangible costs OR of payroll/withholding taxes (which shouldn't be considered as embedded taxes at all despite Boortz).
In the examples below, the "tax cost as % of revenue" represents the embedded tax that would be subject to removal when the income tax is ended. Take a look:
Most people realize that the present tax system causes prices to be inflated by what are called cascaded, embedded tax costs which increase with each level throughout the production/distribution chain. These costs are composed largely of business income taxes (not just corporate income taxes as some of you have claimed) and compliance costs with even intangible costs tacked on in many cases as well.
Let's take two examples, one with an income tax rate used by Scubhapter C corporations in 2001 (34.4% marginal rate) even though the example applies to a business in general and not just a corporation. In addition, we are not considering any payroll/withholding taxes or compliance or intangible costs ... merely business income taxes.
level 1 2 3 4 5 6
initial cost revenue $2.01 $4.05 $8.15 $16.40 $33.01 $66.44
$1.00 cost $1.00 $2.01 $4.05 $8.15 $16.40 $33.01
tax rate profit before tax $1.01 $2.04 $4.10 $8.25 $16.61 $33.43
34.40% tax $0.35 $0.70 $1.41 $2.84 $5.71 $11.50
net profit $0.66 $1.34 $2.69 $5.41 $10.90 $21.93
net profit % 33.00% 33.00% 33.00% 33.00% 33.00% 33.00%
accumulated $0.35 $1.05 $2.46 $5.30 $11.01 $22.51
tax paid
tax cost as 17.31% 25.91% 30.18% 32.30% 33.36% 33.88%
% of revenue
Note that in this example the intention is to get a 33% net profit and see how the "tax cost as % of revenue" builds up in only a few levels. In addition, let's say the example represents the classical "bread" example with: L1 = Farmer, L2 = Miller, L3 = Baker, L4 = Distributor, L5 = Grocer, L6 = Consumer. As can be seen, by the time we reach L6, the embedded tax ("tax cost as % of revenue") has reached 33.88%. This would mean that the consumer is paying a very healthy step-up in the price of bread due solely to embedded tax costs.
At any rate, taking the example and setting the net profit to 10% and using the very common (and perhaps even low) tax rate of 25%, you STILL end up with something like 14.4% tax costs as a % of sell price at Level 6.
level 1 2 3 4 5 6
initial cost revenue $1.15 $1.33 $1.54 $1.77 $2.04 $2.36
$1.00 cost $1.00 $1.15 $1.33 $1.54 $1.77 $2.04
tax rate profit before tax $0.15 $0.18 $0.20 $0.24 $0.27 $0.31
25.00% tax $0.04 $0.04 $0.05 $0.06 $0.07 $0.08
net profit $0.12 $0.13 $0.15 $0.18 $0.20 $0.24
net profit % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
accumulated $0.04 $0.08 $0.13 $0.19 $0.26 $0.34
tax paid
tax cost as 3.33% 6.22% 8.72% 10.89% 12.77% 14.40%
% of revenue
If we take the commonly-described "bread" example you can still easily see that bread would be a good bit cheaper for the consumer - not even counting compliance savings - were it not for these caxcading, embedded taxes.
This is really what the embedded taxes discussion is all about and it has nothing at all to do with income taxes on wages. So to pretend that a single economist was making such rash conclusions or that he was the only one used for economic information by the FairTax folks is simply not true. As can be seen here, there is certainly room within the business income tax area for a good bit of price reduction particularly when compliance costs and intangible costs are included as well.
| I've run some numbers on some of the top companies in the US. Many have income tax burdens that are a very low percentage of revenue. | |||||||
| Some are negative, so they get money back from the Gov't for being in business, this I guess lowers the cost of the product in the supply chain. | |||||||
| Anyway, just thinking from a scientific point of view (total energy in a system). Federal tax revenues come from both the companies, and the people. | |||||||
| Ultimately all are paid by the consumer, so all we are talking about in a revenue neutral situation, is do I pay all my taxes at the register, or only | |||||||
| a small portion. I could also look at it in reverse. The corporation pays all taxes. They pay the employee withholding taxes to the Gov't so that they | |||||||
| may employ me at my take home pay. That's all I realize and can utilize, and I guess is sufficient to motivate me to do their bidding. | |||||||
| So ultimately, I will be paying just as much as I pay now (potentially minus the claimed efficiencies) at the register. | |||||||
| But this analysis does not recognize that I have accumulated, after tax wealth that will now be burdened with a new tax. If I have $500,000 in | |||||||
| after tax savings, I get a $75,000 reduction in purchasing power at the register, even considering the most generous "embedded" tax analysis you give. | |||||||
| As I'm reaching retirement, I have considerably more than that in after tax savings, and I am only a middle class lowly employee in a big company | |||||||
| living a modest lifestyle. I imagine that there are many baby boomers with much more accumulated savings, and if they realize what a highway | |||||||
| robbery is being considered here, they will revolt. | |||||||
| Exxon | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $298,035,000 | $246,738,000 | $204,506,000 | ||||
| Income Tax Expense | $15,911,000 | $11,006,000 | $6,499,000 | ||||
| 5.3% | 4.5% | 3.2% | |||||
| WalMart | |||||||
| PERIOD ENDING | 31-Jan-05 | 31-Jan-04 | 31-Jan-03 | ||||
| Total Revenue | $287,989,000 | $258,681,000 | $246,525,000 | ||||
| Income Tax Expense | $5,589,000 | $5,118,000 | $4,487,000 | ||||
| 1.9% | 2.0% | 1.8% | |||||
| GM | |||||||
| PERIOD ENDING | 31-Dec-03 | 31-Dec-02 | 31-Dec-01 | ||||
| Total Revenue | $185,524,000 | $186,763,000 | $177,260,000 | ||||
| Income Tax Expense | $731,000 | $533,000 | $768,000 | ||||
| 0.4% | 0.3% | 0.4% | |||||
| Ford | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $171,652,000 | $165,066,000 | $163,420,000 | ||||
| Income Tax Expense | $937,000 | $135,000 | $302,000 | ||||
| 0.5% | 0.1% | 0.2% | |||||
| A T & T | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $30,537,000 | $34,529,000 | $37,827,000 | ||||
| Income Tax Expense | ($4,560,000) | $816,000 | $1,587,000 | ||||
| -14.9% | 2.4% | 4.2% | |||||
| GE | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $152,866,000 | $134,187,000 | $131,698,000 | ||||
| Income Tax Expense | $3,661,000 | $4,315,000 | $3,758,000 | ||||
| 2.4% | 3.2% | 2.9% | |||||
| Intl Paper | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $25,548,000 | $25,179,000 | $24,976,000 | ||||
| Income Tax Expense | $206,000 | ($92,000) | ($54,000) | ||||
| 0.8% | -0.4% | -0.2% | |||||
| P & G | |||||||
| PERIOD ENDING | 30-Jun-05 | 30-Jun-04 | 30-Jun-03 | ||||
| Total Revenue | $56,741,000 | $51,407,000 | $43,377,000 | ||||
| Income Tax Expense | $3,182,000 | $2,869,000 | $2,344,000 | ||||
| 5.6% | 5.6% | 5.4% | |||||
| AIG | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $97,987,000 | $81,303,000 | $67,482,000 | ||||
| Income Tax Expense | $4,620,000 | $4,264,000 | $2,328,000 | ||||
| 4.7% | 5.2% | 3.4% | |||||
| DOW Chem | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $40,161,000 | $32,632,000 | $27,609,000 | ||||
| Income Tax Expense | $877,000 | ($82,000) | ($280,000) | ||||
| 2.2% | -0.3% | -1.0% | |||||
| EI DuPont | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $27,995,000 | $27,730,000 | $24,522,000 | ||||
| Income Tax Expense | ($329,000) | ($930,000) | $185,000 | ||||
| -1.2% | -3.4% | 0.8% | |||||
| Pfizer | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $52,516,000 | $45,188,000 | $32,373,000 | ||||
| Income Tax Expense | $2,665,000 | $1,621,000 | $2,609,000 | ||||
| 5.1% | 3.6% | 8.1% | |||||
| Kroger | |||||||
| PERIOD ENDING | 29-Jan-05 | 31-Jan-04 | 1-Feb-03 | ||||
| Total Revenue | $56,434,000 | $53,791,000 | $51,760,000 | ||||
| Income Tax Expense | $390,000 | $454,000 | $740,000 | ||||
| 0.7% | 0.8% | 1.4% | |||||
| Sprint/Nextel | |||||||
| PERIOD ENDING | 31-Dec-04 | 31-Dec-03 | 31-Dec-02 | ||||
| Total Revenue | $27,428,000 | $26,197,000 | $26,634,000 | ||||
| Income Tax Expense | ($591,000) | ($212,000) | ($39,000) | ||||
| -2.2% | -0.8% | -0.1% | |||||