Are you claiming that income taxes have no cost? If they are removed that businesses would never respond to competitive pressures by lowering prices?Not unless you include the personal income tax - which means for that to happen everyone will have to take a wage cut. But that would be impossible.
Some perhaps. But everyone will take home more money.
There's plenty of room in the business (and not just corporate) income tax structure and especially including compliance costs for prices to decline once these embedded tax costs are removed. We'll eventually see that.
And a simple example of cascading tax costs shows why this is true:
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level 1 2 3 4 5 6
init. cost sell price $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 sell price ====================================== Note that in this example the intention is to get a 33% net profit and see how the "tax cost as % of sell price" 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 sell price")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
init. cos sell price $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
markup net profit $0.12 $0.13 $0.15 $0.18 $0.20 $0.24
15.38% 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 sell price ======================================= 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 nor do you have to be an economist to grasp what is involved. 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 reductions particularly when compliance costs are included as well.