Posted on 05/11/2007 5:30:56 AM PDT by Dick Bachert
I have a little scenario I would like to paint for those of you out there who just insist on finding something wrong with the FairTax. Admittedly, the FairTax isn't perfect. No tax plan is. How, after all, can you come up with a perfect way for a government to take its operating funds from its subjects? If you know an easier and more equitable way to do it, by all means, let me know!
I'm going to ask you to crank up your imagination for a moment here ... and by "you," I mean those of you who think that this FairTax thing is a bad idea and you're not prepared to come on board.
I want you to imagine a scenario. Don't worry about whether or not this scenario is possible .. Just accept it as I present it, and then consider the alternative picture I'm going to also present. Simple as that.
Let's imagine that the FairTax is the law. We've been operating under the FairTax since the day you drew your first paycheck. It's all you know. Here is your imaginarily "reality."
On every payday you get your complete paycheck. There are no deductions. If you earn $2,000 per week, you get a check for $4,000 every two weeks. You never have to save receipts or create any records pertaining to federal taxes. You can invest money without paying any taxes on it. You don't have to pay taxes on the money you earn through your investment portfolio. You pay no taxes on any money you put in your savings account. When you die you get to leave your entire estate, everything you own, to whomever you wish. The federal government will take no taxes from your estate. Your death is not a taxable event. When you go to the store to buy an item, and the price tag says $19.99, you will had a $20 bill to the cashier and get one penny back. The price tag is the price. There are four people in your household. You, your spouse and two rug rats. At the beginning of every month you get a check or a credit to your checking or charge card account in the amount of $506.00 to compensate you for the federal sales taxes that are included in the price of everything you buy; right up to the poverty level.
All in all .. not such a bad deal. You keep all of the money you earn and you get five hundred bucks a month from the feds. Plus .. you only pay taxes when you spend money.
Now .. .here comes some politician who has a grand scheme for a new tax system. He wants to explain it to you. Here's his great idea ..... give him a listen and tell us what you think.
The plan is simple. First the federal sales tax is going to be removed from the price of everything you buy. This will mean that everything will cost 23% less than it does now. But ... he's going to levy an income tax on every single individual and business who plays any role at all in bringing those products to the marketplace. These people and companies are all going to pass the cost of these taxes down the economic line to the final consumer of the products they manufacture. These taxes will end up embedded into the prices of products in our retail marketplace, bringing those prices right up to the current level. So .. no loss, no gain.
Next your political benefactor is going to take away your $500 per month prebate from the government. In its place he's going to tax every penny you earn. It doesn't matter where the money comes from. Your salary, your investment income, winnings at the track ... whatever you earn and however you earn it, it's going to be taxed.
Wait! He's not through. He's also going to tax your wages for Social Security and Medicare. He's going to try to soften the blow by telling you that your employer is going to match the taxes he takes out of your paycheck, but you're employer has made it clear that this money is all going to come out of the money he has budgeted to hire you. You'll probably lose out on your next raise while the boss his accounting in order.
There are some more nifty ideas in your congressman's tax reform plan. When you die your family is going to have to file a complicated estate tax return. A huge amount of the wealth you have managed to build during your life is going to be sent to the government. Your survivors may well have to sell the family business in order to come up with the money to pay for these death taxes.
One more thing .. you're going to have to keep records of all of your financial transactions. Every year you're going to have to spend no less than about 30 hours or spend hundreds of dollars to hire someone to fill out tax forms for you. If mistakes are made you will be hit with a huge penalty and interest. Oh .. and the government is going to have access to all of your financial records to make sure that you are paying everything you "owe."
The question, of course, is why does this politician want to change the tax system in this way? Power, that's why. They want to be able to enact little changes to the tax code that will benefit certain constituents ... which constituents will then benefit the politicians -- with money or with votes. Under the FairTax system these politicians have no power to favor one group of voters over another for the benefit of votes. The new system would give them that power.
Your choice, my friends. If we had the FairTax now ... would you be willing to make the switch?
The post I responded to of yours gave a clear impression (maybe not purposefully) that you doubted that the top 10% paid a majority. Was that a correct assumption? And if so, weren't you wrong?
If that is not what you were posting, then you posted your thoughts poorly.
So either way, the top 10% are paying a majority taxes, be they federal income or ALL federal taxes. While earning far less a % of total income than their share of the tax burden.It's a progressive tax, just like the FairTax claims to be.
The post I responded to of yours gave a clear impression (maybe not purposefully) that you doubted that the top 10% paid a majority. Was that a correct assumption?No, that was not a correct assumption. I knew the stats you were quoting were regarding income taxes but you stated "The upper 10 % pay the majority of the taxes in this country." As the stat I quoted showed, they don't.
If that is not what you were posting, then you posted your thoughts poorly.Glass houses...
I should have said the stat I quoted show the top 10% paying only a slight majority.
Happy to show you the error of your ways.
You are comparing prices of an item with inclusive taxes, that being as they are now, to an item after the FairTax would be implemented. Items sold under the current system have these hidden, embedded taxes added into the price. These taxes are paid by the manufacturer and or suppliers to the manufacturer of the goods and are passed along to the consumer. This is also why corporate taxes are such a farce. Corporations do not pay taxes. Corporations collect taxes. All taxes, regardless of what they are called, are ultimately paid by the end consumer. That'd be you and me.
Under the FairTax, these embedded taxes, and the cost to comply with them disappear, thus lowering the cost of the item prior to the point of sale. By direct comparison of $100 items before and after the implementation of the FairTax without reflecting the reduction in the price of an item caused by embedded taxes your argument would be correct. However, you are comparing apples to oranges because you did not reduce the cost of the item by the amount of the embedded taxes (and compliance costs) prior to making your comparison.
When the FairTax is adopted, the inclusive taxes, aka embedded taxes (and the costs to comply with the current tax system) won't be there for the most part. These include, but are not limited to, Social (in)Security matching funds, Medicare, compliance costs paid by the manufacturer to comply with the current tax system, corporate taxes, etc. So, an item that costs $100 now under the current tax system at the point of sale would cost roughly $77, or %23 less than they do now at the point of sale, then the FairTax is applied. Add 23% to $77 and you get $94.71, not $130. So, an item that costs $100 now with the inclusive taxes at the point of sale would be $94.71 under the FairTax because of the reduction of the embedded taxes before the NRST is added at the point of sale. This makes the FairTax exclusive to the item because it is not added until the item is sold, thus these taxes are not embedded in the price of the item. An item that costs $100 under the FairTax, i.e., after the embedded taxes and compliance costs are removed, would have $23 in tax added to the price of the item at the point of sale, making the final cost after the FairTax is added $123, not $130.
An item that costs $100 under the FairTax, i.e., after the embedded taxes and compliance costs are removed, would have $23 in tax added to the price of the item at the point of sale, making the final cost after the FairTax is added $123, not $130.You may want to figure out the difference between inclusive and exclusive sales tax rates before you go on. You've been duped by FairTax.org and it's supporters. (Don't worry, you're not the first... or the last.) The tax would be $30. The 23% comes from the fact that $30 is 23% of $130.
From the FairTax.org FAQ:
I know the FairTax rate is 23 percent when compared to current income and Social Security rate quotes. What is the rate of the sales tax at the retail counter?
30 percent. This issue is often confusing, so we explain more here.
When income tax rates are quoted, economists call that a tax-inclusive quote: “I paid 23 percent last year.” For every $100 earned, $23 went to Uncle Sam. Or, “I had to make $130 to have $100 to spend.” That’s a 23-percent tax-inclusive rate.
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes. That rate is 23 percent.
Sales taxes, on the other hand, are generally quoted tax-exclusive: “I bought a $77 shirt and had to pay that same $23 in sales tax." This is a 30-percent sales tax. Or, “I spent a dollar, 77¢ for the product and 23¢ in tax.” This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same. Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same tax of $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare. Under the FairTax, you may simply choose not to spend, or to spend less.
I have been duped by no one. I'm an engineer. Math is my thing and I have a thorough understanding of not only my engineering diciplines and math, but also the concept of inclusive and exclusive taxes. I find it utterly amazing how many people do not understand simple percentages. FWIW, I founded and oversaw the day to day operations of 3 successful engineering companies that employed dozens of people before I sold those interests and retired at 38. I am fully aware, IOW, have first hand knowledge, of the corporate taxes and compliance costs of the current tax system. I am also acutely aware of the nightmare that our current system is to business owners and employees alike.
The explanation that you posted is exactly as I described it, although it is poorly worded. I went into a little more depth with my explanation to make it easier to understand for those who are mathematically challenged. Clearly, you are the one that does not understand the math behind the FairTax or the concept of embedded taxes and compliance costs as they are reflected in the cost of an item, and how those taxes and compliance costs would be removed under the FairTax, and therefore are, as I said previously, are comparing apples to oranges. Simply put, an item that costs $100 now under the current system would not cost $100 under the FairTax once the embedded taxes and compliance costs are removed. It would cost about $77 before taxes.
Under the FairTax the cost of goods will go down due to the removal of hidden taxes and the compliance costs embedded to deal with those hidden taxes. Market forces will insure that this happens. That is a fact that you and the other opponents to the FairTax are overlooking, probably intentionally, but it could be just ignorance. The 23% figure is the amount that the economists who have studied this concept believe is the amount currently added or "embedded" in the cost of the goods we purchase at the retail level. If you look into this figure you will find that the way these economists arrived at this number is very well documented. I suggest that you pick up a copy of the Boortz/Linder book and actually read it.
Another thing that opponents of the FairTax do not wish to recognize is the FairTax is applied to what you spend, rather than what you earn. This, in and of itself, should make even the most mathematically challenged want to support the FairTax. But, I guess the indoctrination by our gubmint skools is a little more thorough than I originally thought.
What I will say in regard to the adaptation of the FairTax and my support of it is this; I will support the FairTax if and only if it is passed without any changes by Congress, and if and only if the 16th Amendment is repealed and if and only if a Constitutional Amendment is passed that eliminates any chance that any form of taxation removed by the FairTax would ever be reinstated unless a super majority in Congress and Presidential approval is achieved.
Simply put, an item that costs $100 now under the current system would not cost $100 under the FairTax once the embedded taxes and compliance costs are removed. It would cost about $77 before taxes.And how much would that $77 item cost after the FairTax is added? You said in post #334 that it would be $94.71. This is, without question, wrong. It would be $100. The rate charged at the retail counter, as clearly stated in the FairTax FAQ, is 30%.
So I clearly limited my comments to income taxes and what is paid by who.
But as you have shown, the top 10% do pay a majority when expanded to include all taxes. So both the original poster and I were right, you were wrong, but eventually did come around to showing and agreeing that yes, the top 10% pay a majority of the taxes.
To compare exclusive rates to inclusive rates is to attempt to dupe people with misleading and false information and arguments.
The reason they calculate the rates the way they do is to compare it on an apples to apples basis to the taxes it will be replace, income, fica, etc... becuase those are INCLUSIVE rates.Sure, that's what they claim. But that's just a rationalization. We all know the real reason is that 23 is a smaller number than 30 and that they can get people like Thermalseeker believing the FairTax is less than it actually would be. He's evidently even read the book by the Boortz and Linder and didn't get this.
First off, the person who performed the analysis for the fairtax organization, Dr. Jorgenson has admitted he assumed workers would take a pay cut in order to come up with his 22-23% cost reductions. A major part of the embedded taxes are in fact these employee paid taxes, which under the fairtax will be pocketed by the employee and can not be realized as savings to the producers. Cost savings under the fairtax will be in the 5-10%, not 23%. Then the 30% sales tax will be added, not 23% are you have repeatedly have misstated. An $100 item under the current system will end up being around $117-$124 after the fairtax is implemented even after considering the removal of the eliminated embedded taxes.
It's not easy to find instances of the media covering our Tuesday night FairTax rally in Columbia, but here's one article that showed up this morning. John Boyanoski was more than fair in his coverage of the rally, but take a look at his final paragraph:
"The fair tax would do away with individual taxes, but ultimately raise taxes for basic everyday goods. Critics of the tax feel that it would hinder the working poor and be more of a benefit to people with larger paychecks."
There's no malice here. Boyanoski wasn't trying to be critical of the plan .. it's just that he hasn't studied it. He either hasn't read the book or hasn't visited FairTax.org to see what is really going on here. As those of you who have taken the time to become informed know, the price for everyday goods will not go up, and the FairTax does a lot more than just "do away with individual taxes."
Looks like we're going to have to step up our efforts on the "Answering the Critics" book.-- Neal Boortz 5/17/07
Boortz, still either doesn't understand what he is writing, or is intentionally lying about the effects of the 30% Fairtax on out-the-door prices.
When the FairTax is adopted, the inclusive taxes, aka embedded taxes (and the costs to comply with the current tax system) won't be there for the most part. These include, but are not limited to, Social (in)Security matching funds, Medicare, compliance costs paid by the manufacturer to comply with the current tax system, corporate taxes, etc. So, an item that costs $100 now under the current tax system at the point of sale would cost roughly $77, or %23 less than they do now at the point of sale, then the FairTax is applied. Add 23% to $77 and you get $94.71, not $130. So, an item that costs $100 now with the inclusive taxes at the point of sale would be $94.71LOL. First of all nowhere in the bill (HR25) does it say there's a 23% sales tax rate.
The bill is written for the business collecting and remitting the tax. The law says the tax is "23% of the gross payments" for taxable property and services...(for the first year only)
(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 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.
`(2) FOR YEARS AFTER 2005- For years after the calendar year 2005, 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.
That simply means for the business to tally up their total receipts (gross payments) and send 23% of it.
Of course even (most) engineers know you can't subtract a percentage and then add the same percentage back and get the same result.
So Mr. engineer if the gross payment received is $100 and the business has to remit 23% ($23.00), the business would have to collect 30% tax ON the $77.00 sale or go broke.
Inclusive = percentage of the total including the tax collected/due.
Exclusive = percentage on
That's why your income is tax inclusive and sales are tax exclusive. There can't be an exclusive tax rate on your income...Where would the money for the tax come from?
The reason they calculate the rates the way they do is to compare it on an apples to apples basis to the taxes it will be replace, income, fica, etc... becuase those are INCLUSIVE rates.No it isn't. It's because the law was written for the business collecting and remitting the tax. The 23% rate is not a sales tax rate for the consumer. The 23% rate is the rate businesses have to pay on their gross payments...IOW it's a "gross payments rate" and in order for the business to stay in business after sending 23% of their gross income is to charge you 30% tax on your purchases.
SEC.101
Get it?
`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 2005- In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service.
`(2) FOR YEARS AFTER 2005- For years after the calendar year 2005, 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.
.....
`SEC. 501. MONTHLY REPORTS AND PAYMENTS.
`(a) Tax Reports and Filing Dates-
`(1) IN GENERAL- On or before the 15th day of each month, each person who is--
`(A) liable to collect and remit the tax imposed by this subtitle by reason of section 103(a), or
`(B) liable to pay tax imposed by this subtitle which is not collected pursuant to section 103(a),
shall submit to the appropriate sales tax administering authority (in a form prescribed by the Secretary) a report relating to the previous calendar month.
`(2) CONTENTS OF REPORT- The report required under paragraph (1) shall set forth--
`(A) the gross payments referred to in section 101,
`(B) the tax collected under chapter 4 in connection with such payments,
`(C) the amount and type of any credit claimed, and
`(D) other information reasonably required by the Secretary or the sales tax administering authority for the administration, collection, and remittance of the tax imposed by this subtitle.
Oh BTW, your $100 shelf price being tax inclusive couldn't be more wrong (no matter how many times you post it)
`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.
`(a) In General- For each purchase of taxable property or services for which a tax is imposed by section 101, the seller shall charge the tax imposed by section 101 separately from the purchase. For purchase of taxable property or services for which a tax is imposed by section 101, the seller shall provide to the purchaser a receipt for each transaction that includes--
`(1) the property or services price exclusive of tax;
`(2) the amount of tax paid;
`(3) the property or service price inclusive of tax;
`(4) the tax rate (the amount of tax paid (per paragraph (2)) divided by the property or service price inclusive of tax (per paragraph (3));
`(5) the date that the good or service was sold;
`(6) the name of the vendor; and
`(7) the vendor registration number.
`(b) Vending Machine Exception- The requirements of subsection (a) shall be inapplicable in the case of sales by vending machines. Vending machines for purposes of this subsection are machines--
`(1) that dispense taxable property in exchange for coins or currency; and
`(2) that sell no single item exceeding $10 per unit in price.
Ah, I see. Then there is no sales tax on the item I specifically specified started off as the sellers price $100, that is,cost to the seller plus his markup. I thought there was supposed to be NRST on it.
Why didn't you just say so?
(You know, of course, son, that a tree that has to hide its roots must give evil fruit.)
When the FairTax is adopted, the inclusive taxes, aka embedded taxes (and the costs to comply with the current tax system) won't be there for the most part. These include, but are not limited to, Social (in)Security matching funds, Medicare, compliance costs paid by the manufacturer to comply with the current tax system, corporate taxes, etc. So, an item that costs $100 now under the current tax system at the point of sale would cost roughly $77, or %23 less than they do now at the point of sale,If the product/service was 100% labor you couldn't get to 23% reduction...Unless the Fairtax is lying about everyone receiving 100% paychecks.
7.65% (FICA) times every employee in the nation is still 7.65%.
Not counting the basic accounting every business does regardless of taxes, most small business use computer programs costing a couple hundred dollars and a few hours a year to "comply with the current system"
Not every business is a corporation paying corporate taxes (BTW most businesses incorporate for tax purposes).
Most companys would be doing good to make 10% profit (profit is the part of their income that is actually taxed) 38% is the top rate. 38% of 10% is a 3.8% saving.
Everything is not produced in this country and what is is likely composed of imported materials...there'd be no affect on prices on imports.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.