Posted on 10/09/2007 5:27:15 AM PDT by Man50D
Ron Petrucci's Sept. 24 letter addressing Charles Firth is right on a number of points. We have been running more than an $800 billion trade deficit. That can't go on for very long. Ron says we're a debtor nation and we are.
Our manufacturing continues to move overseas to "more tax friendly" locations. We can't exist by providing each other services. Picture everyone doing their neighbor's laundry. We need to produce products to exist.
What Ron neglected to say is that the reason for that migration is our tax system. Federal taxes and associated compliance costs comprise an average of 25.9 percent of prices of our goods and services. Imported goods and services arrive at our shores essentially tax-free, because most foreign governments encourage exports by rebating their taxes at their borders. We don't do that.
When we try to sell there, they add their taxes to our prices, so our goods and services end up bearing double taxes. American companies have a raw deal both ways. That's why they have trouble competing.
There is an answer, though in the form of HR 25, The Fair Tax Act. That bill is in the House ways and means committee. It is the most thoroughly researched tax bill ever.
For the second time, a group of noted economists recently wrote a letter to Congress and the president, urging them to pass it and sign it into law.
The bill already has more cosponsors than any other tax bill in 80 years. It is a grass-roots proposal. It will pass only if enough citizens support it and tell their representatives. If passed, the current federal tax system would be replaced by a national retail sales tax applied at the final retail sale and collected by the states.
Net retail prices paid would be about the same. Revenue raised would be about the same. Collecting a sales tax is much more efficient than collecting an income tax, it provides a steady revenue flow and everyone would pay.
It needs to pass now, though, before this president leaves office, because no first-term president will entertain changing the tax system, and Social Security will run out of liquid assets at about the end of the next president's first term.
Check the proposal out at www.fairtax.org
And if there were no tax ever we could all be rich.Yeah, or if the "prebate" reduces everyone's tax burden, why not just increase the "prebate" so we pay no taxes?
Actually, Hostage is correct that there is a cumulative effect of taxes at each level of the supply chain, his percentages are just wildly exaggerated.
Each supplier pays embedded taxes in the form of business income taxes as well as their part of social security for each employee. Those taxes make up a portion of the cost of producing that product. There are also embedded taxes from any tariffs as well as things like gasoline taxes, but the Fair Tax doesn't remove those, and shift them to the sales tax, so exist in both cases.
So a portion of the cost of the product from supplier A is made up of embedded taxes. Supplier B then incorporates that product into theirs, and also has their own embedded income and payroll taxes that get tacked onto the cost of that product.
However, at each level in the supply chain, labor costs actually shrink compared to the cost of the product they purchased from their suppliers, so each additional level of the supply chain adds smaller and smaller contributions from embedded taxes.
Instead of: Supplier A 2% -> Supplier B 4% -> Retailer 16%
We get something more like Supplier A 4% -> Supplier B 4% + 2% = 6% -> Retailer 6% + 1% = 7%.
For businesses in niche markets where they don't need to be as efficient, the number will likely be higher because labor costs are a larger percentage of their costs. For highly competitive retail markets the percentages are likely to be much lower.
For imports, most of the embedded taxes (other than import tariffs) are paid in the originating country, and the fair tax does not remove them. In the case of imports the embedded taxes that the Fair Tax removes from the final cost of the product are only going to be in the realm of a couple percent or less. Of course that is one of the purposes of the Fair Tax. It protects domestic industries from foreign competition, while subsidizing US exports. There are no taxes collected on products made in the US and then exported under the Fair Tax. Those businesses are effectively getting a free ride.
However, back to my original point about Roth IRAs. The reason I didn't talk about the embedded taxes that we already pay in products is that the amount that the Fair Tax will reduce those is very small compared to the amount it adds. In that case the Fair Tax saves you around 6% and costs you around 23%.
If you are still doubting my assertion that embedded taxes make up a much smaller portion of the cost of a product, consider this.
The Fair Tax is a revenue neutral replacement, and designed so that most people pay similar amounts of taxes. So the current individual income and payroll taxes + current business income and payroll taxes needs to equal the revenues from the Fair Tax sales tax.
For the removal of the business taxes to mostly offset the addition of the sales tax, personal income and payroll taxes would have to be only a small portion of the government's current tax revenue. That simply isn't the case. The government brings in far more revenues from personal income taxes than they do from business income taxes, and businesses simply match the social security contributions of individuals.
If you want to have it so that the savings to business offset the sales tax you would have to keep people's take home pay the same, and let businesses keep the amount that employees currently pay in income taxes.
Hostage is correct that there is a cumulative effect of taxes at each level of the supply chain,Interesting, show me how a cumulative effect of taxes works with payroll taxes then.
Yuk, yuk. Why not? We're not all as smart as you. Tell us how to do that.
Or better yet, why don't we just abolish the 16th and forget about the FairTax?
Then why do the SQL's come on here and yell about the FairTax because it doesn't REDUCE taxes? A premise that is totally irrelevant to the debate.
where does the $ for the prebate come from if people get it before they pay tax?
Where do you think? It comes from the treasury. Why do you think people get it before they pay tax? Are you paying taxes now? Will you be paying in December if the FT is activated in January?
Would the FairTax encourage further privatization of the military and support services? If so, would that be a good thing?
Somalia is the Librarian model state.
http://www.mises.org/story/2066
any fair or flat tax must reduce taxes otherwise lots of people would pay higher taxes. Today, people benefit from lots of deductions and exemptions and others make up for it.
If you are revenue neutral, some will pay lower taxes and some will pay higher but not the same groups as before and the ones who will now have to pay higher taxes under the new plan will be pretty peeved. The only way to ensure nobody pays higher taxes is to not have a revenue neutral tax.
yeah sure if you think sharia law is compatible with libertarianism. If you think we have an illegal immigrant problem now...just wait what happens when there is not even a pretense of a border.
Oh I'm quite aware that it won't. I just don't hear many Fair Tax supporters admitting how small the compliance cost savings by business would really be.
What I usually hear is a lot of fluff about abolishing the IRS and how this will save tons of money.
Well the IRS goes away in name. The collection of taxes gets contracted out to retailers and the states who get paid a tiny percentage for their efforts, and the need for audits still exist just like they do with State sales taxes currently.
Sure there will be some cost savings, but they are in the scope of things really pretty tiny. The public won't have to deal with the IRS as much, which scores political points, but doesn't really have a significant effect on the bottom line.
A flat tax without deductions would also greatly simplify taxes, shrinking the IRS and removing complicated tax returns.
So why do something as disruptive as switching to a consumption tax? The only solid answer I've been able to come up with are the protectionist effects of switching to a consumption tax.
By shifting the taxes to a sales tax on all items sold, it puts imports at a distinct disadvantage. Those companies are still paying taxes in their home countries which become embedded price increases in their products. Our companies would not have all those tax expenses.
Fair Tax advocates describe that as being fair since all products sold in the US receive the same tax burden, however the effect is the same as if we put an import tariff on all imported goods.
On exports from the US the effect is even more obvious. A company that exports all the goods it makes doesn't pay federal taxes. The goods aren't taxed by our government unless they are sold in the US. So exporters get all the benefits of our government, without really paying for them. It's effectively the same as if we subsidize exports.
If imports were significantly disadvantaged, I have no doubt that exporting countries would figure out a way to even the score.
The FairTax does nothing to reduce the difference between cost of living and concomitant wages paid in the US compared to third world countries.
what would then happen is that many retailers will go broke and everyone will invest in export companies. Everyone and their dog will be in the exporting business until there will be a bubble and that will bust, leaving lots of people very unhappy.
If you are revenue neutral, some will pay lower taxes and some will pay higher but not the same groups as before and the ones who will now have to pay higher taxes under the new plan will be pretty peeved.
Peeved? Well I'm peeved now, and so are millions of other people.
Did you notice that the FT legislation is a tax on consumption? That means that the taxpayer has a CHOICE of where and when to pay taxes. Let them be peeved. They can't be any more peeved than the rest of America is right now.
The cumulative effect is because each level adds value to the end product, but part of the cost of adding that value go to payroll taxes for labor. However, it is more complicated than simply adding a little bit at each level like a showed. Each level marks up the price as well as adding value. The contribution to the price from the previous level becomes a lower percentage of the overall price. The overall embedded costs stack up from one level of the supply chain to the next, but if the value that each level adds is not labor intensive, the percentage share of the whole price can actually shrink rather than grow.
How much labor goes into delivering an end product to a customer varies greatly from one product to another, so it is impossible to give a universal example.
I guess I was also talking more about the amount of overhead due to taxes stacking, while you were talking about percentages, and I gave my example in percentages as well, which sure didn't help my explanation.
The amounts stack, but the percentages do not simply stack. Your point seems to have been that the percentages don't stack, which I agree with.
>>With the FairTax, if you are laid off from your job and your refrigerator dies, you will pay full tax on a replacement.”
A very valid point....the difference though is huge.
YOU have the choice to decide.
Whether or not to be laid off? Whether or not a costly emergency will present itself while you are unemployed?
I never said that it did. I said it acts like a tariff on imports and a subsidy to exports.
If imports were significantly disadvantaged, I have no doubt that exporting countries would figure out a way to even the score.
Countries have been countering other countries import tariffs and export subsidies for as long as nations have been trading. Other countries can implement their own tariffs to offset the effect of the Fair Tax.
However, that just means the people of both nations end up paying more for things they need. You can't become more competitive in a world market by creating trade barriers. You protect your domestic industries, but become less competitive overall, and will sooner or later be surpassed by other countries that work to be more competitive rather than more protectionist.
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