PRICES UNDER FAIRTAX WILL NOT GO UP

I spoke ONLY of income taxes so that objection is moot.

Of course, having the Sales tax affect only new production will mean a collapse in industries and retail sales since people will strive to find comparable used stuff. This is one of the least well conceived components of this whole scheme. A disaster waiting to happen.

Any price reduction will be because the economy collapses.

There would be no necessary impact on prices caused by a change in the income tax on business since it is levied ONLY on profits. Prices are determined by discrete cost clearly defined BEFORE a product hits the market. IF those products are lucky enough to make a profit only then does the income tax man become involved.

Consumers do NOT pay business income taxes to believe so indicates a fundamental misunderstanding of tax theory. They do pay all other identifiable taxes paid by business.

This is easily tested since the tax rates have changed during the 20th century on several occassions and price trends were not altered thereby.

When fundmental economic theory such as Price Theory is ignored in explaining the workings of this scheme I have no confidence in its achieving the goals sought. There is far too much waving of the magic wand to remove objections and questions.

I share many of those concerns which are pooh-poohed or ignored by FT advocates. These are very serious questions and points which, if not adequately addressed (and so far they have not been), prevent me from buying into the program.

Of course, having the Sales tax affect only new production will mean a collapse in industries and retail sales since people will strive to find comparable used stuff. This is one of the least well conceived components of this whole scheme. A disaster waiting to happen.

ROTFLMA(_|_)

Just how many times you figure people are going to sell each other the same used stuff. If they need a thing, they are not going to sell it duh!!!

Any price reduction will be because the economy collapses.

Price reduction will be because the economy expands from decrease in business costs, expanding production as foreign and domestic markets expand, greater efficiency arising out of increased productivity and expansion of industrial capacity to meet those expanding markets.

Repeal the taxes burdens laid on business, the resulting reductions in costs and release from non-productive tax related behaviours are profound.

I would submit that those NRST inclusive consumer price changes are within ±5 percentage points of the actual value that can be expected, and are in relation to the individual wage earner receiving his full gross paycheck as all withholding is repealed with the repeal of federal income/payroll taxes.

With the expanded markets, both foreign and domestic that occur with lowering of prices received by producers (cost to consumer less taxes). Increases in production will be realized with a constant average cost to the consumer for goods and services out of the productivity gains that business are able to realize in the capital investment freindly environment of a retail sales tax system.

A clear effect that was not missed by even Von Mises at the end of WWII in his recommendations to Austria for restructuring the tax systems to move them from a baddly failing socialist based economic and tax systems into a system friendly to capitalism and entrepeneurship.

Ludwig von Mises as Policy Analyst: Monetary Reform, Fiscal Policy, and Foreign Exchange Controls by Richard M. Ebeling
Heritage Lecture #754

http://www.heritage.org/Research/PoliticalPhilosophy/hl754.cfm#pgfId-1023417

"Austria, Mises said, would be a poor country. The destruction of war, the consumption and misuse of capital, the destruction of a large portion of the Austrian entrepreneurial class due to the expelling or murder of so many Jewish businessmen and financiers, and the debilitation of the labor force from death and permanent injury in battle would require Austria to turn its back on its socialist, interventionist, and welfare-statist past. Only economic freedom and hard work could restore Austria from a condition that we might nowadays loosely refer to as "third world" status.
Fiscal policy, therefore, would have to be designed to do everything possible to unleash private sector incentives and opportunities for investment, capital formation, and entrepreneurship. Virtually all taxes, Mises suggested, should be skewed toward consumption and away from production. What type of broadly based consumption taxes? He proposed:

(1) excise taxes on alcoholic beverages, tobacco, and related tobacco products;
(2) a sales tax exclusively on the sale of goods and services to the final consumer; there should be no explicit or hidden value added taxes;
(3) a progressive consumption tax based on housing expenditures, but with an exemption for housing expenditures for those in the lower income brackets;
(4) a tax on luxury automobiles for private or personal use;
(5) a tax on lottery winnings;
(6) a stamp tax on playing cards;
(7) administrative fees for certain government services, such as issuing patent rights, brand name registrations, determination of weights and measures, and "official stamps" to cover the cost of providing various types of documentation;
(8) a wage tax paid by employers that was not deducted from the employee's salary to fund existing social insurance programs; and
(9) a moderate net profits tax on shareholders and limited liability partnerships when annual disbursements exceeded 6 percent of the enterprise's capital assets; retained earnings by the enterprise would be exempt from taxes so as not to discourage capital formation.

Except for the net profits tax and the wage tax for social insurance costs, all income and business earnings would be completely tax-exempt. And a perusal of Mises' proposed list of taxes clearly shows that he thought that, besides the general sales tax, the fiscal burden should primarily be in the form of what nowadays would be classified as "sin taxes" and a narrow selection of "luxury" expenditures. Mises' long recognized advocacy of "laissez-faire" did not mean a hands-off indifference to the path taken by the market economy. What would be produced, where and how goods would be produced, and for which segments of the consuming public would be determined by the pattern of market demand and the profit-driven entrepreneurs. As Mises expressed it in the early 1940s, "If there is any hope for an new [economic] upswing [at the end of the war] it rests with the initiative of individuals. The entrepreneurs will have to rebuild what the governments and politicians have destroyed."

***
It should be mentioned that Mises' apparent concession to the welfare state in his listing among his fiscal suggestions of an employer's tax for social insurance expenditures did not mean his belief in their desirability or necessity. This was clearly an admission that, given the political currents, not everything could be reformed at once. For example, in 1942 Mises was invited to lecture in Mexico for six weeks during which he had the opportunity to studying the economic conditions in the country. The following year, in 1943, he prepared a lengthy monograph for an association of Mexican businessmen on "Mexico's Economic Problems." His recommendation was to not establish social insurance programs in the first place. If part of the cost of such social insurance schemes falls on the shoulders of the employers, it would only succeed in raising the cost of employing workers, with the negative effect of pricing some members of the work force out of the job market. At the same time, such government-mandated insurance policies restricted the freedom of the employee to weigh the opportunity costs of allocating his income in various ways more reflective of his own preferences and that of his family.

Posting long selections of writings does little to answer the questions and points made and is unconvincing. Particularly when the writing is pointed at a situation TOTALLY unlike that which we are in.

Anyone who believes there will be a massive increase in production such as you describe must ignore the limits of capacity utilization in order to make such claims. Such increases as you believe will occur cannot happen without inflation.

As regards selling of used stuff there is no doubt that such sales will become far more prevalent if new stuff is going to be carrying a 30% higher price than before. Contrary to theorizing history shows that this will happen with the most damaging and dramatic impacts affecting the construction industry.

If you believe that income taxes makes up 30% of the final price of a product there is little I can say to you.

If you believe that income taxes makes up 30% of the final price of a product there is little I can say to you.

Since I don't believe "income taxes" make up anything near 30% of the final price of a product, you have nothing to say at all.

That however is not the issue. Under the Fair Tax Act, HR25, all federal income, SS/Medicare, and Gift/Estate taxes are repealed. With them the overhead costs associated with tax planning, accounting and reporting, and audit/litigation are removed at all levels of production throughout the entire chain of industry. In addition NRST is collected only from the consumer on final retail purchases and not on upstream business to business purchases for use within business. Thus items are only taxed once, not multiple time throughout their product life times as happens under VATs and income/payroll tax scenarios.

The bottom line is that business realizes significant cost reductions as well as relief from the payment of taxes per-se. That provides for more competitively priced exports as well as reductions in the price of domestic goods and services amount to an average of 20% reduction on prices received by producers(price to consumer less NRST) in the first year of implmentation, that reduction increasing to more than 30% as capital investment arising out of incentives for savings and investment upgrade the industrial infra-structure and provide advances in technological productivity.

The overhead and opportunity losses in the current tax system amount to $100's of billions of dollars in depressed sales and burdens on the economy. That being represented by the high losses amount to estimates ranging as high as $4 dollars loss to the economy for every dollar added to government revenues. It is out of the reduction of those losses that the increase in productivity and decrease in shelf price of goods and services are possible.

http://www.taxfoundation.org/compliance2002.html

Overhead Compliance Costs

The complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers.

• The first type of overhead is tax planning, which in this context refers to all the economic decisions that individuals and firms make to maximize their benefits in the tax code.

• The second type of overhead, tax compliance, refers here to the basic actions required to file the federal income tax, including record keeping, education, form preparation and packaging/sending.

• The third type of overhead is tax audits and litigation, referring to the cost of the IRS and the Tax Court, as well as all the legal costs that taxpayers incur while dealing with these two government institutions.

Of these three costs, the second, tax compliance, is the only one estimated in this report. It is for this reason that the data presented here should be viewed as extremely cautious estimates of the federal income tax compliance burden on taxpayers.

*** snip ***

The Burden of Compliance Costs

As shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion. Therefore, the overall compliance cost surcharge alone amounts to nearly 20.4 cents for every $1 collected by the federal income tax.

But "compliance costs" reported above are the least part of the total burden laid on the economy by the complexity of the current tax system and its imposition upon business activities.

The broader estimates of overhead burdens for example like that of Daniel Pilla:

Killing the IRS, By Daniel J. Pilla, Reason Magazine July 1995

"There is little about a flat-tax system that will trim the staggering cost of tax law compliance. At present, this burden is estimated at $700 billion annually. Much of the cost is associated with recordkeeping and tax law enforcement, neither of which is reduced by a flat tax. A flat tax certainly involves a simpler tax return, but return preparation is the smallest component of tax law compliance.
The solution to our tax problem is to adopt a national retail sales tax in place of the personal and corporate income tax. Only a sales tax can eliminate the invasiveness of the IRS, since one's income and lifestyle are irrelevant."

indicate something closer to the real magintude on the order of 60 cents for every dollar paid into government cofferes and of how much the federal income/payroll tax system with is gross distortions and complexity impedes the economy and jacks up the shelf price of goods and services.

With others finding overhead losses aproaching a dollar or more for dollar revenue extracted:

STATEMENT OF REPRESENTATIVE DICK ARMEY
HEARING ON THE IMPACT ON
INDIVIDUALS AND FAMILIES OF REPLACING THE FEDERAL INCOME TAX
Committee on Ways and Means, Full Committee, 4-15-97 Testimony

Hinders Economic Opportunity

According to a study by Jane Gravelle, an economist with the Congressional Research Service, and Larry Kotlikoff, an economist at Boston University, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury. Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises in revenue through the current system costs the economy $1.39.

With resulting higher prices and lower wages to the household, sales are depressed resulting in even greater losses arising out of the lower demand and loss productivity as resouces are misallocated to non-productive tax avoidence away from more productive utilization in driving the economic engine.

Chief Executive, The New directions in tax reform -
May 1995.

Tax expert Ernest Christian Jr., a partner with Washington's Patton, Boggs & Blow, reckons these are low estimates or at best incomplete. Citing a U.S. Treasury study which indicates that 6 billion man-hours are consumed each year just in the record keeping for income and payroll tax returns alone, Christian says the true burden on the U.S. economy is probably closer to $1 trillion. For example, Jane Gravelle of the Congressional Research Service estimates that economic loss from the corporate income tax is equal to about 97 percent of the corporate tax revenue collected.

The total depressive effect on the economy from all federal taxes including SS/Medicare payroll taxes rises and loss of purchasing power out individual income tax extraction rises to $2-$4 lost to the economy for every dollar of revenue extracted by government under the current tax system;

Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf

"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "

Contrary to theorizing history shows that this will happen with the most damaging and dramatic impacts affecting the construction industry.

AGCA doesn't see it that way:

mash clicker here ==> American General Contractor's Association

"The Associated General Contractors of America (AGC) has endorsed the FairTax national sales tax [currently embodied in H.R. 25] that is promoted by the Americans for Fair Taxation. This federal legislation would eliminate the death tax, self-employment taxes, corporate and individual income taxes, the alternative minimum tax, the capital gains tax and replace these taxes with one simple, single rate, national sales tax on the personal and final consumption of goods and services at the retail level only. It would not affect social security benefits, but simply change the funding mechanism. It would not affect those Federal excise taxes used to fund construction programs. In this endorsement, AGC joins other significant national business groups including the National Small Business United (the nation's oldest small business organization) and the American Farm Bureau Federation among other notable groups."
*** Snip ***
"Our current system is also problematic because much of the burden of the current system is hidden from the American taxpayers. Most taxpayers have been taught that an amorphous entity - business -- must pay its fair share. However, they do not understand that businesses are merely a collection of individuals engaged in a productive enterprise. When businesses are taxed, the taxes result in fewer businesses, lower wages or higher priced goods and services if the taxes can be pushed forward. In some businesses, taxes cannot be pushed forward and the owner must endure these taxes. Businesses don't pay taxes, people do; however, the corporate income tax and the employer share of payroll taxes perpetuate this myth.

It is not a harmless myth. The hidden cost of our tax system ensures that Americans remain ever ignorant of the increasing proportion of federal taxes they pay. Taxes are now more than 20 percent of Gross Domestic Product, and despite the claims of tax cuts, Americans pay more now than we have in the history of our nation, including the height of World War II. Upstream taxes only ensure that taxpayers cannot see the true cost of our government, raise the costs of goods and services and ensure more taxes in the future.

There is another problem with hidden taxes. Apart from ensuring the system lacks integrity, hidden taxes buried in goods and services reduce exports, and result in lower profits, lost productivity and a competitive advantage to foreign commodities. "

If you believe that income taxes makes up 30% of the final price of a product there is little I can say to you.

No one has said that income taxes make up 30% of the final price of a product.

However, many have said repeatedly that ALL TAXES and the cost of complying with and paying them through all steps of production and distribution, marketing, and selling easily approach 30%.

In particular, they will still track and report wages to the SSA. They will not fill out federal (wage) tax forms once per month

Actually wages must still be reported so that SS benefits can be figured.

Add me to your Fair Tax list please.

I truly believe all those percentages were put out by the cultural marxists who don't want this because they would not be in power anymore. They don't want us being in conttol of our money property or anything else. They want to rule us like Hitler and Stalin.

Sorry but I do not believe those estimates (which are all over the lot in any case) of costs of compliance particularly since we now have computers capable of handling much of the drudgery. There is NO way they cost $4 for every dollar of tax revenue. And the other estimates are also not likely.

I do not dispute the fact that much of the taxation is hidden. But do not believe replacing the income tax with sales taxes which will reach 40% when state and local taxes are added is a good solution to that problem.

In addition, there will still be State Income Taxes, Local Income taxes and State sales taxes and Local sales taxes which will NOT be affected by any such change. This will mean that the total tax burden will be over 45% in some localities.

If the AGCA believes that removing the tax deductions associated with home owning will not crush construction that is its problem. Not only will there be a huge new burden added in the sales tax to new homes but that addition will be multiplied many fold through the financing of it and the removal of deductability will increase the real interest costs by at least 1/4. This is a deal killer and will be the rock upon which this plan crashes.

I believe that to be nonsense as well.

You don't believe that social security taxes, medicaid/medicare taxes, administrative and compliance costs from getting raw material from the ground to a finished product on the shelf and the tax and compliance costs of the final retail outlet all combined don't start to approach 30%?

What number would you put it at, and why?

I'm kinda with you on this one. It sounds great, but they never address the risks involved in implementing the plan. There is no way we will implement a 30% tax on all new goods and not have a serious contraction in the economy. What good is it to not have any tax withheld from your paycheck if you don't have one anymore?

No. And in any case the change you desire will not affect adminstrative and compliance costs. The reason I do not is that there is little need to hire additional accounting help to track tax matters since it is handled by those people who have to track all manner of expenses. There is some additional cost but I believe it has been exaggerated for rhetorical reasons. A reasonable method of getting a handle on such questions would be to see what the total revenues for tax preparers are and going from there.

Nor do I trust the government not to increase the sales tax rate by degrees as it did the income tax.

And there is no doubt that a change to sales taxes will drastically increase my tax burden and probably that of many if not most others. But the killer will be the impact upon the construction industry from such a change.

What good is it to not have any tax withheld from your paycheck if you don't have one anymore?

If all federal taxes were no longer withheld from your paycheck, how much larger would it instantly be? And why would an instantly much larger paycheck cause a crash of the US economy?

And the % you think is built into the price of retail goods and services?

And there is no doubt that a change to sales taxes will drastically increase my tax burden and probably that of many if not most others. But the killer will be the impact upon the construction industry from such a change.

Not really, if you realize how inflated the price ratio of a market cost of a house to the cost of constuction, you would realize it would not be so bad.

For example, a house the cost $120,000 dollars to build retails in a low demand market for $150,000 - $160,000, while in a high demand market, it would retail for $250,000 - $350,000.

I know some housing contractors.

So relax, the house market can absorb a NRST without much problem.