Posted on 03/06/2005 3:07:44 PM PST by smokeyb
I don't know but doubt that it is higher than 15%.
I don't know but doubt that it is higher than 15%.For 2004 the FairTax base plus exports (I'm limiting it to that so that there is no squawking from the FairTaxers) was $11,582 billion. That is the total "price" of goods claimed to dropping after the FairTax is passed. The corporate income tax collected in 2004 was $190 billion, or 1.64% of "prices." The employer share of payroll taxes was $383 billion, or 3.31% of "prices." That's a total of 4.95%. Even if all of these taxes were incident on consumers (and virtually every economist believes they are not) that is no where near a 20-35% price drop.
Construction is one of those sectors which has a high rate of crash and burn and many contractors go out of business every year because of the unpredictability. The margins are very slim as that fact illustrates. This means that there is very little discretionary pricing and far less leeway than you imply. This is certainly the case in the same geographical area.
In addition, the cost of the inputs also varies in high demand and low demand times. There are very few, if any, situations where the builder can just take an extra hundred grand in profit.
If what you say was true the profit rate would be much higher in construction than it actually is.
It's not unpredictability. They just get overextended.
In addition, the cost of the inputs also varies in high demand and low demand times.
Not really, prices for building materials usually stay the same and if they do change, there is plenty of time to take that into account.
There are very few, if any, situations where the builder can just take an extra hundred grand in profit.
It depends on whether is it a high market or low market demand area.
If what you say was true the profit rate would be much higher in construction than it actually is.
Oh it is in some places. Unless you have lived under a rock, you have heard of the insanely high cost for houses in some place like Calf.
The argument takes those numbers (or their equivalent) then cycles them through the economic chain thereby increasing the impact which is a valid procedure since each step along the chain must pay them.
I agree the numbers do not add up but neither does the economic theorizing which uses them. Such as the idea that income taxes are included in the cost of production.
And you are entirely correct that workers will have to take nominal pay cut for the plan to work. The chances of THAT happening is between zero and none.
The whole thing requires far more faith than I have and I suspect I am not alone in that.
Well if its me, I would hold back spending at first. Sure, I would have a larger paycheck, but I would be unsure as to how long it would last me if the cost of new goods is 30% greater (or maybe less as some others profess) than it was before. Would that psychology not apply to other consumers?
I guess my point is that the new system would take some adjustment in expectations, and that adjustment would cause a contraction in the economy.
Another point to consider, is that under the fair tax, it seems to me it would be worth my while to spend much more time thinking about the consequences of my purchases. Not a bad thing, but done by a whole nation of consumers in an economy supported mostly by consumption could trigger long-term changes in spending patterns. That would mean long-term changes in the economy and probably changes to the point where the fair tax could have a much different outcome than you ever expected. Have you considered that possibility?
The whole tax system is one big Rube Goldberg machine, and if you are not carefull about how you change it, it could all fall apart.
The overextension is because the market cannot be that accurately estimated. Profits high one year new entrants rush in, overbuild, and profits crash until business failures adjust the rate of building. Then same cycle starts over again. This is similiar to the agricultural market cycle.
Lumber prices are not that stable and that is a huge part of total costs right there.
I do not agree that there is that much flexibility in pricing especially when you must recall that the vast majority of construction is financed. This means the clock is ticking and time is money. Thus, the builder wants to get rid of the house as soon as possible even before completion if he can. Hanging on to it too long can eat the entire profit if he is not careful.
Housing prices in California are not the result of excessive builder profit but rather new restrictions on them by the local communities, ecological demands from the environazis, etc. California builders do not make a higher rate of profit than builders in low price areas or you would see the market working to eliminate the excess.
I remember the shortage of sheetrock in the late 90's. Prices rose a lot for that and they could'nt make the stuff fast enough for a while.
This is one of the factors in the unpredictability. Often a shortage in supply in one factor can screw up a whole job by causing unanticipated delays all down the line. Thus, while sheetrock prices may rise so that another 10 grand has to be added to the price the actual impact may be much greater if it causes an extra month to be added to the construction timetable.
We would tax imports the same then as we tax domestic goods. And also if it was 40%.. which it probably would be as you say, every single time someone bought something they would feel the taxation hardcore.
Right now with all of it hidden away, they simply don't appreciate just how much their quality of life is falling because of the socialism.
Actually ideally I would like the taxes to accumulate throughout the year, then the government send each person a yearly bill. And each person would actually have to sit down and write like a 20,000$ check to the government.
You are now on the fairtax/taxreform pinger.
Welcome aboard.
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.
Thing is the NRST isn are not just replacing "income tax" with sales taxes, to claim so is just down right wrong and it is no wonder you continue to believe what you insist must happen.
HR25 replaces 95% of all taxes collected by the federal government with an NRST. That includes those collected from businesses as well as individuals in the form of income and SS/Medicare taxes.
The NRST does away with all IRS reporting of income, withholding and estimated tax requirements on business, all costs associated with tax planning, sheltering of income from the IRS, the costs that busnesses incur in implementing plans to remove there earnings from federal tax jurisdiction, the costs and losses inherent in non-productive and low productive utilizations of capital for tax avoidence reasons, all the cost associated with dealing with the IRS administrative bureucracy, their audits, fending off legal actions, paying fines and penalties as well as court costs involved in such actions. The padding that businesses that reserve when the uncertainty of the actual tax due is uncertain to assure the bill is paid, All the myiad of incremental costs and losses that are born throughout all levels of business feeding into the final products at the retail level above and beyond the basic business accounting that would otherwise be normal to the conduct of a well run business.
Furthermore not only are the above business taxes and and associated cost factors removed with the repeal of the current federal tax system, no NRST is levied on any business use purchase. Thus the potential for significant reduction in the cummulative costs that go into the final retail product are indeed much more than just the amount of "corportate income taxes" collected by government that you apparently want to believe.
Finally with ringing out the cost factors above from the costing of products, and implementation of lower prices, additional gains in are to be had from the increased demand for products that arise with higher productivity more efficiently priced goods and services, the Laffer curve of demand side economics coming into play with economic expansion.
The protential for decline in shelf prices of product and supplies to business under the NRST is significantly more than just adding up the revenue take of govenment under the current system.
This will mean that the total tax burden will be over 45% in some localities.
The that is what it is and more today, if one counts the imposed losses due to the current tax system as a government imposed tax. The total tax burden under the NRST, since revenue neutrality is the target, will not be more than the burden today, and the full systemic burden of the NRST will actually be lower by the gains of economic productivity and improved cost efficiencies realizable under a single stage retail only tax.
I wonder if you know just how on target you are.
Read Beardley Ruml's TAXES FOR REVENUE ARE OBSOLETE and see for yourself.
It took the class warfare goons 126 years to enshrine class warfare in the U.S. Constitution via the 16th Amendment and the income tax.
The income tax in general and the progressive income tax specifically is the most vile form of class warfare known to man (save war). America is not about class warfare, but about Freedom and opportunity for all, and so long as we have an income tax, we will not be a free people.
In 1976, presidential candidate Jimmy Carter described the U.S. tax code as "a disgrace to the human race" - a trifle hyperbolic, perhaps, but only because he included the rest of the planet in America's unique humiliation.
The tax code was a disgrace then, and 25 years later it remains so, all 2.8 million words of it, despite periodic efforts to clean it up or slim down its thousands of pages.
The overextension is because the market cannot be that accurately estimated. Profits high one year new entrants rush in, overbuild, and profits crash until business failures adjust the rate of building. Then same cycle starts over again. This is similiar to the agricultural market cycle.
You don't really know the California housing market, and your theories, - as they relate to the Fair Tax, -- are mere speculation .
Lumber prices are not that stable and that is a huge part of total costs right there.
Not true. Lumber costs are not a "huge" part of CA total housing costs. -- Land & its development cost is the biggest factor.
I do not agree that there is that much flexibility in pricing especially when you must recall that the vast majority of construction is financed. This means the clock is ticking and time is money. Thus, the builder wants to get rid of the house as soon as possible even before completion if he can.
Again, you are speculating, -- often in the past, smaller CA builders would actually hold on to newly built houses for tax advantages. -- Lower capital gains taxes would pay the holding costs.
Hanging on to it too long can eat the entire profit if he is not careful.
Life is a gamble. Contractors gamble, & so-called economists opine cluelessly.
Housing prices in California are not the result of excessive builder profit but rather new restrictions on them by the local communities, ecological demands from the environazis, etc.
California builders do not make a higher rate of profit than builders in low price areas or you would see the market working to eliminate the excess.
Wrong.. You can't move the 'market' in land, and those who take the risks to develop it & build get the profits.
Here's a simplified but typical profit structure on a new million dollar 4000 sf CA house.
Developed lot, ready to build: 300K +
Materials placed on site: 200K
Labor & Subcontactors: 200K
Overhead 100K, - based on 700K construction loan & carrying costs.
Gross Profit if built & sold in one year: -- 200K
Thus, under the fair tax, a contractor would have to sell the project for $1,280,000 tax included..
A homeowner/builder could pay the 28% tax on the 800k of costs - [244K], assume all risks, and have the house built for [theoretically] $1,044,000..
Much the same savings a do it yourself builder can realize today. -- Big deal.
-- Your fantasy that the construction market would collapse because of a Fair Tax is just economic bushwa.
These threads are nothing but speculation some of which has a sound theoretic basis.
Land is typically about 30% of the cost of a house across the country California included.
And there is little doubt that this plan would have a devastating impact upon construction and everything else which is dependent upon financing. Your attempt to refute my comment totally ignores that point.
While your point about avoiding the full impact by building ones own home is valid it is not practical for the vast majority who cannot do that. And living in the house for a while would allow you to escape one of the most absurd features of the FT since you could sell it as used without the crushing sales tax. But most people would get creamed by this feature.
BTW it is the opinions of economists which are used by advocates to push this plan.
In case you have failed to notice, this happens quite often with some posters on this great forum.
Don't drag me into you agruements.
Not draging anyone into anything. Just making an observation on something I thought you had commented on. If I was incorrect about that then I apologize.
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