Posted on 09/22/2005 12:29:37 PM PDT by pigdog
FAIRTAX UPDATE
There is no doubt that the story of H.R. 25, the FairTax, has been pushed into the background by the Katrina disaster, and perhaps that is as it should be. When hundreds of thousands of people are suffering as they are in the aftermath of Katrina, that is the story. The FairTax is, however, still on the minds of the political class in Washington DC.
Congressman Linder tells me that the Republican leadership is more than impressed with the success of The FairTax Book. They have been receiving a steady stream of phone calls, emails, faxes ... and books from constituents demanding action on the FairTax bill. These officials have indicated that they had no idea that there was such a hunger for comprehensive tax reform in this country, and that they have never seen an outpouring of support for any tax reform plan such as the one they've experienced for the FairTax. Right now the expectation is that the FairTax could go before the House for a vote next Spring. If it passes, it's off to the Senate. If it fails, the leadership wants to make it the campaign issue for the 2006 mid-term elections. ...
Passage of the FairTax would constitute the greatest transfer of power from government to the people since the Revolutionary War.
That's why so many politicians are going to have to be drug kicking and screaming to the table. Elected officials don't like to surrender power. The only thing they want to give up less than their power, is their office. If these politicians know that you want the FairTax to get a fair hearing and a vote, than a fair hearing and a vote it shall be.
(Excerpt) Read more at boortz.com ...
And probably more news coming later ...
If this statement is true, the the talking heads in the congress are bigger morons that I thought. They absolutely, are totally and completely out of touch with the citizens of this Republic. They should all be fired. We should fire the entire bunch, clean D.C. out, and start over again, as a FREE REPUBLIC!!!
Not a bad idea ... not bad at all!!! Where do we sign up - maybe by backing the FairTax so they'll get the message their jobs may be up for grabs?
BTTT
bump!!
Check out the book on the desk:
http://isakson.senate.gov/pictures/072205bushplane.jpg
BS. We've been yelling about it since Carter.
... and we'll keep yelling until they act - and the "message" is now becoming clear to them.
Keep the heat on!!
Would it be ...? Could it be ...? YES IT IS!!!
The FairTax Book. Wonderful!
The simple solution is to remind the politicans that if the IRS is gone, the Clintons would not be able to use it as a weapon against said politicans.
ROTFLMAO!!
I wasn't joking.
Neither was I - and I think it's a GREAT idea. I intend to email my congressmen with that exact notification. If enough people do it, it should help (seriously).
It's just surprising no one thought of it before.
Is it the Fair Tax book?
Brilliant. Fair Tax BUMP!
If you look real close you can just make out the great big 'S' or rather "IRS" on the chest cover. I luv it!!
Fair tax great idea. Just hold off until I get the new car I've been saving for. The car I want is approximately 26,000. I figure 28% Fair tax, 6.25% State tax and registration. My tax will probably be around 8,900 at the show room floor. Got to save more, say around 34,900 out the door. Lot of money for a retiree with fixed income. Haven't read the book, but maybe there might be a way I could spread the tax out over a few years. Still will have a car payment to deal with. Any real suggestions? Major purchases seem to me will be a problem.
"The simple solution is to remind the politicans that if the IRS is gone, the Clintons would not be able to use it as a weapon against said politicans."
As much as I dislike the Clintons, I have to point out that they hardly pioneered the practice of using the IRS as a political weapon. I am old enough to recall Nixon doing the same thing, so I know that it goes back at least that far.
Not as much of a problem as you may imagine. In fact, you'd probably be better off to wait until the FairTax is in place. Here's the way it shakes down.
Prices will drop a significant amount due to the removal from current prices of what is often called a "hidden tax" which is the embedded tax cost in everything we buy and it starts and builds as the thing progresses from inception on to final consumption, getting a bit more expensive at each level.
In addition to that, you will be receiving more of your paycheck if you're working, or - if not - you'll not be taxed on savings and invesments either/both of which will help you accumulate funds. Moreover, interest rates will drop so that your car loan will be at about a 2% lower rate.
So there are several things that help you get that car with the FairTax:
1) Lowered prices
2) Higher earnings or investments - free of tax
3) Lower interest rates.
In addition to all that, when the FairTax becomes law most states will do the reasonable thing and conform their state income and sales tax laws to the FairTax meaning that they'll use the same tax definitions as the FairTax. this both eliminates state income tax (if you have it) and will also lower the state sales tax rate dramatically in most states - down to something like 1/4 to 1/3 of the present rate. There's a good discussion of the state tax situation here so you can get a better handle on what might happen in your state:
http://www.fairtaxvolunteer.org/smart/tax_system.html
Actually, I'm holding off such a purchase for fhose very reasons. Right now if the FairTax is passed as a revenue neutral bill (which it should be), the FairTax federal rate would be about 19% which covers what are payroll wihholdings in the current system as well as all income (and other) taxes specified in the bill.
Altogether I believe you'll spend a good bit less than you're now thinking you will. You may even wish to upgrade the options some!
If you would like to be added to this ping list let me know.
John Linder in the House(HR25) & Saxby Chambliss Senate(S25) offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright and replace them with with a national retail sales tax administered by the states.
H.R.25,S.25
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.Refer for additional information:
"Not as much of a problem as you may imagine. In fact, you'd probably be better off to wait until the FairTax is in place. Here's the way it shakes down."
I have researched since we last debated this. There are some holes and as Neil admits, it isn't perfect. But I am now an advocate. I disagree with the notion that prices will immediately drop. And I also believe there wil be a hiccup in the economy as consumers "reload." The hiccup will come from (In my opnion based on my own research) three effects.
1) Producers will balk at being the first to "dramatically" reduce prices (before tax prices) as they cannot forecast future costs until current inventory is depleted. Further, there will be incentive to make the money available while hedging bets on consumer suspicions about product costs. They may be concerned about an immediate drop in sales while consumers wait out the price correction for the added tax.
2) If prices take 3 months to "correct" for the tax, consumers are not going to immeidately see disposable income SAVINGS to buy the immediately more expensive products. The price jump might be intimidating at first while only adding %15 to their takehome pay.
3) Finally, (I have not seen this in any publication) price reduction due to "hidden/embedded taxes" are only going to be immediately recognized in labor related taxes. The raw material suppliers to production lines are not going to be able to immediately calculate the complete savings. Remeber, energy is taxed, insurance is taxed, leases and mortgages are taxed, fuel is taxed, etc. All of these factors build up to costs that companies must cover in the price of their goods. The price drop might take a while to get manageable.
While the price correction is being driven by supply and demand to make sales, companies are only going low prices as much as they can continue to forecast profits. That chain starts at the very bottom of several companies. At the same time, consumers get excited about extra income but may start saving it faster than they spend it. Saving money is good but it does not drive the economy. Spending drives the economy.
Add me to the ping list, please.
U'r on the pinger, Welcome aboard.
From H.R. 25, found at thomas.loc.gov: "....`SEC. 902. TRANSITION MATTERS. `(a) Inventory- `(1) QUALIFIED INVENTORY- Inventory held by a trade or business on the close of business on December 31, 2006, shall be qualified inventory if it is sold-- `(A) before December 31, 2008; `(B) by a registered person; and `(C) subject to the tax imposed by section 101. `(2) COSTS- For purposes of this section, qualified inventory shall have the cost that it had for Federal income tax purposes for the trade or business as of December 31, 2006 (including any amounts capitalized by reason of section 263A of the Internal Revenue Code of 1986 as in effect on December 31, 2006). `(3) TRANSITIONAL INVENTORY CREDIT- The trade or business which held the qualified inventory on the close of business on December 31, 2006, shall be entitled to a transitional inventory credit equal to the cost of the qualified inventory (determined in accordance with paragraph (2)) times the rate of tax imposed by section 101. `(4) TIMING OF CREDIT- The credit provided under paragraph (3) shall be allowed with respect to the month when the inventory is sold subject to the tax imposed by this subtitle. Said credit shall be reported as an intermediate and export sales credit and the person claiming said credit shall attach supporting schedules in the form that the Secretary may prescribe. `(b) Work-in-Process- For purposes of this section, inventory shall include work-in-process. `(c) Qualified Inventory Held by Businesses not Selling Said Qualified Inventory at Retail- `(1) IN GENERAL- Qualified inventory held by businesses that sells said qualified inventory not subject to tax pursuant to section 102(a) shall be eligible for the transitional inventory credit only if that business (or a business that has successor rights pursuant to paragraph (2)) receives certification in a form satisfactory to the Secretary that the qualified inventory was subsequently sold subject to the tax imposed by this subtitle. `(2) TRANSITIONAL INVENTORY CREDIT RIGHT MAY BE SOLD- The business entitled to the transitional inventory credit may sell the right to receive said transitional inventory credit to the purchaser of the qualified inventory that gave rise to the credit entitlement. Any purchaser of such qualified inventory (or property or services into which the qualified inventory has been incorporated) may sell the right to said transitional inventory credit to a subsequent purchaser of said qualified inventory (or property or services into which the qualified inventory has been incorporated)...." Because of the foregoing section, prices can be reduced by 23% ON DAY ONE, without any reduction in the profit margin of the business. This will provide great incentive to reduce prices by that amount, allowing net nominal price to remain constant. Competition will inevitably result, and most, if not all of this credit will be passed to the consumer. Of course, businesses may choose to utilize the value of that credit to boost employee pay or to retain it all to boost return on investment for the shareholders or to reduce prices...or some combination of the three options. It will be up to the market to allocate the incidence of the credit. As the economy adjusts to a new equilibrium, the invisible hand of the market will likewise allocate the incidence of the consumption tax. Whereas consumption taxes are thought to be fully incident on the consumer, that is false. * Consumption taxes, like corporate net income taxes, can be incident on any one or combination of three groups: Consumers, employees, owners. As nominal prices rise, some reduction in consumption is likely. That will effectively push some of the burden back onto employees in the form of reduced wages, and back on to owners in the form of reduced return on investment. This is critical to understanding why the FT is superior. The key points to remember are these: 1. The FairTax is calculated to be revenue neutral. This means the size of the 'tax wedge' is unchanged. Total purchasing power of the American people will remain unchanged. 2. There will be shifts in the incidence of the tax. Those who currently make their living from tax-free investments/sources like municipal bonds (Ta-RAY-za Heinz - Kerry - Heinz), drugs, prostitution, illegal aliens, will see a reduction in their purchasing power under the FairTax. For the first time, they will be paying their fair share. Those who are currently paying income taxes (middle America) will continue to pay taxes in the form of the consumption tax. 3. The WTO has been at war with the US for years. (Please see: Domestic International Sales Corporation, Foreign Sales Corporation, Extra-territorial Income Exclusion) The WTO has categorically refused to allow the US to 'border-adjust' the cost of the Corporate Net Income Tax from the price of exported goods. By contrast, the WTO permits the VAT (another consumption tax) to be border adjusted fully. Because the incidence of the VAT is allocated in the same manner as the CNI, This artificial distinction puts US goods at a distinct disadvantage in the world market. Please see above.* 4. The FairTax broadens the base over which the Social Security tax is imposed. We must broaden the base and increase the incidence of this tax if we are to 'save' social security---a questionable goal at best, but that's another rant. 5. The pay-as-you-go nature of the tax will eliminate the need to lien/levy private property to enforce the tax. The FairTax will strenthen private property rights. Sure there will be cheats, but audit and enforcement will be directed at retail outlets who conspire with consumers to evade the tax. The FairTax is not perfect, but it's the best of all the proposals I've seen thus far, and I've been watching the Fundamental Tax reform movement for over a decade now. If you have a better system, I'd really like to hear about it. 316 posted on 09/16/2005 3:20:11 PM PDT by Conservative Goddess (Politiae legibus, non leges politiis, adaptandae)"""I just wish that these so-called 'Fair Taxers' would just ONCE comment on the transition phase between two different tax systems."
As for the removal of business income tax costs from prices that will happen quite rapidly - and it is not dependent upon payroll reclines at all. Here's one example of how the embedded tax mechanism works - #96 on this thread:
http://www.freerepublic.com/focus/f-news/1486100/posts?q=1&&page=51
Once the income tax is gone the market will move to correct for its demise quite rapidly I think and in fact the smarter retailers will jump the gun on the FairTax by offering lower prices before the FairTax even takes effect since there will be a run-up period after the law passes and before it is legally in force.
I see the big circle around the IRS. Either that or it's "I Want to be a Fireman When I Grow Up" by B. A. Squirrel.
Truly funnie!!
Thank you. This explains much. I'm going to hold off and see what happens. My old clunker will run for a while. Thanks again.
If you' beg, borrow, or steal (or mebbe buy) a copy of THe FairTax Book it would help understand even more I think - or check the wealth of information on the FairTax website:
http://www.fairtax.org/research.html
or even read a few pages of the bill itself (it's an easy read and is actually shorter that the book, but the book is more entertaining):
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:
or check the wealth of information on the FairTax website:
Some more useful links with lots of information:
I am aware of that provision and read it again to see if I missed it. I interpret it this way. There is a credit to be given to any business up to 2008 if there can be proved a loss of revenue based on previous (embedded) tax obligations once said inventory is sold. In otherwords, the government would be encouraging businesses to recognize savings immediately with current inventory for the new tax system. You surmize that this would encourage business to get an edge on their competition by undercutting them in price wars. Consider the cash flow in any business and then reconsider what industries your summation might not work for.
The construction industry fights a lot of layers and is almost all service related. It is also a very high risk, low profit, fiercly competetive industry. I am a part of it. I have tried to calculate this tax benefit for the construction of say a $100 Million new construction project. First, who pays the 23%. If a brick is a brick when it is sold as the final product to the consumer (mason) then is the whole building taxed per cost of construction to the owner at 23%? If I read the law right, there is no tax when a company buys the brick from the manufacturer. The manufacturer has lots of overhead wrapped up in equipment, buildings, materials, labor, legal, Admin, insurance, etc. Does he immediately lower his/her price? Take on up the line. He buys pigment for his different brick from a supplier that also has a factory but owns several mining operations and trucking companies. Dial in on the Trucking Companies. Then move to the trucking manufacturers. Move to the steel suppliers. Move to the miners, to equipment manufacturers...... Now, back to the brick. Multiply this complicated process times about 500,000 other parts, peices, materials and services and pretend you are the at risk General Contractor hoping to clear 1.5% profit at the end of the year (and that is realistic). The GC cannot afford the cashflow associated with dropping price to beat the competition to an "estimated" level of what will be the future cost of doing business.
This is the industry I know best but I am sure there are other ugly examples out there.
I will wait for your response.
Now is that a bad thing? Sure. The problems I foresee are many: 1. Revenues to the treasury will drop because people will tend to buy used or would have bought as many durable goods as possible before the implementation. 2. Retail sales will suffer and could be a drag on the economy. 3. A lot of people will be able to adjust their lifestyles upward immediately by several methods including finally buying that plasma tv but buying it at the pawn shop so the savings rate will probably stay the same or even go down.
BUT. Retailers with inventory will adjust their prices downward to move that merchandise. Used goods merchants will quickly run out of stuff which they will want to replace quickly (they want to stay in business right?) so there will be an immediate floor on the price of trade-ins and used goods. So the spread between the prices of new and used goods will narrow.
The average worker now has a lot more money coming in every month. If his TV is getting snowy AND his carburetor is having problems he has a lot more options and a lot more money than he had before. He can buy a used TV. He can defer the TV until next month and fix the carb. The one thing he has now that he didn't have before is a choice. Before, he lost 20% of his paycheck before he even saw it. Now he has all of his money and can opt to pay his fed gov taxes when he wants to.
The construction industry, like everyone else, will have to adjust. But, once again, the spread between new and used will narrow. In that industry, unlike many others, as you state, the parts required are numerous and each and every maker will have a good reason and good leeway to ultimately lower prices. But just like we did in the 1970's when inflation grew far more than any 23 or 29% we will adjust. After a period of adjustment there will be a period of economic boom which hasn't been seen since the dawn of the industrial revolution.
Great article! Keep up the pressure!
I may have unintentionally confused things when I posted about two different things without distinguishing adequately between them.
Let me try to rectify that.
bump^ thanks for the ping
"What sort of customers do you sell to? Are the businesses? Individuals? Both?"
I am a project manager (Engineering background) in the commercial construction Industry. Right now I am managing a large part of a pharmacuetical research building ($200Million) for a well known company. We get price increase notices all the time as the market demand for raw materials grows over seas. It is pretty tough to stay just barely in the green. Too much in the green and competition gets the work. Too cheap and competition gets the work because we go out of business.
Ping.
It sounds as though you don't have any taxable sales under the FairTax if you're selling to other businesses who use their buildings for bsiness purposes. If that's the case you wouldn't be involved in collecting taxes from them as those sorts of sales are not taxable.
The downside to that is, of course, that you don't get paid the 1/4 of 1% of the tax revenue in return for a two line report each month.
Actually from what I understand, HR-25 takes the direct collect and enforcement of said collection of taxes out of the hands of the federal level and puts in state and local levels.
Under HR25, the IRS is both defunded and eliminated as part of the bill and the income tax records are required to be destroyed. It's in the bill.
The state sales tax aauthorities that presently collect sales taxes in the states are the ones who would aaadminister thr FairTax in their state. That's in the bill, too.
"It sounds as though you don't have any taxable sales under the FairTax if you're selling to other businesses who use their buildings for bsiness purposes. If that's the case you wouldn't be involved in collecting taxes from them as those sorts of sales are not taxable."
The specific issue I am addressing in my example is the theory that prices would immediately drop for all businesses and industries. In my research for how it would affect my industry, I do not see an immediate price impact reduction in the construction industry. There are too many services involved and to many business to business transactions that occur to build a new building. On top of that, the margins are so narrow and the cashflow is so low and the risk is so high, I believe there will be a long pause if the prices actually ever do come down. The price reductions to offset the 23% tax on the final product to the "owner" (my assumption that the end user or owner of the product pays it) will likely take a long time to be realized by the end user. Meanwhile, tack on 23% to the cost of a $200 Million project and most owners are going to balk at the cost.
Maybe I have this all wrong. Will there be tax on new construction? If a builder sells a house to a home owner, then I assume we tack on 23%. When an owner contracts out the construction of a new commercial building, he/she is not "selling" the product but paying for a product none the less.
Ask Neil. I would really like to get an answer on this. I am sure there are several other industries that this might apply to.
Thanks.
The TIC (Transitional Inventory Credit) is the one situation where prices could immediately drop.
The removal of embedded tax costs (the second factor mentioned in helping reduce prices) would be a broader and longer lasting effect. It would also take longer to come fully ino play but I think would show up in prices in the short term rather than long term. Certainly that will vary by industry but it will occur fairly rapidly, though not as immediately as the TIC.
You still seem to assume that the $200 million project will be taxable. There is a good chance it will not since it sounds almost certain this would be for busines use and therefore not taxable to the buyer. The use of the property involved by the purchser is important in determining its taxable status.
Let me see if his clarifies anything about the construction instances you posed since the use of the building must be considered ...
a) If a builder sells a house to someone who will live there (an end consumer's home), the consumer would be charged the FairTax rate (it may be less than 23% BTW by the time the bill is passed).
b) If a builder sells a house to someone who will be renting it to others (a landlord), there is no tax since the landlord is using it for business purposes - and he will charge tax to the renter.
c) If a builder sells a commercial building to a business for use in the business, there is no tax.
Perhaps it would help if you could be more specific about the exact meaning of your statement "When an owner contracts out the construction of a new commercial building, he/she is not "selling" the product but paying for a product none the less." That sounds like it falls under c) above as I interpret your meaning.
Also, you mention "Ask Neil". I don't know who you might be referring to - please advise.
In addition, I meant to mention that you should not overlook the effects that reduced interest rates would have on a large sized project such as he $200 million one you mention.
Here's a link to some helpful information about that aspect of cost reduction:
http://www.fairtax.org/pdfs/interestrates.pdf
lurking bump
"Perhaps it would help if you could be more specific about the exact meaning of your statement "When an owner contracts out the construction of a new commercial building, he/she is not "selling" the product but paying for a product none the less." That sounds like it falls under c) above as I interpret your meaning."
Here is an example of typical contract structure for a commercial building. I large box store retailer purchases property (which must have existed and is therefore not "new"). He contracts with a General Contractor to build a building on that site. The GC then contracts out to about 40 other contractors to put the work in place. Each of those contractors contracts to 5-10 vendors and suppliers. And so on....
The building will be used to sell stuff. But it is a new building. Someday that building will be sold but will be used. Under the new tax system, only end user personal consumers pay the tax. That means that MOST products in all industries will not be taxed as they are part of the chain on its way to the end user. It is mind bogelling.
Let's get this straight:
1. Prices from the elimination of so-called embedded taxes would fall by 23%. (let's skip the tax-inclusive vs. tax-exclusive problem) The fairtax would then raise that price back to where it was. (Fairtaxers claim that prices would stay the same.)
2. Meanwhile, my income tax goes to zero.
3. If prices stay the same, and I pay no income tax, how does the government get revenue?
Sounds like a lot of SOMETHING FOR NOTHING to me!
An income tax diminishes income. There are many examples of this. This was one reason why Reagan became a Republican, because of high marginal income tax rates that were affecting him. Look at Europe's high rates, and how the US is (comparatively) better off.
A sales tax diminish sales. There are many examples of this too. Look when (New York state?) reduced the sales tax on clothing. Sales increased dramatically. Look at the difference between Oregon and Washington. One has an income tax, one has a sales tax.
A 23-30% sales tax will DEFINITELY hurt sales. To not understand that woefully underestimates incentives/costs and people's/consumers/taxpayers reactions.
If I re-sell at my flea market, is the new IRS going to track me?
That would apply to the suppliers to your contracting organization also - they would not be charging you (nor would they be paying) any FairTax.
The principle is (which is clearly stated in the bill) that a thing is to be taxed at most once and only once - when it is sold for end consumption. Your chain of construction contracting would be outside that end consumption and therefore not taxable. The fact that someone pays for something is not the deciding factor, but the use to which the property (in this case) will be put and the intended use by the buyer. If used for business purposes in selling to others at retail, there is clearly no tax until the end of the chain - when things are sold at retail to end consumers by the retailer. The property would just be one thing used in furthering that business objective of the big box retailer.
The fact that it is a new building is not the consideration at all. And you're right ... none of the GC's subcontractors and/or their vendors will be paying any FairTax as things progress "up the chain". That's why it is important to grasp the idea of how embedded business taxes (not just corporate taxes) are removed from this process and how that can drop prices fairly rapidly as the process gets underway.
The earlier-mentioned TIC (Transitional Inventory Credit) is a Day 1 thing while the embedded tax reduction will happen in the first very few months - but it certainly will happen and it will eventually help your general contractor reduce his costs. Whether (and when) he passes this on to his big box retail customer is, of course, up to the contractor ... but - as you observe - there is some determined competition to consider. So it will be with other industries as well.
I hope that helps explain things. It is very helpful to keep the general principles of interpretation in mind since these are guidance to the legal system in considering any legal actions at a later time:
`(a) In General- Any court, the Secretary, and any sales tax administering authority shall consider the purposes of this subtitle (as set forth in subsection (b)) as the primary aid in statutory construction. `(b) Purposes- The purposes of this subtitle are as follows: `(1) To raise revenue needed by the Federal Government in a manner consistent with the other purposes of this subtitle. `(2) To tax all consumption of goods and services in the United States once, without exception, but only once. `(3) To prevent double, multiple, or cascading taxation. `(4) To simplify the tax law and reduce the administration costs of, and the costs of compliance with, the tax law. `(5) To provide for the administration of the tax law in a manner that respects privacy, due process, individual rights when interacting with the government, the presumption of innocence in criminal proceedings, and the presumption of lawful behavior in civil proceedings. `(6) To increase the role of State governments in Federal tax administration because of State government expertise in sales tax administration. `(7) To enhance generally cooperation and coordination among State tax administrators; and to enhance cooperation and coordination among Federal and State tax administrators, consistent with the principle of intergovernmental tax immunity.""`SEC. 1. PRINCIPLES OF INTERPRETATION.
And, YES, you're quite right - the tax philosophy is SO different from what we have had for almost 100 years that some have a very hard time grasping (or even believing) it.
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