For most of us, approximately 20% of gross earned income goes as federal income tax (my estimate). With long form deductions we have some control over that. Many high income persons often pay a lower percentage. If that is approximately correct, why is a Fair Tax rate of more than 15% required? Why an effective F Tax of 30%? Does F Tax apply to real estate transactions? Or only to new construction, first time sold (as in case of vehicles)?
As far as the manufacturer’s costs are concerned, materials and overhead also have some portion of hidden taxes in them. So there would likely be more than the estimated 9% you mention.
Overhead costs are reduced just by virtue of the reduced corporate accounting & legal costs when federal income tax is no longer an issue.
One other question - do the F Tax proposals do away with FICA? Where does that 16.3% fit into the equation (7.65% employer pays, 7.65% employee pays)?
Let's take a $100 pair of shoes manufactured in the U.S. Say the costs are 30% materials (ie., $30), 20% overhead (ie., $20), and 50% labor (ie. $50).
If we only reduced labor cost by 9% (going from $50 to $45.50) the price of shoes would drop from $100 to $95.50, a mere 4.5% drop.
We can assume materials will drop (since THAT supplier also saves money) and overhead will drop (corporate taxes go to zero and compliance costs go away). The combined drop could be as high as $9 (ie., 9%).
"If that is approximately correct, why is a Fair Tax rate of more than 15% required?"
Hmmmm. I'll combine that with the next one.
"do the F Tax proposals do away with FICA? Where does that 16.3% fit into the equation (7.65% employer pays, 7.65% employee pays)?"
Yes. FICA and Medicare go away. You keep your 7.65% portion and the employer keeps his 7.65% portion.
The employer portion of FICA (7.65%) plus corporate taxes (that go away) plus employer compliance costs (to fill out the tax forms) all total up to about 9%. That's the 9% that the employer may use to reduce his prices.
So, the employer gets 9%. You are going to get your 20% plus your 7.65%. That's 36.65% in your case. Others may get 10% plus 7.65%. Add 9% for the employer and that person gets 26.65%.
Overall, it works out to about 30% average. Or so they say.