Posted on 08/24/2005 9:40:44 PM PDT by RobFromGa
August 24, 2005
U.S. Representative John Linder
1026 Longworth House Office Building
Washington, DC 20515
Phone: 770-232-3005
Fax: 770-232-2909
Copy: Neal Boortz, WSB Radio,
Dr. Dale Jorgenson, Harvard University
Dear Representative Linder:
I wrote to you two days ago regarding what I consider to be serious misrepresentations of the Fair Tax plan contained in your book, “The FairTax Book”. On page 2, you state “Let’s agree up front that this book is about honesty” and I intend to hold you at your word. Since that time, I have been in contact with Dr. Jorgenson in an attempt to clarify his understanding of this Plan and his calculation of expected price declines.
On pp. 22-23, your book states: “An extensive study of tax costs was completed a few years ago by Dr. Dale Jorgenson, then chairman of the Harvard Economics Department. On average, Jorgenson concluded, 22 percent of the price paid for a consumer product represents embedded taxes.”
You then went on to show a Chart (Fig 5.1) which shows the expected price decline without embedded costs for various goods and services as prepared by Jorgenson during his study.
On page 55, you go on to explain that these embedded taxes are “in addition to the money taken out of your check in income and payroll taxes.”
On page 59, you again invoke Dr. Jorgenson’s study: “If you’re looking for scholarly support for the proposition that prices will fall once the embedded taxes are removed, we can check back with [Jorgenson’s] “The Economic Impact of the National Retail Sales Tax” and you quote his report:
Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers… would fall by an average of twenty percent”
In this statement, Jorgenson seems to say that one of the reasons for the price drop at the producer level was the elimination of the tax on wages paid to workers. So, naturally if the business is going to realize this benefit it must reduce the workers gross pay be the amount that is currently being paid in the form of income and payroll taxes. This only makes sense because how can the business reduce costs if it gives the worker tax savings to the worker?
Later on page 59, you state: “Once the FairTax takes effect, you’ll be receiving 100 percent of every paycheck, with no withholding of federal income taxes, Social security taxes, or Medicare taxes and you’ll be paying just about the same price for T-shirts and other consumer goods and services that you were paying before the FairTax.”
Dr. Jorgenson’s report clearly showed that under his study the worker would not get their complete paycheck, because if he/she did, there would be no cost savings to the business and therefore no price drop associated with worker taxes.
You continue this theme on page 83: “Remember that the poor, along with everyone else—will no longer have Social Security taxes or Medicare taxes removed from their paychecks. Whatever they earn, they get on payday. For most of those we categorize as poor, this would mean an immediate 25 to 30 percent increase in their take-home pay.”
On page 84, you make it clear though that even though the workers will keep all of their paychecks for a big raise, you still believe that because of “the disappearance of the embedded taxes, the total price paid for consumer goods will remain very nearly the same”.
By assuming these two things together, you are misrepresenting Jorgenson’s report and double-counting the tax savings, first by giving them to the worker as a pay raise, and then at the same time assuming that there was a cost savings to the business.
On page 85 you make it clear the worker will get the pay raise.
And then on page 111, you tie it all together with a Quick Review in which you erroneously assert that “Here’s what happens when we pass and implement the FairTax plan:”
“We start collecting 100 percent of our earnings on our paycheck.
“We all get virtual raises, since payroll taxes are no longer siphoned from our checks.
“The prices of consumer goods and services remain essentially the same, with the removal of the embedded taxes compensating for the added consumption tax.”
Dr. Jorgenson’s report seemed pretty clear to me, but I felt it was necessary to ask him directly what he meant so I sent him this e-mail:
At 09:29 AM 8/24/2005 -0400, you wrote:
Dear Dr. Jorgenson,
I am a private US citizen who is concerned that the FairTax proponents are misrepresenting your conclusions. Would you please comment on the attached letter I sent to Mr. Boortz and Rep. Linder? I think that they are being dishonest to imply that the wage earner will keep his entire paycheck, while at the same time businesses will be able to reduce costs? Your March 1996 testimony stated, in part:
5.Since producers would no longer pay taxes on profits or other forms of capital income under the NRST and workers would no longer pay taxes on wages, prices received by producers, shown in the sixth chart, would fall by an average of twenty percent
Are you expecting business to reap a benefit from the taxes that that the worker no longer pays? It certainly sounds like that is part of where you see the business reducing its costs.
Rob
Dr. Jorgenson responded:
From: Dale Jorgenson [mailto:djorgenson@harvard.edu]
Sent: Wednesday, August 24, 2005 10:28 AM
To: Rob xxx
Re: Fair Tax- Is your 1995-6 Testimony being misrepresented by Boortz/Linder book?
August 24
Dear Rob,
A more reasonable interpretation of my 1996 testimony is that workers would keep that after-tax pay; producers' prices would fall, but retail prices would be increased by the national retail sales tax. Any gains by workers and investors would be the result of increase economic efficiency.
[He then went on to recommend his book called LIFTING THE BURDEN, about another tax reform plan he calls Efficient Taxation]
Best,
Dale
I wanted to be perfectly clear what he was saying, so I asked him to clarify his email:
At 06:41 PM 8/24/2005 -0400, you wrote:
Dr. Jorgenson,
Excuse me for my lack of understanding of your answer, when you say "workers would keep that after-tax pay" are you saying that if they are making $1000 a week now, and paying $200 payroll+income taxes now, that under the FairTax you were assuming that workers would get paid $800 and keep all of that? Or are you saying that you meant they would make $1000 under the FairTax?
Regards,
Rob xxx
Dr Jorgenson responded:
August 24
Dear Rob,
I am saying that the worker would continue to receive the after-tax amount of $800. Prices received by producers would decline to cover the cost of after-tax wages to workers and after-tax dividends and interest to investors. However, taxes paid at the retail level would include the Fair Tax.
Best,
Dale
So, Dr. Jorgenson, whose report you are relying on to support your calculation of embedded taxes, is stating that in making those embedded tax calculations he was not assuming that the worker would keep his current after-tax amount, NOT that the worker would keep all of his current gross pay-check. By reducing the gross pay of the worker to the current after-tax amount, the producers would see a cost reduction that would allow them to reduce selling prices. There would be no increase in take-home pay.
I think you need to carefully review the misrepresentations in your book and offer a retraction and modify subsequent printings to remove these errors. You have spent a large amount of time on this plan, and it is still a viable option for debate even without the bug windfall pay raise for everyone. I would enjoy the opportunity to discuss this with you further if you have questions.
Sincerely,
Rob xxx
xxxxxxx
"Their complete paycheck" is fraudulenty defined, because in the real world, the employee never has seen and will never see the withholding, other than taxes, that is part of his "total" pay.If you look at the FairTax website, they frequently say things like "You get to keep your whole paycheck and prices will stay the same." Which, when you look at it is true. Under the FairTax, you would keep your whole paycheck - there would be no withholding. The problem is that your whole paycheck would be the same as you are taking home today, i.e., your gross wages would have been reduced.
Sales tax will only be applied to new homes. What I am saying is, if the income and SS tax is repealed, I will at most see about a 10% savings in costs. When I add the 23% inclusive sales tax (30% sales tax when figured normally), my price will be 17% higher than today (0.9*1.3 = 1.17). My homes will be 17% more expensive then the same house I sold the year before.
I hope Rob let him know he was going to splash this all over Free Republic. Otherwise he may never answer another email again.
What's to stop the politicians from placing "special" taxes on expensive items, like a luxury tax? For example, a car that's over $20,000 has a luxury tax of 100%.
The same thing that stops them from doing it now. They have the power to do so under the constitution any time they opt to.
Of course they might have learned something from having to repeal such a tax on Yacht's when the jobs of their constituents folded when yacht building and sales in the U.S. failed and revenue dried up, as well as votes keeping the culprits in office.
"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "
"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."
When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four."
If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.
This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
Impositions of this kind usually fall under the denomination of indirect
taxes, and must for a long time constitute the chief part of the revenue
raised in this country. . Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment." (Emphasis added).
Yes, but Jorgenson clarified this comment and made it crystal clear that Jorgenson was figuring that employee take home pay would remain constant.....meaning employees have to take a pay cut. I know you are one who will remain in denial. But that is not my problem.
It has been, consistently.
... and not in terms of phoney economic benefits.
That is simply an incorrect assertion. There are plenty of economic benefits cited in the arguments for the Fair Tax which are obvious and incontrovertible. This particular thread has been focused on one specific item which may be questionable, but that in no way negates the others.
There is no question that if any major change in our tax system is implemented, such as the Fair Tax, there will be winners and losers. However, there are winners and losers under the current system as well. There is no way to avoid a certain amount of risk and pain. I wish you no harm, but the long-term well-being of my country and its people are more important than any individual considerations, either yours or mine.
I totally disagree. The Employer contribution component of Social Security and perhaps other taxes was never the employee's. The employer sends it to the government on the employee's behalf.
The employee never had nor has possession or control of that money.
Neal BoortzI thought he was a radio talk show host who wrote a book based on parroting lies...when did he become an expert at anything else?...Why would I want to ask him a question or talk to him about anything not related to radio talk shows?...
How would I know when he's not lying?
I think he might have. But he did make it clear he wanted Jorgenson's input for a debate, so I assume Dr. Jorgenson realized the response was not intended simply for private use. I am a bit surprised that Dr. Jorgenson responded.
The boom comes from imports. The US imports a huge amount.
Actually a boom in exports, according to Jorgenson an increase of over 26% in exports, accounts for a lot of the high production increase in first year of implementation.
Get rid of the drag of the income/payroll tax system on manufacturers, exporters, and other upstream businesses by repealing it and not levying a tax on purchases for business use, US exports would take off like a rocket in the initial years of the tax reform. That of course is in addition to the domestic sales vs import side of the picture where imports compete with domestic goods with the same burden of U.S. taxes in the domestic retail market.
It has been, consistently.
Must I point you to numerous threads taughting the fair tax calculator or other threads preaching the great economic windfalls of going to the fair tax. Certainly there is some who stick to the freedom angle, but mosts posts and threads always concerned the economic benefits.
And that has ABSOLUTELY nothing to do with and is TOTALLY unresponsive to the question that I asked!
Unless federal spending is reduced, and/or federal borrowing increased, there will NOT be lower taxes.
But playing along, I'll say that if retail prices are decreased, then that means the receipts that go into the federal treasury will be reduced.
What do you suppose the federal response to that will be? Do you think it might be a rate increase? You betcha. Now, what is the possibility that a rate increase will result in reduced purchasing? Hmmmmmmmm . . . .
If the NRST proponents make no allowance for these possibilities, they are being dishonest.
If by that you mean that Dr.Jorgenson, or ANY economist for that matter, believes that the ONLY costs imposed by the income tax system on the U.S. economy are the taxes themselves then your duck is TOTALLY loose!
Poor Dr. Jorgenson. I have a feeling he's going to have a very busy day! His email must be getting slammed.Worse yet just imagine the depression around the Fairtax cubicles today.
Two not so ordinary clowns wrote a book, one a US Congressman the other a known (somewhere) radio host, profiting from the parroting of the 100% paycheck lie "imagine getting 100% of your paycheck without deductions"...blah blah blah. Never bothering to do any research.
In these days of the internet all it takes is ONE concerned citizen to make the effort to find out the truth...
Why didn't the chest pounding Congressman and talk show radio host bother?...Their book, not the content was more important.
You mean this question: "Why do you persist in trying to make the spurious argument that the only costs imposed by the income tax system are the taxes themselves when you KNOW that to be untrue?
Because there was nothing false about my arguement. You are just trying to change the subject. We have debated compliance costs before and I have always acknowleged some, but that has nothing to do with the point at hand.
Well, if your urge to point is irresistible, point away and I'll give it all due consideration.
However, for your own benefit, I suggest you pause and consider that the reason there are far more posts discussing the economic specifics is because that is where the uncertainty lies, and thus that is where the partisans of the various viewpoints can most easily find the ammunition for their arguments.
Another reason, which Neal Boortz has pointed out frequently on his talk show, is that most Americans no longer really care about their freedom, and will not fight to defend it. They are only concerned with their own securtiy and creature comforts.
Without getting into a brawl over the fiscal solvency of SS (I am for complete privatization, btw. SS is the most immoral fiscal lie ever told by government, and they have told some doozies), lets just say that "theoretically" that money is in an account with your name on it, administered by the fed (they send me updates on how much I have in there, periodically......, thoughtful souls that they are). The same with the payroll taxes. You even get some of them back (sans interest) if you have them whitheld. If you are very low income, you get all of them back. It is like a huge interest free loan from the poor to the fed every year.
Anyway, the fact that I have never seen the moneys that Widgets, Inc pulls out of my check does not mean that I won't ask for it and allow the evil corporate greedy bastards to keep it for themselves. I will call my union rep and demand....... you know how the rest of the story goes.
No one has made that assertion. But another good effort at changing the subject.
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