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
Thanks, this has been a long day and I'm exhausted mentally. Good night all.
BTW, you do care about the Fair Tax or you would have posted on another thread besides the fair tax.
Nevertheless, I am going to push to get the Dr. to come on Boortz show so we can end this debate once and for all..
Wouldn't it help by making exports cheaper, and imports more expensive? All the embedded taxes would be removed from the business process, allowing businesses to sell inexpensively abroad. At the same time, All imported goods would have the fair tax tacked on, increasing the prices, and effectively taxing foreign companies.
I absolutely decline to engage in any of this argument, but I'd like to put my 2 cents in:
I'm sick of the current tax code and have been as long as I can remember. The cost of the bloated bureaucracy that is the IRS, the embedded favors, the huge enforcement arm, the cancerous tentacles that creep into every single area of life from birth to death--Americans have adjusted and adjusted and adjusted to this literal burgeoning insanity for far too long.
I'm for total reform. I don't much care about the flaming arguments on this board, the back and forth arguing.
I think the NRST represents a breath of fresh air, and I'd vote for it. I have already contacted my representative and senators to tell them so.
Roughly a third of my work effort goes to pay tax, a tenth goes to pay accountants and another tenth (at least) is taken up by planning, managing and recording for taxes, and god knows how much worrying about the whole stupid maddening meddling mess.
Give me a consumption tax, no accountants and no recording, reporting or auditing, no muss, no fuss, and I'd gladly take the net salary I have now and kiss you for it.
Your vote has been duly recorded in the "I hate the IRS, and I don't give a crap what we replace it with or what happens to the country as long as we abolish the IRS right now" column. Thanks for participating.
That is a valid position and I am somewhat inclined to agree that a NRST could possibly work, but only if it is sold honestly, if people are expecting their full paychecks and no change in prices they are going to be very unhappy when they realize that won't happen.
you lost me at "August 24, 2005"
Knock yourself out, I'm sure Boortz would prefer a root canal but he's more likely to try to ignore the whole issue if possible, after all this is his #1 NYT best seller we're talking about. Because he's not going to get Jorgenson to validate what he and Linder are saying. Because Jorgenson isn't drinking the Kool-Aid.
ok, thanks for stopping by.
Ridiculous claim.
Removing all corporate taxes and compliance costs from our companies will instantly make our producers more competitive in the world market.
And foreign producers are going to finally be taxed for playing in our market...at the point of sale.
The FairTax goes after the root causes of our monstrous trade deficits.
well, that's the last bump i give to one of your threads. take the lump of coal out of your butt. i'm sure it's a diamond by now.
The net result will be lower taxes and therefore lower prices with a NRST. Effectively an income increase, although of course market forces will still apply including supply, demand, productivity, etc.
If you look at the situation as static - which of course it is not, but people like to compare it that way - then you would have a net zero effect, that would be its intent, to get the same amount of tax in a different way.
However, putting aside my own situation, the larger picture with a consumption tax is more tax income (that is now being missed w/black market, off the books transactions) and a HUGE savings in legal and accounting expenses resulting in a sizable increase in productivity - and another increase in investment and wealth creation resulting from removing the disincentive of progressive taxation - and all the economic benefits citizens see from this.
As for "honesty" to citizens in order for them to make an informed choice, good luck. The first step to approaching this would be to eliminate the witholding charade that makes taxes look like bonuses. The second step would be to gag all the lying tax-addicts in congress and wealth redistributionists in media and academia.
That wasn't what I said, and that's exactly why I stay off these threads except to offer my opinion, once.
I didn't say that I "didn't give a crap what we replace it with"--I said that I'm for total reform and that the NRST represents a breath of fresh air.
The fact that you completely misrepresented what I said in order to make a supercilious rude comment to me doesn't speak well for your credibility.
I don't know of ANY elected representative that thinks the IRS is just fine the way it is. I don't know of anyone who thinks the present tax system is fixable. I don't know of anyone who thinks it isn't a drain on productivity and the economy in general.
I think the NRST is a breath of fresh air. I look forward to hearing or reading a debate without name-calling. So far, we don't have that on this thread. And as far as I know, I didn't address ANYONE with my post, just gave my opinion, and then got insulted.
I'm off the thread. But my comments will remain, so that anyone who reads it can see what happens to those who offer their opinion here.
Pinging you to some detective work I have been working on today.
I commend your initiative and investigation on this issue.
Good work, I have sent your information on to AFFT requesting their response as well.
It can only be to the good to correct errors and misinterpretations and get discourse onto a clear basis.
Hopefully more information will be forthcoming regarding levels of takehome wages, consumer(tax inclusive) as well as producer(tax exclusive) price comparisons as a result of your efforts.
Maybe somebody will even consider prying loose the resources to produce current and uptodate studies incorporating current tax law and economic conditions as they exist today, instead of having to struggle with ambiguous 5-10yr old studies base on out of date tax laws and rates.
Certainly would be a good thing to see as the Presidents tax reform panel approaches their deadline for releasing their findings.
Would be nice to see what actually is a revenue neutral tax rate for the FairTax today under a formal review, and what the real impact of the FairTax legislation can mean to the household with sufficient clarity to avoid misrepresentions and misinterpretations of study results.
I am already plenty aware of how much I, as an independant consultant, pay in.
I'll be d@mned if I want to pay double to "educate" those who are not smart enough to figure out that the check they get in the spring is not "money from the government" but the unused portion of a payment, in effect, the payment of the principle of an interest free loan.
Counting on business to "pass on the savings" is pretty starry-eyed imho, too.
What's to keep this 23% tax from increasing the minute we switch to the national sales tax?
What's to keep the current tax rates from being increased, or deductions reduced or modified to increase the taxes under the current system.
Visibility and the rate effecting all voters is a key factor, if a rate hike affects politician's constituents negatively, in the case of a retail sales tax, staying in office to do that kind of damage becomes dicey.
That's why European tax system like to keep taxes hidden from the view of their citizens, and we use income and employer side wage excises to do the same under the current federal tax system.
bttt
Thats a stretch. By that reasoning, all workers are providing a "service," and should pay that tax now, irrespective of a fair tax enactment.
Now, they don't tax service professionals in this state.
They may in some others, but those are professional services, as in doctors and lawyers.
The requirements for IRS independent contractors are pretty easy to follow.
Its the state requirements that seem to be a bitch.
We use them every day in our business.
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