Nealz Newz: FAIR TAX UPDATE

Where were you?

Spending time refuting the lies of those like you who love the income tax so much.

...while take-home pay went up.

Every American will again have the opportunity to prosper minus the ball and chain of our current onerous income tax system.

You folks strain out imaginary gnats and swallow an ugly, stinky camel.

Actually, EV, these guys don't understand (or can't admit) that prices will decrease due to the removal of cascading, embedded taxes. Instead they make up a huge pretense that claims the FairTax supporters are misrepresenting the economic benefits of the FairTax.

It is actually clear that they are trying to pretend that only a wage reduction can cause prices to decrease - which is not at all what the economist they're picking on has said. And they're using CLAIMS by a liberal reporter who quotes, among others, William Gale of Brookings and a "tax law professor" as though he were a recognized economist or tax expert (he's neither). The reporter merely makes claims which are unfounded.

In fact there is good reason for not only workers to get all their wages after the FairTax becomes law along with some decrease in prices caused NOT by wages being cut, but by the elimination of the cascading, embedded taxes discussed many times on these threads - the "hidden taxes".

This can be seen pretty easily by taking a couple of exapmles of what happens to prices under an income-based tax system.

Most people realize that the present tax system causes prices to be inflated by what are called cascaded, embedded tax costs which increase with each level throughout the production/distribution chain. These costs are composed largely of business income taxes (not just corporate income taxes as some of you have claimed) and compliance costs. To show how this inflating of prices works, let's take a couple of examples originally given by one of the SQLers with the claim that:

"Here's the way one really calculates embedded (cascading, hidden, pick-your-favorite-term) taxes. "

While that is hardly true and my original example was simpler, we'll use the more complex example to illustrate just what happens. Let's take two examples, one with an income tax rate used by Scubhapter C corporations in 2001 (34.4% marginal rate) even though the example applies to a business in general and not just a corporation. In addition, we are not considering any payroll/withholding taxes or compliance costs ... merely business income taxes.

	      level	        1	2	3	4	5	6
initial cost  revenue	        $2.01	$4.05	$8.15	$16.40	$33.01	$66.44    
   $1.00      cost	        $1.00	$2.01	$4.05	$8.15	$16.40	$33.01
tax rate      profit before tax	$1.01	$2.04	$4.10	$8.25	$16.61	$33.43
   34.40%     tax       	$0.35	$0.70	$1.41	$2.84	$5.71	$11.50
 	      net profit	$0.66	$1.34	$2.69	$5.41	$10.90	$21.93
              net profit %	33.00%	33.00%	33.00%	33.00%	33.00%	33.00%
accumulated 		        $0.35	$1.05	$2.46	$5.30	$11.01	$22.51
 tax paid
tax cost as 	                17.31%	25.91%	30.18%	32.30%	33.36%	33.88%
 % of revenue

Note that in this example the intention is to get a 33% net profit and see how the "tax cost as % of revenue" builds up in only a few levels. In addition, let's say the example represents the classical "bread" example with: L1 = Farmer, L2 = Miller, L3 = Baker, L4 = Distributor, L5 = Grocer, L6 = Consumer. As can be seen, by the time we reach L6, the embedded tax ("tax cost as % of revenue")has reached 33.88%. This would mean that the consumer is paying a very healthy step-up in the price of bread due solely to embedded tax costs.

At any rate, taking the example and setting the net profit to 10% and using the very common (and perhaps even low) tax rate of 25%, you STILL end up with something like 14.4% tax costs as a % of sell price at Level 6.

	      level	        1	2	3	4	5	6
initial cost  revenue	        $1.15	$1.33	$1.54	$1.77	$2.04	$2.36
   $1.00      cost	        $1.00	$1.15	$1.33	$1.54	$1.77	$2.04
tax rate      profit before tax	$0.15	$0.18	$0.20	$0.24	$0.27	$0.31
   25.00%     tax	        $0.04	$0.04	$0.05	$0.06	$0.07	$0.08
              net profit	$0.12	$0.13	$0.15	$0.18	$0.20	$0.24
              net profit %	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%
accumulated             	$0.04	$0.08	$0.13	$0.19	$0.26	$0.34
 tax paid	
tax cost as     		3.33%	6.22%	8.72%	10.89%	12.77%	14.40% 
  % of revenue

If we take the commonly-described "bread" example you can still easily see that bread would be a good bit cheaper for the consumer - not even counting compliance savings - were it not for these caxcading, embedded taxes.

This is really what the embedded taxes discussion is all about and it has nothing at all to do with income taxes on wages. So to pretend that a single economist was making such rash conclusions or that he was the only one used for economic information by the FairTax folks is simply not true. As can be seen here, there is certainly room within the business income tax area for a good bit of price reductions particularly when compliance costs are included as well. So the "imaginative" piece by the liberal reporter (or others) certainly won't fly.

Undeniable Facts:

Fact 1: FairTax Organization paid Dr. Jorgenson to be their main researcher, the expert FairTaxers source more often than any other researcher.

Fact 2: FairTax.Org/Boortz/Linder all claim, based on Dr. Jorgenson research, that everyone gets to keep ALL of their paychecks AND after tax prices will stay about the same as they are today.

Fact 3: Dr. Jorgenson confirms that prices can only stay about the same if Employees take a pay cut.

Fact 4: FairTax.Org/Boortz/Linder continue to mislead about Dr. Jorgenson research and offer no apology or correction.

Fact 5: You are called a liar on these threads if you expose these facts.

Actually, EV, these guys don't understand (or can't admit) that prices will decrease due to the removal of cascading, embedded taxes. Instead they make up a huge pretense that claims the FairTax supporters are misrepresenting the economic benefits of the FairTax.

"Make up a huge pretense"?????? Your LEAD researcher confirms you are full of it.

Notice the 5 claimed "Facts" that are not facts at all. A typical effort on the part of FairTax opponents.

And what did Jorgenson actually say and in reference to what Testimony?

Jorgenson makes a simplifying assumption in his model that wages equal takehome pay, i.e. gross pay withholding removed, comparing results of a NRST that implements the same taxbase as the Armey-Shelby flat tax, and replacing income taxes alone and leaving SS/Medicare wage taxes in place.

In the models on which his 1996 Testimony is based Jorgenson indicates overall price to consumer will fall 3% in the first year and by as much a 10% in the 25 year span of his model outputs indicating a substantive increase in purchasing power for households.

http://www.economics.harvard.edu/faculty/jorgenson/papers/baker.pdf

Jorgenson's statement to RobFromGA as regards his 1996 Ways & Means testimony (pre-FairTax) was:

"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. "

Indicating gains could be expected arising out of economic growth and higher productivity indicated in his 1996 study of a bare bones 15% NRST replacing only income taxes, leaving SS/Medicare payroll taxes in place.

Interesting that Jorgenson's statements, even restricted to just income tax replacement above in both studies and the W&M Testimony referred to, are hardly the stuff of alarm to anyone's living standard and wage/capital income.

Quite the contrary, with a rising GDP of 13% indicated in the first year and large production gains with high personal savings and investment to boot, even the limited NRST discussed in Jorgenson's 1996 Testimony is a big plus and hardly the negative you appear to want to frame it as. And certainly not the decrease on real income you would like to say it represents.

Jorgenson Testimony 1996

====== FULL TEXT ======

This statement was prepared for presentation at the Hearings on Replacing the Federal Income Tax, before the Committee on Ways and Means, U.S. House of Representatives, 104th Congress, Second Session.

THE ECONOMIC IMPACT
OF TAXING CONSUMPTION
by
Dr. Dale W. Jorgenson,
Harvard University

INTRODUCTION AND SUMMARY

[1] In this testimony I consider the economic impact of substituting a tax on consumption fro corporate and individual income taxes at federal, state, and local levels, beginning January 1, 1996. I limit my analysis to a revenue neutral tax substitution -- one that would leave the government revenues unchanged. Finally I focus on the impact of fundamental tax reform on economic growth, leaving progressivity of the resulting combination of taxes and government expenditures to be determined by adjustment of expenditures. I have summarized my conclusions in a services of eight charts appended to the text of this prepared statement. These were generated by stimulating future U.S. economic growth with and without the change in tax policy. Further details are provided in an Appendix to this statement.

1. The revenue neutral substitution of a consumption tax for existing income taxes at both federal and state and local levels would behave an immediate and powerful impact on the level of economic activity. The first chart shows that U.S. gross domestic product (GDP) would increase initially by about thirteen percent; this increase would decline to around nine percent.
2. The imposition of a consumption tax would produce in a sharply higher tax rate on consumer goods and services. The second chart shows that the consumption tax rate required for replacing existing revenues from individual and corporate income taxes at both federal and state and local levels would be around fifteen percent. This would gradually rise over time reaching twenty-one.
3. As a consequence of the total transformation of the tax system, individuals would sharply curtail consumption of both goods and leisure. This would produce a dramatic jump in saving and a substantial rise in labor supply. These increases would subside only very gradually over time.
4. Taxation of consumption would induce a radical shift away from consumption toward investment. The third chart shows that real investment would leap upward by eighty percent! The fourth chart shows that real consumption would initially decline by around five percent, but consumption would grow rapidly and overtake the level under the income tax within two years.
5. Since producers would no longer pay taxes on profits or other forms of income from capital and workers would no longer pay taxes on wages, prices received by producers, shown in the fifth chart, would fall by an average of twenty percent with substantial relative gains for investment goods producers.
6. In the long run producer's prices, shown in the seventh chart, would fall by more than twenty-five percent relative to prices under an income tax. The shift toward investment and away from consumption would redistribute economic activity among industries. The eight chart shows that output would increase in all industries, but the rise in production of investment goods would be greatest.

IMPLEMENTATION OF A CONSUMPTION TAX

[2] In Hearings on Replacing the Federal Income Tax, held by the Committee on Ways and Means last June, testimony focused on alternative methods for implementing a consumption-base value added tax. This is economic jargon for a consumption tax, where value added is the sum of capital and labor incomes and subtracting investment form value added would produce a consumption tax base. An alternative and equivalent definition of this tax base is the difference between business receipts and purchases from other businesses, including investment goods. A third definition of the tax base is the total of retail sales to consumers.

[3] The three principal methods for implementation of a value added tax correspond to the three definitions of consumption as the tax base:

1. The invoice and credit method. Business invoices would include a credit against tax liabilities for value added taxes paid on goods and services received. This method is used in Canada and Europe. In Canada and many other countries the value added tax replaced an earlier and more complex system of retail and wholesale sales taxes. From the point of view of tax administration the invoice and credit method has the advantage that both purchases and sales generate records of the tax credits. The invoice and credit method would require substantial modification of collection procedures, but decades of experience have ironed out many of the bugs./1/
2. The subtraction method. Business purchases from other businesses, including investment goods, would be subtracted from business receipts, including proceeds from the sales of assets. This could be implemented within the framework of the existing tax system by integrating individual and corporate income taxes, as proposed by the U.S. Treasury (1992), and treating all businesses as partnerships or "subchapter S" corporations. The second step would be to allow expensing of investment in the year it is taken. Enforcement problems would be reduced by drastically simplifying the tax rules, /2/ but the principal method of enforcement, auditing of tax payer records by the Internal Revenue Service would remain.
3. National retail sales tax. Like existing state sales taxes, a national retail sales tax would be collected by retail establishments, including service providers and developers fro residential real estate fro sale to owner-occupiers. This would also require a new system for tax administration, possibly sub-contracting the actual collection to existing state agencies. The Internal Revenue Service could be reduced to an agency that would sub-contract collections. Alternatively the IRS could be abolished and an new agency created for this purpose. /3/ Enforcement procedures could be limited to those used by the states.

[4] All three alternative methods for implementing a consumption tax could be based on the same definition of the tax base. This greatly simplifies the tax economist's task, since the economic impact would be the same for all three approaches. This leaves important issues to be resolved by other tax professionals, including, especially, tax lawyers who would write the legislation and the implementing regulations and tax accountants who would translate the laws and regulations into accounting practice and advise economic decision-makers about their implications.

[5] From the economic point of view the definition of consumption is straightforward; a useful and commonly accepted point of departure is Personal Consumption Expenditures (PCE) as defined in the U.S. national income and product accounts. However, the taxation of services poses important administrative problems reviewed in a U.S. Treasury (1984) monograph on the value added tax. First PCE includes the rental equivalent value of the services of owner-occupied housing, but does not include the services of consumer's durables. Both are substantial in magnitude, but could be taxed by the "prepayment method" described by the Hon. David Bradford(1986). In this approach taxes on services would be prepaid by including investment rather than consumption in the tax base.

[6] The prepayment of taxes on services of owner-occupied housing would remove an important political obstacle to substitution of a consumption tax for existing income taxes. At the time the substitution takes place all owner-occupiers would be treated as having been prepaid all future taxes in the services of their dwellings. This is equivalent to excluding not only mortgage interest from the tax base, but also returns to equity, which might be taxed upon the sale of residence with no corresponding purchase of residential property of equal or greater value.

Of course, this presumes that homeowners would refinance to take advantage of the altered tax treatment of mortgage lenders.

[7] It is essential to include housing and consumer's durables in the tax base in order to reap the substantial economic benefits of putting household and business capital on the same footing./4/

This raises politically sensitive issues and it is important to be clear about the implications of prepayment as the debate proceeds. Under the prepayment method purchases of consumers' durables by households for their own use would be subject to tax. These would include automobiles, appliances, home furnishings, and so on. In addition, new construction of owner-occupied housing would be subject to tax, as would sales of existing renter-occupied housing to owner-occupiers. Together with the exclusion of rental values of existing owner-occupied housing, this would maintain the asset values for housing.

[8] Other purchases of services that would be especially problematical under a consumption tax include services provided by nonprofit institutions, such as schools and colleges, hospitals, and religious and eleemosynary institutions. The traditional, tax-favored status of these forms of consumption would be defended tenaciously by recipients of the services and even more tenaciously by the providers. The argument can be made that educational services represent investment in human capital rather than consumption.

[9] Finally, any definition of a consumption tax base will have to distinguish between consumption for personal and business purposes. On going disputes over home offices, business-provided automobiles, equipment, and clothing, and business-related lodging, entertainment and meals would continue to plague tax officials, the entertainment and hospitality industries, and holders of expense accounts. In short, substitution of a consumption tax for the federal income tax system would not eliminate all the practical issues that arise from the necessity of distinguishing between business and personal activities in defining consumption. However, these issues are common to both income and consumption taxes.

CONCLUSION

[10] Under any one of the three approaches to implementation of a value added tax, substitution of a consumption tax for existing individual and corporate income taxes would be the most drastic change in federal tax policy since the introduction of the income tax in 1913. It is not surprising that the economic impact summarized above would be truly staggering in magnitude. It is easy to foresee that as Americans become more fully apprised of the manifold ramifications of fundamental tax reform the Gucci Gulch/5/ will be transformed into the political equivalent of the Grand Canyon.

[11] The coming debate over tax reform is both a challenge and an opportunity for economists. It is a challenge because the impact of fundamental tax reform would involve almost every aspect of economic life. Economists who have spent their lives pre-occupied by the latest debating points in journals read only by other economists will suddenly find that the fine points that dominate scholarly discussion will be subjected to the refiner's fire of public scrutiny.

[12] The debate will be an opportunity of economists because economic research has generated a wealth of information about the impacts of tax policy. Provided that the economic debate can be properly focused, economists and policy makers will learn a great deal about the U.S. economy and its potential for achieving a higher level of performance. I am personally very gratified that the Joint Committee on Taxation under the leadership of Chief of Staff Kenneth Kies has taken the initiative in channeling the professional discussion. In my remaining testimony I will outline my own recommendations for the initial ground rules.

[13] The first issue in the debate will be the economic impact of the federal deficit. Nearly two decades of economic disputation over this issue has failed to produce any resolution. No doubt the dispute will continue well into the next century and preoccupy the next generation of fiscal economists, as it has the previous generation. An effective rhetorical device for insulating the discussion of fundamental tax reform from the budget debate is to limit consideration to revenue neutral proposals. This device was critical to the eventual enactment of the Tax Reform Act of 1986 and is, I believe, essential to progress in fundamental tax reform.

[14] The second issue to be debated is fiscal federalism or the role of state and local governments. Since state and local income taxes usually employ the same tax bases as the corresponding federal taxes, it is reasonable to assume that substitution of consumption for income taxes at the federal level would be followed by similar substitutions at the state and local level. Since and important advantage of a fundamental tax reform is the the possibility, at least at the outset, of radically simplifying tax rules, it does not make much sense to assume that existing rules would continue to govern state and local taxes, even if the federal income tax were abolished.

[15] The central issue in evaluating the economic impact of fundamental tax reform is its impact on economic growth. A serious barrier to focusing attention on growth is that the main apparatus for policy evaluation employed by both the Congress and the Administration consists of distributional tables for policy impacts. So far as I am aware, the methodology I have employed in preparing this testimony - comparing time paths of U.S. economic growth with and without a change in tax policy -- has never been used by either the Joint Tax Committee or the Office of Tax Analysis of the U.S. Treasury. Public discussion of tax reform will be crippled until this analytical gap is overcome.

FOOTNOTES

/1/ The advantages and disadvantages of the invoice and credit method for implementing the value added tax are discussed by the U.S. Treasury (1984).

/2/ A subtraction method value added tax has been proposed by Ranking Minority Member Sam Gibbons of the Committee on Ways and Means. If no business receipts were excluded and no deductions and tax credits were permitted, the tax return could be reduced to the now familiar post card size, as in the Flat Tax proposal of Majority Leader Dick Armey and Senator Richard Shelby(1995), Economists will recognize the Flat Tax proposal as a variant of the consumption-base value added tax proposed by Robert Hall and Alvin Rabushka (1995).

/3/ A national retail sales tax has been proposed by Chairman Bill Archer of the Committee on Ways and Means and Senator Richard Lugar

/4/ See for example, my testimony before the Committee on Ways and Means of June 6, 1995.

/5/ Few readers of this testimony will be unaware of this colloquial expression for the corridor outside the hearing room of he Committee of Ways and Means. The expression appeared in the title of the definitive account of the Tax Reform Act of 1986 by Jefferey H. Birnbaum and Alan S. Murray (1987).

APPENDIX

The simulations of U.S. economic growth summarized in the charts appended to this testimony are based on an intertemportal equilibrium model of the U.S. Economy that I have constructed with Peter J. Wilcoxen. The details of the model and more than a dozen applications are summarized in our survey paper, "Energy, the Environment, and Economic Growth," published in 1993. The model of U.S. economic growth is disaggregated to the thirty-five industries listed in the final four charts in my testimony. In addition the model distinguishes among 1344 types of households, disaggregated by family size, age and gender of household head, region of residence, race, and urban versus rural location. The model is built around sub-models of investment and saving based on rational expectations. The price of investment goods in every period is based on expectations of future capital service prices and discount rates that are fulfilled by the solution of the model.

In order to analyze the economic impact of changes in tax policy, we simulate the growth of the U.S. economy with and without changes in these policies. The first an most difficult step is to generate a simulation based on current tax policy. We call this the BASE CASE. We then produce and alternative simulation based on a consumption tax. This represents the alternative case. Finally we compare the base case with the ALTERNATIVE CASE in order to assess the effects of the substitution of a consumption tax for the existing income tax system. The3 most difficult part of tax policy evaluation is to project U.S. economic growth under the existing tax system. For this purpose I have introduced the characteristic features of U.S. tax law into the cost of capital, distinguishing among assets employed in three different legal forms of organization -- households and nonprofit institutions, non-corporate business, and corporations. Income from corporate business is subject to the corporate income tax, while distributions to households are subject to the individual income tax. Income from unincorporated businesses -- partnerships and sole proprietorships -- are taxed only at the individual level, while income from equity in household assets is not subject to the income tax.

REFERENCE

Armey, Dick, "Freedom and Fairness Restoration Act," Washington, D.C. 104th Congress, First Session, 1995.

Birnbaum, Jefferey H., and Alan S. Murray, Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform, New York Random House, 1987.

Bradford David, Untangling the Income Tax, Cambridge, Harvard University Press, 1986.

Jorgenson, Dale., and Kun-Young Yun, Tax Reform and the Cost of Capital, New York, Oxford University Press, 1991

U.S. Department of the Treasury, Tax Reform for Fairness, Simplicity, and Economic Growth, Washington, U.S. Government Printing Office, 1984.

_____, Taxing Business Income Once, Washington, U.S. Government Printing Office, 1992.

[CHARTS OMITTED]

I have done research on this as I am still undecided about Fair Tax. However, I see no logic connecting a 20% pay deduction by employers to reduce prices.

What is the logic. Your link doesn't provide facts at all. It is all factully quoting opinions. Show me proof.

And notice how eager some of the opponents are to jump onto a post I made to someone else (you in this case) so that they have an opportunity for a personal attack!

I hope other lurkers and the moderator notice this also.

"Fact 3: Dr. Jorgenson confirms that prices can only stay about the same if Employees take a pay cut."

I see that "they" say that. How does this work. I do not see the logic.

I am officially undecided about Fair Tax. I have bought and read the book cover to cover and am in the midst of researching the "other side." I actually research and base my opnions on my own research.

You've spent the last 6 years misinterpreting and misrepresenting Jorgenson's work. I guess old habits die hard.

I see that "they" say that. How does this work. I do not see the logic.

When Dr. Jorgenson did his modelling for American For Fairtaxation back in 1997, he simply modelled it that way. Dr. Jorgenson assumption was everyone's take home pay would stay the same. See there are roughly $1.9 trillion in tax revenues, with individuals directly paying $1.3 Trillion. In order for prices to stay about the same, Dr. Jorgenson assumed ALL taxes would have to come out of the price of goods, which includes the taxes paid by employees. Now there is no mechanism to make that actually happen, so employees will keep all their paycheck. The downside is that according to their expert, prices will go up substantially after the sales tax is added. Prices can not stay the same under that scenerio.

Actually, there is no "logic" at all ... it is merely a claim - and easily seen to be an erroneous one since many employees have employment or union agreements that are based upon gross pay levels.

In fact, the 75 economists endorsing the FairTax by letter to the President and all members of Congress have clearly stated that workers would receive their entire pay as can be seen here:

http://www.fairtax.org/pdfs/Open_Letter_President.pdf

Price reductions will come under the FairTax both from the removal of "hidden taxes" as shown in #23 above and from the huge boost in economic activity that the FairTax will clearly bring about (the "rising tide" effect).

I see that "they" say that. How does this work. I do not see the logic.

And it is not just 'they', a freeper RobFromGA contacted Dr. Jorgenson and confirmed the exact same thing about a month ago.

In fact, the 75 economists endorsing the FairTax by letter to the President and all members of Congress have clearly stated that workers would receive their entire pay as can be seen here:

As usual, a half-truth from the fairtaxers. Your 75 economists stated the obvious that under the bill everyone gets to keep their full paychecks, but they DID NOT say after tax prices would stay the same. Please tell the FULL truth.

"You can't defend the facts of the article, the fact that fairtaxers.org and Boortz and Linder lie about the research, so you attack the source. Money magazine is just is presenting facts. Facts that you can't deal with."

I read all that is linked and posted here and do not see "facts." I see opinions of "experts" factually quoted. I am an engineer. I need logic.

How does an employer need to cut 20% of the salary they pay since they do not need to pay payroll taxes to cut spending to save money to lower prices. I must not be a very smart man.

Please explain it to me. What am I missing?

Look at post #23 very carefully to see the mechanism by which taxes become embedded in prices - and it has nothing at all to do with income taxes on wages at all. It has to do with embedded, cascading business (not just corporate) income taxes and compliance costs.

There is plenty of room for price decreases because of this.

I doubt you're missing much at all. You might notice, though, out of professional interest that sometimes the opponents claim that wages must decrease by 20% and other times they claim that wages will be fully paid. You'll see examples of both on this very thread.

The most likely scenario is the latter - fully paid.

I agree. If I'm making $100K a year and my employer takes out $20K and sends it in. He's not paying that $20K...I'm paying it! As I understand it, the embedded taxes are elsewhere. Perhaps the 7% matching SS are part of it.

How does an employer need to cut 20% of the salary they pay since they do not need to pay payroll taxes to cut spending to save money to lower prices. I must not be a very smart man.

Oh they can 'cut' prices with the savings from payroll, but how much??? Business pay $350 Billion for their share of the payroll taxes. That is their biggest chuck of savings under this bill, along with about $200 Billion for corporate taxes. That's $550 Billion in undeniable savings to businesses. Unfortunately, there are $10 Trillion in goods and services in this country which are consumed by the consumer. As an engineer, I am sure you can figure out, business will see a svings of 5.5% that can be passed on to the cusomer. But then Business will have to charge a 29.87% tax (23 percent inclusive). That means the after tax price will INCREASE more than 22% after tax.