Facts on Fair Tax show it's a great idea

Tribune & Georgian ^ | 9/16/2005 | Jay Moreno

[Your Nightmare]

To get $29,870 from an income of $100,000, the income tax rate would be 29.87% not 23%.

I'm confused. Is the 23% inclusive or exclusive?

[Your Nightmare]

There is one item in contention but you say it is FULL of lies.

Actually, you don't realize how dumb Boortz is. There are other issues in his book that are still to come. He hinted at this the other day.

He seems to think that because the rate is inclusive that prices will be listed inclusive of the FairTax. He even stated on C-SPAN a few weeks ago that the states would see a windfall because their sales tax would be applied to the federal sales tax included in the price!

Y'all picked the wrong guy to be your mouthpiece. He's as dumb as a brick.

[Your Nightmare]

Nobody is contending that at all.

I believe EternalVigilance was trying to contend that.

[Bigun]

No lies?

Thats right! NO lies! NONE! not a single one!

Just a little $1.3 trillion misrepresentation. According to fair taxers for the last 7 years, 'embedded taxes' did not include taxes paid by individuals. Wages would not have to be cut in order to see a 20-30% price reduction. Well after some arm twisting, Boortz finally admitted that was not the case. To see a 20-30% reduction in prices, employees would have to take wage cuts. A fact that you could not get from 100 readings of Boortz Book and the fair tax website and other various propaganda they put out.

Just because YOU are fixated on the TAXES alone does not mean that there are not other costs imposed on the economy by the income tax system. There ARE many such costs, most of which would disappear with the implementation of the Fairtax, and allow for the price drops alluded to by fairtaxers although they would not be immediate (something no fairtaxer has ever claimed to my knowledge).

The ONLY mistake (not a lie) in the book is citing only one source for the price drop claims when there are certainly others such as James L. Payne's COSTLY RETURNS The Burdens of the U. S. Tax System

There are no mechanisms in current law, and certainly there isn't one in the FairTax bill, which would allow employeers to keep what hat previously been deductions from their employees pay. That being the case, everyone WILL receive their entire paycheck under the Fairtax and prices WILL drop, over time (a year to 18 months max), so that the shelf prices of goods and services produced in this country won't, on average, be much differient with the sales tax included than they were under the income tax!

[upchuck]

Oh, I get it now. Pardon me for being such a dunce.

Because, "the NRST is a better deal for America and everyone in it and we should all support it," I'm supposed to just bend over and take this abuse? I don't think so.

As I wrote earlier, I am firmly in favor of the NRST. But I feel a few expiring accommodations are in order. In fact I believe there are some in this plan.

For example, I was listening to Neal's radio program one day while driving in heavy traffic. I was concentrating on driving and couldn't listen closely to his program. I'm sorry I can't be more specific about this, but... There was a caller that owned a business and there was some obscure situation with his inventory that he explained. I don't remember the details but Neal said that there would be an exemption until he worked his way through the inventory. I remember thinking to myself, this exemption is being made to make the plan more palatable to this guy and others in his situation.

If this business man is going to receive a temporary exemption then there must be a way for him to report a beginning balance to determine the size of the exemption.

Going back to the Roth IRA idea, why couldn't a beginning balance be reported and then I receive a temporary exemption from the NRST on that amount? To keep it simple, this exemption could come in the form a lump sum payment that could be included in the monthly prebate check. Or for more flexibility, maybe a series of monthly payments.

There are many, many people in our country that have a bunch of money invested in Roth IRAs. Simply because of the tax advantage. If the pols want their support they'd best figure a way around this situation.

The NRST has many heavyweight enemies in the financial industry. Overcoming their objections is going to be a very steep uphill battle. IMHO, this may be the biggest political battle this country has ever seen. And you best believe the NRST opponents will be using this Roth IRA situation to their advantage.

I think we can win. But unfortunately, the days of folks having blind allegiance are long gone. These questions about the NRST need to be answered honestly, fairly and loudly or the NRST will never succeed.

[Always Right]

Just because YOU are fixated on the TAXES alone does not mean that there are not other costs imposed on the economy by the income tax system.

But those are not 'embedded taxes' no matter how you spin it. It has always been 'embedded taxes' plus all those other costs. I agree there are other costs, but the numbers used by fair taxers are a joke. Those costs are closer to $100 billion or less than $500 billion plus many fair taxers think.

[Always Right]

If this business man is going to receive a temporary exemption

Excellent point. By offering that exemption for businesses, fair tax admit that there is a problem with the embedded taxes of the accumulative wealth. They compensate businesses for this, but individuals are screwed. The problem is there, the fair taxers already cheat the 'revenue neutrality' by including this business exemption and they can not further expand this exemption or there would be very little revenue raised by the sales tax.

[FBD]

bookmark ^ bump

[Bigun]

Don't like hearing it from me? Well perhaps someone else with a somewhat higher profile might convince you.

Here is an excerpt from remarks made by The John M. Olin Distinguished Professor of Economics at George Mason University, Dr. Walter E. Williams, in March of this year to a standing-room-only crowd of students, faculty, and guests at Hillsdale College's Constructive Alternatives Seminar:

"...Keep in mind that a working definition of slavery is that you work but do not have any rights to the fruit of your labor. Taxation and regulation constitute confiscation of some or all of the freedom to own and use property. This confiscation has reached unprecedented proportions. In 1902 expenditures at all levels of government totaled $1.7 billion, and the average taxpayer payed only $60 per year in taxes. In fact, from 1787 to 1920, federal expenditures never exceeded 4 percent of the Gross National Product (GNP), except in wartime. Today federal expenditures alone are $1.8 trillion - almost 30% of GNP - and state and local governments spend over a trillion more. The average taxpayer now pays more than $8,000 a year, working from January 1 to May 8 to pay federal, state, and local taxes. In addition to the out-of-pocket cost, Americans spend 5.4 billion hours each year complying with the federal tax code - roughly the equivalent of 3 million people working full time. If it were employed in productive activity, the labor now devoted to tax compliance would be worth $232 billion annually. The federal cost of hiring 93,000 IRS employees is $6 billion. If these Americans weren't fooling around with the tax code, they could produce the entire annual output of the aircraft, trucking, auto, and food processing industries combined..." Emphasis added.

And he is ONLY talking about costs of compliance here!

[pigdog]

The real point is that if you took the money out of the Roth and weren't taxed on the withdrawal (some circumstances are taxed with a Roth) and then spent the money under the present system, you'd be paying the "hidden tax" of prices raised solely by the income tax system.

If you kept the Roth and then spent the money under the FairTax system - and spent it on taxable items (not everything is taxed) - you'd pay the FairTax which would probably be about the same as the "hidden tax" when spending under the present system. After all, the government didn't promise to not have "hidden taxes" (which they've had ever since 1909 - the corporate income tax preceeded the individual income tax). Also, under certain circumstances some of the Roth money can be taxed under the income tax so check the law more closely.

It's probably about a tradeoff dollar-wise except that with the FairTax YOU get to choose when and how much you pay in tax and can control that by controlling consumption - which is much less true under the present system. Also, if you retain the funds as an investment, that investment isn't taxed under the FairTax so that it can build up faster.

[ex-snook]

" It has nothing to do with income, just how much you spend. Under the fair tax, a person making a million dollars a year would pay no more in taxes than a person making 5000 dollars. It all depends on how much you spend."

Thanks for info. As I see from posts - how much you spend depends on how much you make. Then if you have to spend all you make on food, medical expenses, clothing, transportation, college costs, housing, state and local taxes, then a quarter of your income must go to pay the fair tax. So if the costs of these items doesn't come down [and I gather, they won't], you are in the hole. This doesn't seem to make the case for 'fairness'.

[FBD]

PING to the Administrative moderator.
lewislynn: Why do you constantly disparage people on the FairTax threads?


You certainly appear to have some sort of personal vendetta here.
You show up on these threads, make personal insults, and generally behave badly.

Is it your intention to relegate these FairTax threads to the 'smoky back room'? It's my understanding that FR moderators take a dim view to posters who intentionally engage in flame wars in an attempt to lay waste to civil debate.

[Bigun]

But those are not 'embedded taxes' no matter how you spin it.No they are not and I have never said otherwise. The eliminated taxes alone are but a portion of those costs removed which will allow prices to drop.

[Fierce Allegiance]

Is our current wealth-redistribution taxation system really that good, in yur eyes?

[Fierce Allegiance]

If you beleive you have a legit gripe, the best & fastest way to get the attention of a Mod is to use the Report Abuse button.

[pigdog]

Better change your glasses.

It is not "corporate" taxes that are being saved, but business taxes. There are many other types of business entities than just corporations and they all pay taxes in some form even if it is via a 1040 in some cases.

And there's plenty of room for embedded taxes in busines income taxes for price reductions. Without even considering compliance costs or reductions of other intangible costs OR of payroll/withholding taxes (which shouldn't be considered as embedded taxes at all despite Boortz).

In the examples below, the "tax cost as % of revenue" represents the embedded tax that would be subject to removal when the income tax is ended. Take a look:

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 with even intangible costs tacked on in many cases as well.

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 or intangible 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 reduction particularly when compliance costs and intangible costs are included as well.

[GregoryFul]

The federal cost of hiring 93,000 IRS employees is $6 billion. If these Americans weren't fooling around with the tax code, they could produce the entire annual output of the aircraft, trucking, auto, and food processing industries combined..." Emphasis added.

Someone has their facts all screwed up. Boeing (in the aircraft industry) had sales of 54.48 billion the previous 12 months. That's almost 9 times the cited $6 billion for one (very large) company in one of the cited industries.

[balrog666]

Reduced expenses aren't related to increased profits? I also don't see how 20% is so controversial when the employer sees a 15% reduction in FICA costs alone in gross employee cost.

Never studied economics, eh? Oh, well, the employer collects those FICA taxes out of employee's compensation before passing them on to the feds. The employees pay those taxes, they always have, they always will.

[upchuck]

I wrote what I wrote. You can tell me all day long about "embedded taxes," and that some of the Roth funds may be taxable, etc. But at the end of the day, if I have a large Roth IRA (and I know folks who have millions in Roths) and you don't figure out some way to take care of me I'm not gonna support the NRST.

Let me say again, I support the NRST but there needs to be some temporary, expiring accommodations made.

[Mind-numbed Robot]

Because, "the NRST is a better deal for America and everyone in it and we should all support it," I'm supposed to just bend over and take this abuse? I don't think so.

I tried to find the answer for you but I was not successful. I have read the part about transition and inventory but I don't see that that directly deals with financial instruments. Conservative Goddess posted it on a thread last night or early this morning.

Do you not agree that you are paying the embedded taxes with your Roth proceeds now?

The statement you cited above was intended to say that if you can't get consideration for your invested money that the NRST is still a good deal for everyone. No, I wouldn't ask you to take one for the team. I would prefer that you get your money back.