FairTax Act-Is it a viable solution?

OldManOnFire,

I might have worded the 1/4 of 1% commission poorly. Each entity, retailer and State gets 1/4 of 1%. So the total commission is 1/2% split two ways. Sorry for the confusion.

 

They are not, except when they serve, but they did not pay any either from after when Jefferson did away with the Whiskey tax to when Lincoln did the Income tax. But do not tell Ron Paul, he still thinks our first income tax was under Wilson. As Meta777 pointed out the poor "benefit from national defense a lot less than the wealthy do," which is why taxing wealth in a flat net worth tax would be more fair than taxing income or consumption that can be passed downhill in the costs by the wealthy entrepreneurs and silver spooned inheritors of the principle means of production. The problem with the arguments is, the "occupy movement" is not totally stupid, if I can think it, when I complained that Sociology 101 was introduction to communism with a weighted as half the grade Karl Marx question on the final exam of "who was the greatest economic thinker of the last century?," you can bet they can think it; I answered the question correctly, Karl Marx was the greatest economic thinker, but I did not like getting an "A" on the final exam that way when there was a lawsuit at the time claiming such weighted questions were racially discriminatory when they were dealing simply with college math or physics (where I got an "A" in all three classes). The simple fact is that the violent "liberals" who want to throw Russian drinks into Macy's may not be able to do the racist math, that shows that a poorer man may pay a higher percentage of his net worth (what he wants the government to protect) in taxes than another, but you can bet his sociology professor is telling him that without any math or reasoning behind it.

You said, "I own two used Mercedes and the maintenance on those two cars costs more than buying a new Mercedes." I do not doubt that, as a Lockheed employee driving a Volvo once asked me how I had house on 2.5 acres with a $250 dollar house payment, and I told him it was the truck that cost $1000 used, and I only spent $3000 dollars on maintenance throughout the 200,000 miles I put on it. So thank you for that funny read. Some people will do quite well under a consumption tax and no income tax, but they have to know when it is more cost effective to work in the defense plant and pay someone else to sling a hammer or to fish.

In the previous post you said, "Currently imported goods are not taxed the same as domestically produced goods which is why there's an uneven playing field between US produced goods and imported goods." But, at the State level they are taxed the same, and with the Fair Tax I am not seeing how there would be any evening of the playing field whatsoever, nor is it promoting the welfare of our workers over that of foreign workers. The simple fact remains that what you said here is simply untrue:

"The result is lower prices for US goods consumed in foreign countries which increases sales, increases US production and that translates into more US jobs."

A lack of tariffs does not in and of itself translate to increases in US production and jobs. The production could be more robotic, with less jobs, translating into more untaxed income for more foreign manufactured robots and less promoting of the general welfare. The wing shop vaporized, with all of its workers, and one chick had a really cute rear end; I thought they would find dinosaur bones digging down so deep for the foundation of the robot that only needed one guy who sat there reading a novel and a crane operator every once in a while. I am quite sure the income of the maintainers is high, but I will really laugh if you claim it made more jobs and would increase promoting the general welfare when that income must not be spent on domestic production. I am quite sure the same people who complain about the "38% of the households that pay no personal income taxes" will complain about the increasing prebate going to all those displaced workers.

"The thought of foreign agents being the one's responsible for promoting a consumption tax" does not belong in a conspiracy forum, it belongs wherever such a tax is proposed that is contrary to the taxes supported by Thomas Jefferson. You said:

"While the Preamble does provide the address that the Constitution will address providing for the general welfare it is Article I Section 8 that enumerates that which is addressed in the Preamble. Article I Section 8 specifically states that it is the general Welfare of the United States, not the general Welfare of the People, that Congress is to provide for. The Constitution does not confuse the terms 'people' and 'United States' as they are two completely different entities." http://www.politicalforum.com/budget-taxes/200086-fairtax-act-viable-solution-32.html#post4717776

That is simply untrue, as the definition of the United States is in bold:

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."

Under your construct the United States is to promote the general welfare of itself minus the people which is in direct conflict with the Declaration of Independence's principles "That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed."

Let me remind you that Article III is as much a part of the Constitution as Article I Section 8, even if the domestic traitor John Kerry wanted to only give us some protection from politically motivated prosecutions at the ICC (The Rome treaty which Bush correctly unsigned).

Whatever tax we the people are sold it is We the People that consent to it, not some entity called the "United States." Only when an entity has power over Article III, such that We the People only have some protection from politically motivated prosecutions, is the principle of "consent of the governed" violated.

 

The only true conservative among the GOP candidates is Jon Huntsman.

A Breakdown Of The Jon Huntsman Economic Plan

http://weakonomics.com/2011/09/02/a-breakdown-of-the-jon-huntsman-economic-plan/

Through and through he’s a Republican first even after acknowledging that science isn’t some kind of liberal conspiracy just to appease an extreme view. He’s the first of anyone, including the president, to outline his own political plan. In it he wants to:

* Lower tax rates to 8%, 14%, and 23%
* Lower the corporate tax rate from 35% to 25%
* Eliminate the capital gains and dividend tax rates
* And knocking out the Alternative Minimum Tax (AMT)
* Eliminate all tax deductions, credits, and loopholes

 

Two fundamental factors are involved that would lower the costs of goods and serviced.

First is the elimination of the income taxes that the enterprise pays. This directly reduces costs that are passed on to consumers such as Payroll taxes and Corporate income taxes. Depending upon how labor intensive the enterprise it determines how much the elimination in payroll taxes effect the cost of a product. Corporate income taxes relate to the profitability of the enterprise but they are also a cost included in the product or service being provided.

More important though is the elimination of "compliance" costs related to income taxation. Large corporations have large accounting departments dedicated almost exclusively to addressing tax issues such as deductability of expendatures, differing employee withholding requirements based upon income which is modified by their W-4 form plus all of the capital investments in equipment (e.g. computers), space rent, etc. that are all tranferred to the consumer in the cost of the final product.

For small business, which comprises about 80% of all enterprises in the United States, it has been calcuated that the compliance cost are equal to 3.84 times the amount of tax being paid so that $1 in taxation results in almost $5 being transferred to the consumer in the price of the product or service being sold at the retail level.

This overhead "compliance" burden is generally less for large corporation but sometimes it much higher based upon the taxes actually paid. GE, for example, hasn't paid any corporate income taxes for the last couple of years but certainly spends tens or hundreds of millions of dollars in "compliance costs" to avoid having to pay corporate income taxes.

Some like to point out that a consumption tax also has compliance costs and that is true but a simple tax on retail sales doesn't incur much in the way of compliance costs and it doesn't apply at all to enterprises that don't directly deal in retail sales such as General Motors. To my knowledge GM doesn't sell anything directly to consumers so it would have zero taxes (except of items purchased to be used by GM and not resold) and zero compliance costs.

 

How many dollars in FICA/Payroll taxes are collected on the manufacturing of a flat screen TV made in Asia? Those taxes are inherent and embedded into the cost of an identical TV made in the United States.

Of course we don't make flat screen TV's in US today because we can't compete because of the embedded tax costs inherent in our products.

Level the playing field by eliminating the embedded costs of taxation and apply all taxation at the retail level regardless of where the product is produced. All products and services would be treated identically by the tax system.

 

No, but the imposition of tariffs does lead to a loss of jobs because we'd anticipate them being recipricated which would increase the cost of US produced goods exported to foreign countries reducing demand. Why would a country purchase a Boeing airplane, for example, when they could get a very similiar airplane from Airbus for less money?

 

The above quotation comes from the "Preamble" to the US Constitution. A premable is basically defined as "the introductory part of a statute, deed, or the like, stating the reasons and intent of what follows."

http://dictionary.reference.com/browse/preamble

A preamble, which is merely an introductory statement, carries with it no actual authority as the expressed authority is later addressed in the document. In the case of the US Constitution the authority related to providing for the general welfare is contained in Article I Section 8 and it expressly relates to providing for the general Welfare of the United States and not to the People of the United States which isn't mentioned anywhere in the Constitution. Additionally the enumerated roles and responsibilities related to providing for the "common Defence and general Welfare of the United States" are specifically itemized in Article I Section 8. If this list of enumerated roles and responsibilities were not required then why is there a listing of them? If the US Congress can do anything it pleases then having a list of specific roles and responsibilities enumerated in Article I Section 8 is completely illogical.

 

Shiva TD,

Goods and Services will cost less under the Fairtax, around 10% less, but the average retail price of goods and services will rise by 17%. If you agree that businesses can't lower their tax costs by more than than actually paid, then, using actual 2007 data, businesses paid $291 billion in income taxes against retail sales of $9 trillion, or 3.2% of sales. Business share of FICA was $435 billion or 4.8% of sales. And, the business compliance costs were $160 billion, or 1.8% of sales according to the Tax Foundation. Total business related tax costs came to just under 10% of sales. Remove the 10% and add the 30% sales tax and retail prices have to rise by 17%. Producer costs go down, but retail prices go up!

As for those large accounting departments you wrote about, don't forget that they still have to respond to State and Local tax agencies, the shareholders, and the SEC if publicly traded. Getting rid of the income and payroll taxes is big, but that isn't the whole story.

 

The actual estimates for how much the price of products and services would be reduced vary from 10% as note to over 24% for some enterprises depending upon who does the analysis. Of note the Tax Foundation only addresses those compliance costs that can be directly tied to the actual cost of compliance. For example the rent or lease of the building where the accountants work is not included as it is an indirect expense. I really don't know how much prices will go down but the bottom line is that they will go down.

One thing we do know is that the tax burden will not change so there is some sort of balance.

BTW a little side information related to how embedded Payroll taxes affect the GDP from a news article that I can't find at the moment (but I emailed it to myself and will be able to post the link later). According to economists if the reduction in payroll taxes is not extended into 2013 the projected GDP growth will go from 2.6% to well below 2% or over a 20% drop in the growth of the economy. A 20% drop in the growth of the US economy related to only part of the payroll taxes returning shows the impact of this tax on the ecomony. How high would GDP growth go if the payroll tax was eliminated completely? 4%? 5%? I'm not sure but a 5% GDP growth rate would certainly shift the US economy into high gear.

 

I'm surprised that the retailers will get as much as the State when the retailer does nothing but pass money through the business? The State will have a boat-load of OH to facilitate the tax collection...

 

I'm a farmer and I cannot imagine lowering the price of my products just because I have lower OH. The market will determine the prices unless I simply wish to give away money.

I don't understand your GM comment at the end of your post. If GM has an income, then they must be selling something to someone? Why wouldn't that someone be a consumer?

Also, if GM and others will pay zero federal taxes, this means all other taxpayers must make up for their lost tax revenues...is this correct?

 

What I don't understand is that today we are collecting (X$) of federal taxes with System A and if we change to System B, we still must collect (X$). The same amount of money must be removed from people/business and given to government no matter which tax system is used. Why would either tax system change GDP?

 

I do not understand how a tax that excludes such a large amount of economic activity from taxation can be called fair, especially when the proposed untaxed economic activity is where the wealthy derive most of their income.

 

unrealist 42,

Please elaborate on what you mean. What untaxed spending is involved with the Fairtax? Or do you mean the income tax is unfair? I'm confused.

 

GM does not sell retail on anything that I'm aware of. All of their sales are wholesale to dealers and the tax is collected at the retail level under a consumption tax. Perhaps there is confusion with a Value Added Tax where the tax is collected at every level in the supply chain. Yes, the "consumer" of a new car or parts would pay the taxes that GM is currently paying but they're already paying those taxes plus the expenses that GM has related to those taxes. All taxes and expenses related to the tax in bringing a product or service to market are passed onto the consumer today and those are referred to as the embedded costs and taxes. The difference being that with the elimination of the tax on the enterprise, which is later collected at the retail level, the compliance costs related to the tax are gone and those expendatures are not passed on because they no longer exist. That results in a lower net cost to the consumer.

I believe that even farm prices which are predominately determined by large agri-business corporations will also come down as costs are eliminated. We're not paying the same prices today that we'd pay if farmers plowed with a horse because technology reduced the cost of production. The same would be true when the costs of taxation on production are eliminated for farming.

 

The compliance costs to enterprise are also eliminated which lowers the cost of goods and services. Lower costs generate more demand which generate more revenues. This is especially true related to international trading where a cost advantage for US goods and services will generate more demand and more sales.

 

For those states that already have a sales tax it really generates no additional overhead for the state. They're already enforcinng their own sales tax laws and they are already collecting sales taxes. The consumption tax merely piggybacks on the top of their current sales taxes. The state would have to send a check to the federal government quarterly but how much does it cost to send four checks a year?

 

Shiva TD,

"The state would have to send a check to the federal government quarterly but how much does it cost to send four checks a year?"

I have no idea where you got the notion that States have to send the federal revenue to the Treasury quarterly? But you are dead wrong. Please read this extract from HR25.

`(1) IN GENERAL- Administering States shall remit and pay over taxes collected under this subtitle on behalf of the United States (less the administration fee allowable under paragraph (2)) not later than 5 days after receipt. Interest at 150 percent of the Federal short-term rate shall be paid with respect to amounts remitted after the due date.

 

Shiva TD,

You wrote: "The actual estimates for how much the price of products and services would be reduced vary from 10% as note to over 24% for some enterprises depending upon who does the analysis. Of note the Tax Foundation only addresses those compliance costs that can be directly tied to the actual cost of compliance. For example the rent or lease of the building where the accountants work is not included as it is an indirect expense. I really don't know how much prices will go down but the bottom line is that they will go down."

There are no economic studies that would support your "bottom line". The Director of Research at AFFT believes costs can go down 12% and retail prices rise by 15%. I used actual data for 2007 and concluded that costs could go down 10% on average and retail prices would rise by 17%. Where did you find an analysis that business tax costs could be reduced by 24%? Jorgenson's embedded tax study did note that some industries might be able to reduce tax related costs by 26%, but he included employee taxes in that estimate. As we all know, if we get 100% of our gross pay, business related tax costs average 10%, although that cost savings will vary by industry.

To avoid more confusion, I would urge you to talk about producer "costs" and retail "prices". Costs can be reduced, but retail prices are going up after adding the 30% sales tax.!

 

Oh, I get it now, we need to eliminate the embedded costs of a satisfied people. You mean all workers would be leveled, not the playing field.

Whether or not the Flat Tax is a viable solution has to do with whether our workers would accept the living standards of foreign non-voting peasants.

In the next post you asked, "why would a country purchase a Boeing airplane, for example, when they could get a very similiar airplane from Airbus for less money?"

They would not, but Airbus might explain that to level the playing field we need to get rid of our blacks. Remember, Airbus did not want Lockheed's jive talking blacks so the company had to go through Geneva to keep from sending any there.

In the next post you said:

"A preamble, which is merely an introductory statement, carries with it no actual authority as the expressed authority is later addressed in the document. In the case of the US Constitution the authority related to providing for the general welfare is contained in Article I Section 8 and it expressly relates to providing for the general Welfare of the United States and not to the People of the United States which isn't mentioned anywhere in the Constitution. Additionally the enumerated roles and responsibilities related to providing for the "common Defence and general Welfare of the United States" are specifically itemized in Article I Section 8. If this list of enumerated roles and responsibilities were not required then why is there a listing of them? If the US Congress can do anything it pleases then having a list of specific roles and responsibilities enumerated in Article I Section 8 is completely illogical."

Well, we now know that according to you if the 1% owners of the principle means of production need to level the playing field with Airbus the black "people" of the Second Amendment should exercise their rights, and remember that the Senate, which advises and consents to the Supreme Court of Article III, is made up of States. The simple fact is the authority is in Article I section 2, it is "the People of the several States."

So there are those pesky "People of the several States" to deal with with regard to what is a viable final solution to the leveling of the playing field of the people.

 

Let's use inventory costs as an example. Business pays tax on inventories. Business also needs to maintain inventory data for the business. The physical inventories will continue, except in some situations where auditing can be performed, so the accounting costs for inventory control remains no matter which tax system.

I don't know the data today, but I can remember long ago when I was in high-tech, in medium to large business, from private to public companies, that as a percentage of overall company costs, dealing with taxation was not that big of a deal. So I'm not sure on average what cost savings we might see due to having 'supposedly' less compliance costs??

 

State tax collection and federal tax collection are two different processes. Yes the federal taxes 'should' flow the same as 'state' taxes, but the difference is the feds will demand the highest efficiency on collecting federal taxes. The State will be forced to handle uncollected taxes for the federal government while the State may not be very effective today on their own collections??

If you walk into CA state headquarters, and say to them 'hey you're already collecting taxes so it won't cost you a dime to collect more taxes for the federal government'...I suspect this will not be very well accepted. There is a cost to everything!

The State won't send out a single check to the feds without knowing where every single penny originated. This 'knowing' will cost something...

 

I would disagree with this provision but then I oppose the FairTax.org proposal on other grounds as well (while supporting a consumption tax). Of note with my small business I only pay sales taxes quarterly which would necessitate the State only paying quarterly. It would be unrealistic to expect a State to make payments based upon receipt of payment of a tax as it would drive sending checks daily to the federal government. That is pure stupidity.

 

I was late sending in my state sales tax one quarter and received a notification that I was late immediately from the state. I don't see how hard this is to track and it's virtually all computerized. No one hand typed me a letter that I was late but instead the computer showed the state hadn't received my payment (or my notification I hadn't made any retail sales) so it sent me a letter. I would assume that a person actually does open my payment but then they do that with my state sales tax already. Where would any additional work come in?