My husband got home from the hospital finally, and is feeling much better now, so I have again taken up my blog:
As you know by now, the FairTax taxes all NEW goods and services; therefore, if you are accustomed to buying a used car-no taxes are added. But, if you are accustomed to buying a new car, you will be paying a FairTax on top of the sales price.
The good news is, that sales price will be lower, due to the fact that the price of the car will no longer include all of those embedded taxes (you know, taxes and costs added to the price of the car all along the manufacturing line and up through the retail level)
The purchasing costs of a new car are predicted to be lower by about 10% (14% for self-employed people), and that lower amount INCLUDES the FairTax. There is a chart in the FairTax.org website, a white paper under Industries/automobiles, that shows this prediction. It shows the total new car cost, including taxes, to be $43,537 under the present income tax system, and $39,160 under the FairTax, a difference of $4,377. That difference amounts to 10.05% less under the FairTax.
Another reason for a lower price under the FairTax is interest rates. Interest rates are projected to fall 25-35% under the FairTax, which would be a substantial amount given the high price of new cars today.
Also, you will be buying this new car with pre-tax dollars, thereby increasing your buying power.
Tomorrow we will look at the unfair treatment of the U.S manufacturers vs.the Foreign manufacturers of autos.
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Two candidates, Mike Gravel (D - http://snipurl.com/gravelpart2 ), and Mike Huckabee (R - http://snipr.com/fthuckabeeonirs ) are *ardent* supporters of the FairTax. While it looks like Mike Huckabee *could* emerge from the "2nd Tier" of Republican candidates, Mike Gravel's quest is *less* certain.
So, let's you and me DO SOMETHING, RIGHT NOW, to CHANGE things!
Let's save our economy from projected meltdown ( http://snipurl.com/meltdowninprogress ) and ensure that the FairTax becomes a part of *our family's* future by pledging our financial support to one, *or both!* of these candidates in a very solid way - by setting up a "bill payee account" in our bank or credit union Bill Pay service (right over the web). This way, we can give a little to one, or both, of these candidates after our paycheck is deposited *every two weeks*. (I've scheduled $10 to go out, automatically, every two weeks. Can you imagine how this could grow into big money if enough of us set up automatic, recurring, bi-weekly payments for these candidates?!)
Here's the payee entry information you'll need, to join me in this "ROCK THE FAIRTAX" effort:
For Mike HUCKABEE: Huckabee for President, Inc.
P.O. Box 2008
Little Rock, Arkansas 72203
Phone: (501) 324-2008
For Mike GRAVEL: Mike Gravel for President
P O Box 948
Arlington, VA 22216-0948
Phone: (703) 243-8303
DON'T WAIT! Log in to your Bill Pay service - RIGHT NOW!
Bobbie,
The AFFT White paper is out dated and has a couple of serious errors. First, the cost of the auto under the Fairtax will rise to $32233, not remain at $27550 as shown. (I'd be happy to discuss price impacts of the Fairtax if you wish). After a down payment of $3223, the amount financed would be $29010 and the total to pay off the loan over five years @5.09% would be $32910. Adding back the down payment, the total cost is $36143, better than shown.
Now, in order to determine just how much one has to earn under current law, you can't use a marginal tax rate of 28% as the White paper assumed. You need to use your effective tax rate. In my case, my effective tax rate as a retiree is 11%, and I don't pay payroll taxes anymore. So, the actual wages/pension income I would need would be $35625, around $500 less than under the Fairtax scenario.
But wait, the Fairtax also lays on an implicit tax on the loan instrument. If there was a 2% difference between the mid range Treasury and the 5.09% loan rate, the implicit tax would amount to around $300 after accounting for the declining principal balance. So, the real difference could be $800 more than under current law.
My point really is that making blanket statements about "10% lower costs under the Fairtax" may not be true for everyone. You need to do the math for your particular case and make up your own mind.
Regards,Van
Hi Van, thanks for weighing in on this. I should have stated that this example was based on a 28% tax bracket. The fine print of the white paper assumes that and I should have pointed it out for my readers.
As for the 10% thing, I said the prices of cars will be lower by "about" 10%, which makes this statement acceptable. The 10.05% I mentioned was the exact difference in the total cost of a new car under the present income tax and the FairTax, as shown on the chart in the white paper.
It doesn't matter whether or not the white paper figures are updated to today's prices. The rules are the same under any price.
You are right emphasizing the importance under the different tax brackets. Everyone has to do their own figuring based on their own tax percentage rates.
I would be happy to hear your discussion on price impacts of the FairTax. I appreciate your interest. Everyone learns from a good discussion. Thanks again for reading my blog.
Bobbie
Bobbie,
My first response may have been lost in the ethernet, so will try again.
We seem to be missing each other on the subject of the new cae White Paper. Two main points where the white paper is wrong. (1) The initial price of the car won't be the same for the car under the Fairtax as shown. It will most likely rise to $32223 after a 10% cost reduction and a 30% sales tax addition.
(2) The tax calculations in the White paper for the income tax column are in error because you can't use a marginal tax bracket, but must use your effective tax rate. Don't know what your effective rate is? Just look at your latest 1040, and divide line 63 (total tax) by line 22 (total income) to see what it might be. You may be surprised! Also, the White paper assumes you aren't retired and are still paying payroll taxes.
The bottom line is that for most retirees with pensions under $80K, the net cost of the car will be less under current law.
As Boortz wrote, don't believe anything you read or hear. Do your own homework and make up your own mind. Sure does apply in this instance!
Regards, Hank
As a general proposition, Hank, here is the research against your position:
The effective tax rate percentages, that different income groups would pay under the FairTax, are calculated by crediting the monthly "prebate" (advance rebate of projected tax on necessities) against total monthly spending of citizen families (1 member and greater, Dept. of HHS poverty-level data; a single person receiving ~$200/mo, a family of four, ~$500/mo, in addition to working earners receiving paychecks with no Federal deductions) Prof.'s Kotlikoff and Rapson (10/06) concluded,
"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.
"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."
Further, per Jokischa and Kotlikoff (circa 2006?) ...
"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."
It's well past time to scrap the tax code and pay for government the way that America's working men and women are paid - when something is sold.
Bobbie, I promised you a paper on prices, so here it is. Hope it's not too long.
The Fairtax Impact on Prices
10/10/07
Forward: This issue of prices has its roots in the mid 1990’s when the Houston Fairtax team of tax lawyers contracted with Dr. Dale Jorgenson to do a study on the embedded costs of the income tax system. Jorgenson concluded that there was an average of 22% in embedded costs across a wide spectrum of industry segments. Business income tax compliance costs were not included in his study. The Fairtax authors then adopted an inclusive 23% national sales tax rate, and concluded that the sales tax would be offset by the removal of the embedded costs of the income tax system, and, most importantly, retail prices would therefore remain about the same. The marketing themes at the time basically claimed that everyone would take home their total paycheck and prices would remain about the same. A great free lunch prospect, if it had been true.
It wasn’t until 2005, after the Linder/Boortz Fairtax book was published with similar claims, that a blogger named RobfromGa wrote Dr. Jorgenson to get clarification about just what costs were included in the embedded cost study. The following is their final email exchange:
“Dear 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:
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, it became clear that the 22% average embedded costs included employee payroll and income tax withholding amounts. It also became clear that those amounts would not be available for producer cost decreases due to contractual and fairness reasons. At that time, the whole free lunch plan began to unravel.
Discussion: An estimate of cost reductions which can be expected by removing the employer income tax, employer 7.65% share of payroll taxes, plus any employer compliance costs, can be made as follows. Using the 2007 revenue data from the Kotlikoff/BHI base/rate study published in September, 2006, individual income tax receipts were $1101 billion, corporate income tax receipts were $290 billion, and Social Insurance and Retirement (Social Security) receipts were $871 billion. By splitting the SS receipts, it is possible to estimate that individual taxes paid in 2007 were $1536 billion, and corporate/business taxes were $726 billion. Rounding off the percentages, two thirds of the embedded costs can be attributed to the employees, and one third to the businesses. So, if there is an average of 22% in embedded costs of the income tax system per Dr. Jorgenson, then only one-third or 7.3% can be used for possible cost reductions.
Compliance costs can be roughly estimated at 2%-3% based on 20 million businesses, $10 trillion in sales, and $250 billion in estimated compliance costs. This results in a compliance cost of 2.4% of sales on average across the 20 million businesses. (It is generally understood that compliance costs as a percent of sales fall more heavily on small businesses.)
Adding the 2.4% compliance costs to the 7.3% embedded cost savings for businesses, a rough estimate is that businesses might be able to reduce their pre-tax costs by 10%. (This assumes that businesses would apply all the cost savings to price reductions, rather than increased shareholder dividends, employee pay increases, business expansion or increased profit margins.) When the 30% Fairtax is added on to the costs, a general price increase of 17% across the board results: (1.00 x .9 x 1.3 = 1.17). This price increase would occur immediately for all services, and prices would stabilize at 17% higher for new goods after the inventory tax credit works through the system, but in no case later than one year after Fairtax implementation.
Conclusion: Despite continued claims to the contrary by Fairtax advocates, prices will rise by approximately 17%. While these price increases may be offset by the prebate for individuals, the price increases would have a very large negative impact on government budgets at all levels. (A separate study on the Financial Impact of the Fairtax on Governments is available upon request.)
Hank Van Gieson
LTC(Ret) USAF
Ft Myers, Fl
vanlinda@comcast.net
Hank, We BOTH know that rampant spending by Congress is the real culprit. We BOTH know that the TAX CODE is an invitation to abuse by politicians and special interests. We BOTH know that Congress hides taxes invisible to the consumer in consumer-borne higher prices in products and services. Good gawd, man, that $250 bil in compliance costs can vary depending to what extent one wishes to define it. (I read somewhere that that figure could ostensibly be doubled if tax avoidance and tax planning activities were included.)
And, even if we would accept your prices would be somewhat higher, you completely discount any effect that increased competition would have on prices, going forward. As well, what effect will focusing the electorate on THE FairTax rate have on Congress's spending? It's bound to be substantial.
The FairTax plan is designed to be revenue-neutral, so that however the endgame works out - we're payin' it NOW; it's FairTax's STRUCTURE and VISIBILITY that will enable the citizens to rescuing an economy on its way to crumble by reigning in Congress's ability to foment distraction via socio-economic warfare while hiding consumer tax burdens in business taxes.
---
At the end of the 18th Century, America proclaimed its independence from the tax slavery of Britain, and codified our soverignty, self-rule and liberty, as citizens, in the Constitution and Bill of Rights. In 1913, the wealthy elite conspired with politicians to persuade an elitist president (a former president of Princeton University) to buy into a scheme to again make us slaves by signing the Federal Reserve and the Income Tax acts. The Fed would print money, at interest, and the income tax would ultimately be the vehicle to ensure its payment. It would be the bankers who would pat themselves on the back.
President Wilson would later say, “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by a system of credit. We are no longer a government of free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”
The FairTax movement - and our individual participation in it - is the best hope of changing our “citizen-slave/victim psychology” and restoring our power as “We, The People,” freeholders engaged in free-enterprise. Our “slavemasters” will tell you, “The FairTax is going nowhere.” They do not believe we’re capable of removing the shackles they placed upon us from birth.
Well, we’ve set out to scrap the tax code and we intend to see to it that government is paid the way America’s working men and women are paid - when, and because, something is sold.
We’re accomplishing this, by:
• Becoming recurring donor members of FairTax.org
• Informing, and influencing, our family and friends, on and off the Web.
Join us. Together, we’ll ensure that April 15th becomes just another pretty Spring day.
Well, Ian, you and I have finally found something we agree on. "Rampant spending by Congress is the real culprit". I couldn't agree with you more. In my opinion, it doesn't make a darn bit of difference how revenue is extracted from the populace. What matters is the growth and cost of our bloated federal government.
I would suggest that among the more realistic fixes would be term limits, the line item veto, and the establishment by the next President, as a matter of priority, a Commission charged with reducing the size and cost of the federal government by 10% in year one! It would be similar to the BRAC Commission, whose base closing recommendations were given an up or down vote with no amendments. I believe a lot of waste was cut out of the Defense budget through this process, and it could be a template for the Federal Agency Realignment and Reduction Commission (FARRC)? In a recent speech, the Fed Chairman suggested the same thing, and the latest Boortz book called it the "10th Amendment Commission", as I recall. In short, give the power back to the States and the people!
You, on the other hand seem to believe that simply passing HR25, and changing the way revenue is raised to fund the federal government, will somehow lead to reduced federal costs. Do you really believe that all of us will be energised by looking at a sales receipt, which by the way, doesn't even show the real tax rate of 30%. All the Fairtax might do is raise more revenue if successful, which the Congress will happily spend on their favorite projects.
Ian, this is your chance to educate me, Bobbie, and her children and grandchildren, as to just how you believe we can get a handle on the size and cost of the federal government by passing the Fairtax.
Have at it!
P.S. I didn't discount the impact of competition in my price study. Competition exists today-it drives the market place, and it will be the same tomorrow under the Fairtax. What's going to be different? Do you really think businesses will lower their prices by lowering their profit margins in order to send the tax money off to Washington. Can't happen without bankrupting half the businesses in the country! I mean, how low can you go?
First of all, Lieutenant Colonel, on this Veterans Day, I wish to thank you for your service to our country. Other than my current commitment to see the FairTax enacted, and seeking to treat my fellow countryman/woman with the kind of respect that I would want to be treated with, I have not put my life "on the line," as you have.
Thank you, sir. And, may God's blessings of good health and good cheer accompany you always. Amen.
I'll address your comments (quoted):
Your quote: "I couldn't agree with you more [gov't spending, the problem]. In my opinion, it doesn't make a darn bit of difference how revenue is extracted from the populace."
My answer (re: HR 25): [Fewer Filing Costs + Time Lost] HR25 eliminates the need for ordinary wage-earners to file tax returns. I read in some piece of research that this equates to some 50 hrs avg each year. Also, points of filing are reduced some 90% - only businesses file a simple Sales/Use Tax. Elimination of the income tax would be huge increase to available family time, business time, and/or charitable/community time.
[Reduced Admin Costs] Also, the $11 bil required to run theIRS will be mitigated under HR 25 by the simplification of tax guidelines, that will be run by the states. Scales of economy can ensue when states compete to find better, more efficient ways, then share results. Today, we have a gargantuan and increasingly less efficient system for collection.
[Broader Tax Basis] Additionally, tax collection will align with the very robust consumption curve. (Check out the longitudinal consumption growth since 1913. Except for a couple of blips during the Depression years, this has always been in expansion.) Under HR 25, a huge difference is that visitors actually contribute to paying for our government - as well as illegals (who would pay the full rate of 23% of every retail dollar spent because they'd receive no prebate).
[Eliminates Penalty on Productivity] In addition to not penalizing productivity (such is now the case when business hires new employees), HR 25 will discourage types of legislation that makes it harder for Americans to go into business simply because the government's relationship to revenues will be more direct.
[Government No Longer Pitted Against Families] The Congress will be put on the same basis as American families: their income suffers when "the business" (of the country) suffers. While this happens at present, it happens with more dramatic swings and greater damage because government robs resources from families and businesses - actually facilitating their demise by taking the cash they need to weather economic downturns. All this because Congress is resistant to cutting budgets. Under HR 25, families and businesses conserve their cash (and this will force the government to conserve theirs - unless they wish to attempt to raise THE RATE - which brings me to my next point.) Under the current system, the people are played against each other, individuals against business, rich against poor. Why? Because gov't refuses to budget itself according to economic conditions, and insists on robbing family and business reserves. The government - and those "liberal" special interests that depend on government funding, have Americans buying into this phony "progressivity" - which is really telling all citizens that there are boundaries to success in America, because they'll make sure they take (or want to take) most of your hard-earned dollars beyond some point.
[Harder for Gov't To Raise THE FAIRTAX RATE] The government has numerous ways to do this, but the most dishonest is to jack up taxes on business, which increases costs to consumers. HR 25 takes this away from them. Once, people understand that there is ONE RATE that fuels government spending, they have clear information, and they can mobilize around that. This is the big spenders' worst enemy: that people actually know the government's take from their pocketbooks. It doesn't matter if you call it 23% (inclusive), or 30% (exclusive) - in fact, if you call it 30% - once it's enacted (because then income tax comparisons no longer matter) - it becomes MORE difficult for the government to raise it.
Having been a "term limiter," I'm not sure I'd support it AFTER FairTax enactment; it might actually work against a FairTax environment because (most of the time) the politician doesn't understand anything quite as well as a threat to their continued "living the life!" Without the threat to their continued gov't employment, they might just as well go ahead and RAISE THE FAIRTAX RATE. But, I'm still not clear about the "pro's" v. "cons" on this.
Hank, it would seem that we differ in our faith in government to do rational things. Oh, it happens occasionally, but unfortunately it seems to be the "exception" rather than the "rule." And that is because "politicial" considerations have more to do with "image management" to pandering to key constituencies rather than finding the best solution to the problem at hand. This is a MAJOR difference between us that no doubt accounts for the different sides of the HR 25 issue that we are presently on. (I truly hope to have you on our team, because you are willing to "dig deep" to try to get at the core of the problem.)
As for your "P.S." yes, we DO have competition today - BUT THE GOVERNMENT IS ONE OF OUR CREDITORS that demands FIRST PAYMENT! even before the needs of family (via withholding money from our paychecks, and sucking capital from business coffers monthly or quarterly). I ran a business for over 20 years, and I hired and fired employees and consultants. I KNOW HOW HARD it is to do business because of this awful tax system. Business entrepreneurs, second only to military which protects our country, are the REAL HEROES. They take great risks, create jobs for others, and deserve great rewards when they are successful. If we permit our government appetite for dollars to destroy this, our country will not retain its greatness and hope for the masses.
Ian, thank you for your kind wishes on Veterans Day! Fortunately, I was shot at and missed in two wars, so I'm still around to discuss issues such as the Fairtax with folks like you.
The question was "How will passage of the Fairtax help reduce the size and cost of the federal government?"
I've read your response closely, and, for all your written eloquence, only two of your six points even come close to addressing the question. Eliminating filing costs/time, a broader tax base, productivity penalties, and pitting governments against families(???) don't seem to have anything to do with the question. I'm left with- reducing the IRS administrative costs, and your belief that raising the Fairtax rate would be very hard to do.
As for the IRS costs, the Kotlikoff/BHI study estimated that the $11 billion current IRS costs could be reduced by $8 billion. In our $3 trillion government, that comes to 1/4 of 1%, nothing to write home about.
I don't think raising the rate would be so difficult for the Congress. Start a war-raise the rate; national disaster-raise the rate; balance the budget-raise the rate. A one line piece of legislation and a simple majority vote would be all that would be needed. And, if HR25 passes as written, the opportunity to broadcast that the real rate is 30% would be lost. The convoluted definition of the inclusive tax rate currently in HR25 would be cast in concrete. (By the way, that is the first thing that the W&M Revenue subcommittee staff would change in marking up the bill. Sales tax legislation is no place for inclusive/exclusive marketing arguments. 20 million businesses only want to know what the exclusive rate is, and that number is 30%. You need to get over this inclusive nonsense-I have yet to have anyone explain just how the Fairtax 23% can be compared to the income tax? Marginal rates? I don't think so!)Requiring a super majority to raise the rate might slow things down, but I don't see that in HR25?
I'm beginning to understand why you are a Fairtax supporter. Let's face it, the Fairtax was originated by business people for business people. My question is- where is all the business support? They seem to be invisible while all of you individual advocates try to get the the masses energized. By the way, I was originally an ardent supporter, but, I dug deep as you suggested, and didn't like what I learned. The devil really is in the details.
Cheers!
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