Monday, January 21, 2008


I can see by the comments I have been receiving that a lot of you out there do not understand, or do not want to accept, the concept of embedded taxes. The non-accepting will not accept the fact that prices will go down (experts say as much as 22%) when the FairTax is enacted. You do not trust business to lower their prices when their costs of doing business go down. You do not trust the consumers to insist on it. You do not trust free enterprise to enact price wars until the cost of goods goes down to acceptable prices.

My questions = Do you trust the IRS and Government to continue to manipulate your income? Do you think prices will remain the same under the present system? Do you think your taxes will remain the same?

No! Your Government gets more intrusive every day and you just sit back and take it. Prices keep going up, jobs keep leaving the country and you just sit back and say “I can’t do anything about it”. Taxes keep going up, government hand-outs keep increasing and you just sit back and say “Let the Government take care of me”.

This is just sick. Get a grip. And take control of your own lives and spend your money when and where you want to. The FairTax will allow this to happen.

When we say you will be able to take home 100% of your income, we don’t mean that you will not have to pay taxes like you did with the 15% payroll and SS taxes plus however much is withheld every month to pay your income taxes. We just mean you will have control of where and when you spend that money and it will be your choice of saving it (non-taxable, mind you) or spending it and being taxed.

You think about that amount. You pay 15% in payroll taxes & Social Security payments. Then on top of that, you pay 15% to 35% (whatever tax bracket you are in) as income taxes. So if you gross $50,000 per year, 15% payroll & SS amounts to $7,500. Then you are probably in the 15% tax bracket (purely an estimate – I’m not a CPA), that will take another $7,500 out of your paycheck. You will have $15,000 to spend in taxes or to save for your own enjoyment. Now if my figures are right, you will have to spend $65,217 in order to be taxed $15,000. How can that be? Well, it can’t. You’re just going to have to save some of that tax money the Government has been taking out of your pocket, because there is no way you can spend this amount in order to spend all you have saved. And don’t come back on me and nitpick my figures. I know I didn’t allow for deductions, but I am merely giving you an example. Apply it to your own paycheck and tax figures.

And quit worrying about nursing home patients who are on Medicaid. When they go through their income, nursing home patients can apply for and receive Medicaid. That means they spend the rest of their lives on the Government dole. In other words, they don’t have to pay any money; therefore no taxes. It’s the Government who pays the nursing home and with the FairTax, the sales tax. Now I am sure the Government is not going to allow the nursing homes to keep their high prices when all other business are removing the embedded taxes from their pricing.

And quit worrying about the Government. They seem to be able to take care of themselves quite nicely. They may even encourage the removal of embedded taxes in goods and services to keep their prices down. It’s time the Government started working for us and with us.


Dutchman3 said...

Bobbie, Most of us that have been at this issue for years understand the concept of the embedded costs of the income tax system. It's clear that your understanding is limited.

First, there is no such thing as an "embedded tax", just embedded costs. Not one dime in tax revenue goes to the federal government as a result of a retail transaction. The tax was already paid by the producers or the retailer. Embedded costs impact only prices, and consumers offset the business tax costs through higher prices.

The expert (singular) who came up with the 22% in embedded costs was Dale Jorgenson back in 1997. Upon questioning, he agreed that the embedded costs included both employer and employee tax costs. In fact, two thirds of the embedded costs can be attributed to employee payroll and income tax withholding. This can be confirmed by looking at page 9 of the September 9 Kotlikoff/BHI rate study.

Business costs amount to one third of the 22% or around 7.5%. Add to that a generous estimate of 2.5% for compliance costs (which Jorgenson did not include), and you will see that the best you can hope for is a 10% reduction in business costs, provided businesses apply all the cost savings to price reductions rather than business expansion, increased profit margins, employee pay increases, or simply increased profits.

A 10% cost reduction will lead to a 17% retail price increase after the 30% sales tax is added.

If you want to argue that all employee gross wages will be reduced to the current net after withholding, be my guest, but you would be in the vast minority.

A final note. Don't worry about the higher prices. Your income will also go up due to recovery of the withheld amounts plus the prebate. Your standard of living will not suffer. "Real" prices will remain about the same.

old beav said...

Been reading your blog for some time now. It's amazing some of the responses you have received. I'm especially amazed by Dutchman's comments.

He says there is no such thing as "embedded taxes", just "embedded costs'. Dutchman needs to figure out a couple of elemental facts;
What are these "embedded costs"?
Where did these "embedded costs" come from?

Any person should realize these "embedded costs" are simply part of taxes that have already been paid by tax payers back down the line and added on to other costs all along the line.

"Embedded taxes"? - "Embedded Costs"?

A rose by any other name smells as sweet. An "embedded tax" by any other name stinks as bad.

Ellen said...

This explanation from the co-state director of a FairTax state organization illustrates why some people are confused by the embedded tax concept:
" the true tax burden on the working poor is 28.4%, (their FICA tax of 7.65 plus the 22.4% of their remaining take-home pay which goes to pay the embedded taxes hidden in the price of everything they buy). Even if the poor paid the entire 23% FairTax, they would be better off than now …. So, who loses? The idle rich, illegal aliens, criminals, 'off-book workers' and others who escape the current system through evasion or legal loopholes."
This example referenced $25,660 a year as the poverty line for a married couple with two children. I'll use the 22.4% embedded tax figure in my comments to be consistent.

Why the above explanation makes the embedded tax concept difficult to digest:
1. The 22.4% figure is a tax rate on expenditures. Yet it's added to the FICA tax rate to arrive at a "true tax burden" of 28.4%. Adding an expenditure tax rate to an income tax rate creates confusion, not clarity. The effect on todays tax burden depends upon income, spending and actual tax paid. In this case, if the family spent 75% of their remaining take-home pay, their "true" tax burden would be 19.7% or 18.4% if one factored in tax credits paid to them. (At least the explanation didn't add a 15% marginal tax rate to arrive at a 43.4% true tax burden.)
2. The "who loses" statement of the explanation appears to contradict the premise of embedded taxes. Just like the poor working family, everyone who buys goods or services pays 22.4%. The people who "escape the current system through evasion or legal loopholes" don't escape the tax burden of 22.4% on their spending. A tax burden not significantly less than what they'd have with FairTax. Implying these "evaders" pay zero tax compared to the 28.4% poor people pay is inconsistent and confusing to those who are paying attention.
3. The logical question: the 23% FairTax is only .6% more than the current embedded tax rate we all pay. Without that or payroll and income taxes, everyone who now pays income and FICA taxes will have a smaller tax burden. Why collect the extra tax dollars needed for prebates just to send them back out to people who are already better off than today?
It's reasonable to question all assumptions built into a tax plan that proposes to lower the tax burden for most taxpayers and still raise enough revenue to "forgive" the taxes up to poverty level spending for every household. Many people have learned that if something sounds too good to be true, it usually is.

Mark said...

Bobbi -- I trust math. You are simply mistaken about the embedded taxes.

Yes there are SOME embedded taxes that the business will save. Thats mostly FICA -- and if its a corporation -- thats corporate income tax.

But our family business has done the research. We would save 2%. Not 22% You miss it by a factor of ten.

What you are doing is, you are assuming our EMPLOYEES would give us their savings back. As if the secretaries would say "Here, I dont have to pay income tax anymore -- so you can have it, I dont want it -- use it to lower the price please"

But if she did that, if all our employess did that, then what happened to THEIR "entire paycheck".

You are unwittingly counting all the taxes involved as being able to lower the price, Thats simply wrong. OUr business cant lower the price of our product by what OTHER people save. Only by what WE save. And we save 2%.

And even worse, even if our employees would give us all they save, we STILL wouldnt have near 22%.

Are we as owners supposed to give up our income tax, back to the price? We happen to NEED that, to pay our expenses, to pay the higher cost for everything else.

The simple fact is, we save about 2%. Not 22%.