Here is some interesting correspondence between a couple of FairTax Volunteers:
I have always been assuming that we would see a 7.5% increase in take home pay with the FairTax due to no personal deductions for Fica and Medicare. The employer would seem a reduction in payroll costs of the same amount for their contribution as well as unemployment.
I see detractors saying that the employees would see a reduction in their wages. Are they considering the employer contribution to be part of the employees "wages" instead of a tax the employer pays?
Daniel P. Alston, DDS, PC
Dan,
I agree with your assessment (we will get a 7.5% increase in take home pay)
at least for the short term after the FairTax goes into effect.
There is no feature of the current FairTax Bill that would compel any other outcome.
Without such a feature both the employer and employee will get to keep their respective portions of FICA and MediCare taxes as well as the Income taxes.
Employers will try and keep the eliminated taxes as additional profits, however market forces will drive them to cut prices the 5% or so that these taxes add to the selling price of their products.
The mythical 21% price deduction that Neal Borts talks about so much relies on
the business keeping all of the tax reductions of both the business and the
employees. That flat out will not happen. We will have more money in our pockets
that we will need to spend to pay the FairTax added on to the slightly lower prices.
It's not a Free Lunch. Most people will end up with nearly identical standards of
living(consumption). Some at the low end of the income scale will benefit some
will pay more. Those that have no savings and are living hand to mouth will benefit
due to the prebate. Those that are living well off of savings and have no income
will likely pay more (the retired Rich). The retired living modestly with some savings will not be affected much due to the gross up in SS benefits and Prebate. Those currently borrowing to finance an extravagant lifestyle (currently tax free) will be hit hard by the FairTax. High earners accumulating wealth by saving and investing will benefit most.
I believe these effects are as they should be protecting the weak, rewarding the builders and punishing the takers.
Ron Woodward, PE
Yorktown, VA
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Yes your employer -- to lower prices, your employer will have to keep the money you used to pay in taxes. And then pass those savings on.
Which is just wild really. First of all, thats not in HR25. Its very very basic to Fairtax promises of prices not going up. But its not even in the legislation.
I wonder why? Why would you NOT put into your legislation that your employer keeps that money?
Because that would be a cut in pay, mandated by the government. But Fairtax is BASED on this happening. So to base your entire plan on a major reduction in pay --shouldn't that be part of the legislation?
Or -- at least KNOWN by the people who are supposed to allow their wages to be cut??
Why is this basic part of the plan being kept secret??
The way Fairtax is explained in speeches and in interviews, its just a given that prices will come down, so that the added tax won't matter.
But then we find out, the part of prices coming down, isn't even part of offical Fairtax. Its not part HR 25. Apparently employees are supposed to volunteer to lower their pay -- readjust their pay figures -- by whatever they used to pay in taxes.
Now really -- do you think 100 million Americans are going to volunteer -- offer -- to lower their pay 25-30%.
Yet thats exactly what has to happen for prices not to rise sharply.
So 100 million American workers are supposed to volunteer for this cut in pay -- but they aren't even told about it in advance?
When were Fairtax leaders going to tell 100 million workers they were supposed to do that?
And arent these same workers going to be suddenly paying these high federal sales tax? So they are supposed to take a 25-30% pay cut, then pay these taxes?
Do you really --I mean really -- think they will agree to this?
If you want to know why Fairtax has all but stalled, except for a few true followers -- this is it.
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