There is much you still need to understand. Let me just take one response you posted. "One of the biggest arguments for the FairTax is that prices will somehow become a great deal lower when income taxes are removed from the United States. I don't see how that's going to happen at all. I understand the argument: if an employee makes $45,000 in income, he might only get to take home $30,000. If income taxes are removed, the company can just pay him $30,000, the employee is now just as well off, but the company has saved $15,000 in costs that they can pass along to the consumers. But how realistic is it to expect people to take a pay cut when they have to pay a 35% tax-exclusive rate tax on purchases?
Secondly, given the experiences in Japan, I don't see how a proposal which would cause deflation is particularly desirable. Now in reality, you don't understand.. A loaf of bread goes through six levels of business before reaching the retail shelf. (This does not include the manufacturer of the tires that goes on the transport trucks, the company that makes the ink used on the wrappers, etc). Everyone of these companies today pays payroll taxes, company income taxes, and pays bookkeepers, attorneys, and accountants to keep records and pay the taxes. All this cost is added into the price of the bread BEFORE it reaches the retail shelf. That everyone of us, including the poor buys that bread and PAYS those taxes when we buy that bread with AFTER TAX dollars.
This has nothing to do with only paying employees their NET wages! An employee will now be able to take home his gross wages (from a federal withholding perspective) AND prices will still be able to be lowered because of the removal of all these embedded costs.
The company can do one of three things with the savings (or a combination): increase dividends, increase wages and benefits, or lower costs. The actual choice he/she makes depends on where the pressure falls in his region and industry.
One of the great benefits of this proposal, is the economic growth that will accompany the change. According to studies by the International Trade Commission in 1998 and Princeton Economics in 1996, we will attract the manufacturing base back to America, and wages will rise. According to Dale Jorgenson, former Chair of the Harvard Economics Department, prices will drop between 15 and 25% before the sales tax is added...so after the tax, prices will actually remain at about the same level.
If is really disingenuous to suggest that employees grossing $45,000 today will suddenly find themselves grossing only $30,000! NO economist has ever suggested that result. They will not take a pay cut. On top of that, you mentioned the tax- exclusive rate at 35% when in your original article, you say it is 30%. The rate is quoted on a tax inclusive basis to compare it with the current income tax. If we quote the combination of federal payroll tax and a 27% federal income tax on a tax- inclusive basis it is 43.3%. On a tax-exclusive basis it becomes 76.36%! Even the 15% income tax rate when combined with the employer and employees share of payroll taxes, on a tax-exclusive basis looks ugly at 43.47%. But regardless how we look at these numbers, here is the main point. A fottball field is the same size whether measured in yards or inches, the number is just different. It is the same with the cost of government. If it takes 30% of what we spend to run Government, and we spend more than we our net income in this country, what is the real tax we are currently paying.?
One point I often hear made is that people won't like paying the tax. That is actually one of the best features. To suggest otherwise is to say the best way to run government is to hide its cost from the people. Whether you are for bigger or smaller government, I'm sure you are for honest visible government?!
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