FairTax Rally

For those of you that are interested…WSB Radio and Neal Boortz are throwing a FairTax rally on Wednesday, May 24 at the Gwinnett Convention Center at 7:30pm (more details here).
Guests will include Herman Cain, Sean Hannity, Congressman John Linder and more.

8 comments

  1. kspencer says:

    FairTax proponents, please show me where I’m wrong.

    Example company that grosses $100,000 per month, pre-tax expenses of $90,000 of which $30,000 is payroll. (Note that if it’s January I have my share of FICA amounting to $3,500.) My after-tax profit (using standard corporate tax rate and no special modifiers) is approximately $7500 per month.

    Now according to what I’m reading, I quit paying the FICA and my corporate income tax and my employees keep all $30,000. Of my $100,000, $23,000 goes to the government as sales tax. Allegedly this is OK because my expenses will also drop 23%. Except they don’t.

    My expenses drop to $77% of $56,500 (60,000 minus my share of FICA) plus $30,000 in payroll. That’s $43,505 in non-payroll expenses and $30,000 in payroll for a total of $73,505.

    So what fairtax does is cut my profit from approximately $7500 to $3,495.

    Either I really misunderstand the details or your plan isn’t such a good choice for the retail business. Since I’ve re-read the book about six times to make sure I followed the steps in the chapters (vague as they are), I’m tending to believe the latter. But I eagerly await someone explaining what I missed.

  2. buzzbrockway says:

    Only the end user pays the sales tax. Items a company purchases in order to produce their products would not be subject to sales taxes (and are not currently). Hence, companies would not be paying the 23% tax very often.

    Savings would be realized by removing the embedded taxes. I’ve heard Linder say that economists estimate embedded taxes to be about 17% (it may be different now). That would go away.

  3. Fuzzyslippers says:

    Boortz and Hannity in the same building at the same time?

    They should hold this in the winter so they wouldn’t have to heat the place.

    That’s some excellent energy conservation right there.

  4. kspencer says:

    Buzz,

    Sorry, but it doesn’t work. I removed 23%, not 17%, from the cost of EVERYTHING except salary. If I’d only reduced those expenses by 17% the company would have had a net loss. 83% of expenses other than wages in the example is expenses of $46,895, which makes total expenses 76,895, which means the company’s profit is $15.

    My example was the retailer – the one who is selling to the end user. The end user doesn’t send the tax to the government, the retailer does. It’s embedded, remember? So as a retailer, either I take 23% out of my same 100,000 gross OR I increase my gross. Which means the customer pays the same as he did but it’s defined differently, OR the customer pays MORE.

    I admit I didn’t touch on the amazing altruism expected of the businesses earlier in the pipe. The ones you’re expecting to cut their gross intakes by 23% to match the alleged (by FairTax) embedded equivalents that disappear. they’ll remove. Let’s test that a minute, however.

    I’m a wholesaler instead of a retailer, same numbers as before. My expenses have declined 23%, my personnel costs are still $30,000, my total expenses are 73,505. I decide to altruistically keep the same profit amount of $7,500. I’m grossing $80,005, which means I’ve passed along a 20%, not 23%, savings.

    I can’t cut 23% of some of my expenses, keep my same level of profits and pass along a whole 23%. What happens instead is that the longer the chain of intermediate steps between raw and retail, the closer the expenses come to being the same as it was for the retailer. Which makes the retailer the patsy – raise prices or accept reduced (and possibly even negative) profits.

    There are no other choices. To believe otherwise puts you in the same realm as those who believe if we eliminate our military there’ll be no more war.

    No, my big frustration with the plan is it’s intent to eat the cake and have it for later as well. The business pays just as much to the worker, but it all goes to the worker instead of some being withheld. Worker expenses are a large chunk of most businesses, so that’s a large chunk that doesn’t decline. So expenses don’t drop as much as claimed.

  5. spaceygracey says:

    Interested? You gotta be kidding. I’m having my nails done that day. Maybe I’ll just toss myself in the dryer and turn it on for a coupla hours. Same amount of hot air would be generated as with that CF.

    Hell, like Fuzzy S said, we should call Ga. Power so they can come rig something up and sell windbag-power back to the clueless consumer that day.

  6. kspencer says:

    Bill, I don’t care what the numbers are, they don’t work under the fairtax proposal.

    The claim is that an employee gets to keep 100% of his income that presently goes to the government, but that all the expenses to a company will decrease by the income tax (and other taxes) not going to the government. You get to keep more money up front AND everything is going to cost less.

    Quite simply, that’s wrong. Oh, there are other flaws as well, but that’s the big one. They’re promising you that you can eat your cake and still have it later.

    Other things? They’re promising the end of the IRS. Of course, someone has to be the collection point for the moneys collected. And has to nudge those businesses that fail to send in the taxes collected. And clarify the inevitable confusing issues. But we’ll just call it something else. Oh, wait, Boortz is now saying it’ll be the states’ responsibility to collect and forward to the federal government. So the states’ departments of revenues have to increase in size (and cost) to do what used to be the Federal government’s job.

    Or the fact they’re promising to get rid of the underground economy, even though the STUDY THEY REFERENCE states that most of that economy is barter and other things legal in and of themselves. Mow the neighbor’s yard and today your neighbor is supposed to pay income tax. Mow the neighbor’s yard under FairTax and you’re supposed to pay sales tax. \All services are taxed, remember? If you’re going to allow exceptions, what the HECK do you think makes the tax code so complex now, anyway?

    Simple? no. Get rid of the IRS? only by calling it something else. Eliminate the underground economy? no. All of which means that FairTax won’t do what it promises. But it’ll cause massive upheaval and confusion for a few years while it’s implemented.

    Repeat after me. “If it sounds too good to be true, it probably is.”

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