GA-12

Gents, sorry for the references to moonies, but the “FAIR”tax movement has a considerable number of elements common with a cult.

My use of it has prompted some useful discussion.

My approach is that of a sales tax accountant having worked with the taxes of 16 state and for 9 Fortune 500 companies. I did tax research that produced $tens of millions in sales tax savings. In short, I am not an income tax accountant fearing displacement, but a sales tax accountant prepared to reap a huge bounty if this thing ever were to pass.(It won’t.)

Dougie…..I have researched 20 corporations with an aggregate of more than $200 billion in deferred income taxes liabilities on their balance sheets. These financial accounting liabilities arise due to tax credits, accellerated depreciation, or the like which effectively reduce the tax liability for the returned year by shifting the taxes to future years. The IRS does not record any official liabilities for these tax deferrals and they are paid out as the timing differences work out. If the “FAIR”tax passes, there will be no more income tax returns required and the corporations will never pay out the deferred income tax liabilities that exist on their balance sheets. These balances would go straight to income, albeit as an extraordinary item.

Bronson…..John Linder was on C-Span in December 2005 being interviewed by David Wessel of the Wall Street Journal. Wessel asked about the rate and Linder said the rate was being rescored to take into account the objections of the Presidential Commission by the firm “Global Insights” and that the revised rate was coming in around 24 to 26%. A 26% rate is 35%!!!!!!! on a tax exclusive basis.

Bear in mind, too, that “revenue neutral” means replacing the tax revenue collected by the current system. At one point the Fairtax org site made the FALSE CLAIM that the tax would provide for all government spending. Furthermore, Social Security is running a surplus during the baseline years that I have seen used and SS goes into deficit in the out years. The SS component of the Fairtax would have to increase, if SS is truly “fully-funded.”

Another thing not mentioned a lot is that the states and locals have existing sales taxes PLUS income tax systems that piggyback on the Internal Revenue Code. These would likely convert to the same tax base. Per the “FAIR”tax site this rate would be 7 % tax inclusive or 9% or so tax exclusive. Tax rates of 42% PLUS tax exclusive simply are unworkable.

Indychad……The income tax won’t be dead until the 16th amendment is repealed. PERIOD. I actually agree that Barrow’s ads are misleading as the INTENT is that the Fairtax be a replacement tax.

Indychad ….as a tax researcher who once got a $300 grand tax reduction in the face of an adverse ruling by the GA Supreme Court that the same equipment was taxable to another manufacturer, I can assure you that details do not bore me. Bronson gave me some related data, but where is the analysis about embedded taxes and where is Jorgenson’s original work? At the Fairtax groups site, it was said that this data has not been publicly disclosed. Without full release and given the funding of Fairtax.org by corporations who stand to gain in the $trillions, BUYER BEWARE.

With respect to the taxes on that truck, we can go through the formula in HR 25 step by step, which would show the tax on a $30,000 sticker price to be $9,000. The 23% fair tax of $9000 comes from dividing said tax by the price plus the amount of the tax, or $39,000. YOU ARE WRONG. Prebates are totally extraneous to the issue, as even the Fairtax site says that the prebates are to cover tax on the “necessities of life.” A new truck is a durable good.

ActionAmerica…….As an IT professional, the Fairtax should scare you out of your wits. Business is totally exempt and even if it were taxed, services provided in Bangalore, India won’t be charging the tax. So you would be looking at giving outsourcers a 30% advantage, even if your wages are the same. Think again, if you expect that the Indians will collect the Fairtax and remit it.

The incentive to use foreign made components increases because there is a 30% penalty on top of any wage differential, meaning industries that are close to being competitive lose out. For example, a $1 per hour price advantage becomes a $1.30 advantage for a foreign import.

As far as the cascading effects of mulitple tiers of transactions prior to final sale, I see no evidence that these embedded taxes are more than 15%. This is born out by Boortz, who admits now that the embedded tax analysis included BOTH employer and employee SS taxes. This means that either the “100% of paycheck claim” is false (one gets 92.35% of paycheck) or the embedded tax figure is MUCH lower.

Half of my expertise is in multiple tiers of contracts and I cannot accept the 25% embedded tax figure without substantiation, which is what the Fairtaxers wish me to do.

How much embedded US taxes are there in a Chinese import at Wal-mart? Surely not 25%!

Vertical integration, industry consolidation, and manufacture via US assembly of foreign-made components are trends that invalidate the notion of multiple tiers of compounding tax costs that rise to 25%.

As for the silly notion that there will be no record-keeping or tax audits, the fairtaxers are ignorant of the FACT that the Fairtax clearly requires the consumers to keep records and bear the burden of proof that the tax was paid. This is clearly in HR25 , as it is in the state sales tax laws.

The IRS will be replaced by state revenuers who ALREADY HAVE the power to audit individuals and to ESTIMATE sales tax liabilities in the absence of the required records. (States do not rountinely use these powers, but when 100% of the revenues of all 3 branches of government are their responsibility and with combined rates of more than 40%, these dynamics change radically.) Said powers have been tested and upheld by the GA Supreme Court.

Finally, the tax applies to rapidly inflating medical insurance costs, even premiums paid by employers. Where will that come from? Payroll deductions, is my bet.

Paying such high taxes on costs of medical care, utilties, and energy that may inflate at compound double digit rates, while one’s wages are increasing by low single digits is sheer insanity. Do a spreadsheet…..

Dougie……you speak as if the Fairtax applies to all final consumption and under state sales/use tax laws it does, even when business is the final consumer. Not so the Fairtax, which provides for blanket exemption of business purchases, irrespective of whether such costs are directly used in production or not.

The impact on local government is quite astounding. The cost of financing for them is lowered by the income-tax exempt treatment of muni bonds to their holders, affording a 25 to 30% advantage. These savings go away with the fairtax, so that locals and states would have to compete on an interest rate basis with the federal government and corps. Alas, the states and local governments have no printing presses, so their rates would be higher. The notion that rates go down is an unsubstantiated fiction.

Thats all for now.

I still think that “con job” fits.

AV-

Lessee, where to start……

IT wages in the US are several times higher than those in India and China, so the embedded taxes in the cost of their services is rendered insignificant.

Most IT work, and indeed MOST Computer Assisted Design Work, is done over the internet these days. Of course, if the end user in the US is a biz, they are exempt from the FT and this poiint is moot. However, if it is a TAXABLE service and the provider is in Bangalore, there is no enforcement mechanism for collecting the FT from the seller. This is the situation the states have in collecting sales tax on online services.

This brings up a secoind point – that of the displaced 125,000 IRS agents. Those folks will be the happiest people on the planet, because they get an IRS pension and can immediately go to work for the state revenue agencies auditing for the USE TAX aspects fo the FT under state laws and HR25, itself. They will be doing the same intrusive audits that they currently perform.

The price differential of imported items is magnified if the embedded US tax savings do not offset the price advantage. Bear in mind that consumers will be paying a combined federal and state FT of at least 40% on top of whatever the purchase price for electric utilities, water, gas, sewer, food, medical expenses, hair cuts, vacations, virtually everything that they buy. This will mean a 40% penalty on discretionary purchases and a 40% penalty on paying any higher price. It forces people to look for items made with 50 cents an hour Chinese labor versus $15.00 and hour American labor.

As far as the embeded taxes being 25%, to my knowledge there has not been any analysis published, while IRS stats indicate that these taxes might be 12%.

The formula for the FT rate allows for increases as required by social security and medicare. All available analyses show these costs exploding in future years, which means that SS will either be cut of the FT rate will explode.

I work in SALES TAX ONLY. My work is not threatened by the FT. IN fact, I have strategies to thrive under it. I just know for a fact that the average Joe and Jane won’t come out ahead.

The FT will never happen because there is no way on earth a poltician can run on a tax that puts a 40% tax on top of the cost of nursing home care, while yielding immediate tax forgiveness of $40 billion for big oil.

The effects of the FT on local governments are even more disastrous. First, they lose 25 to 30% savings on financing costs from elimination of the tax exempt status of their bonds. They have to charge their constitutents a combined 40%-plus tax on fire, water, sewer, stormwater, and other services. Failing that, they are the end consumer and have to pay the 30%- 35% (per Linder 12/05) federal tax on items for which they are the end consumer…i.e library books, computers, administrative purchases. Local and state governments, especially in Georigia, have come to depend on sales tax revenues that will then be competing with federal sales tax, with the astronomical tax rates driving down tax collections.

I cannot imagine any state or local official even dreaming of supporting such a suicidal measure.

Sorry to disagree with your wife, but the Fortune 500’s I worked for would never spend that much money on tax compliance. One of the biggest deceptions about this nutty tax is that its proponents like to attribute the costs of entire accounting systems to tax compliance, when the bulk of the effort is required for financial and cost accounting. Those costs are totally unaffected by the FT.

We need a FLAT tax. The fair tax is so loony that a Republican Presidential Commission on Tax Reform – one that was biased in favor of a consumption tax – could not bring itself to recommend it.

The Wall Street and corporate manipulators who hatched the FT have one thing right from their focus groups and that is that the public can be seduced into just about anything as long as they are promised “100% of your paycheck.”

“whatever happened to the idea of a flattax??”

It became overinflated and transformed into a GREAT tax.

Alas, key cocktail napkins were lost, and that, as Paul Harvey would say “is the rest of the story.”

Dougiefresh has gone stale….