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#31
06-29-2007, 09:35 PM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
This is a fallacy. Tourism represents only a small sliver of the financial transactions that go in and out of this country. You cannot conclude the net effect on our trade balance based on the possible effects of the FairTax on tourism. [/ QUOTE ] It should be (painfully) obvious that I was talking within the context of the tourism industry (you know, by the first two lines of the paragraph). Certain areas have built their economy around tourism and they can expect to be hurt significantly by the fair tax. [ QUOTE ] You're also forgetting that, while tourism may drop, foreign investment will rise as the US becomes a corporate tax haven. [/ QUOTE ] Investment will be encouraged in certain areas (those that can export their products and avoid the sales tax) and relatively speaking discouraged in others (those that cater to the American consumer). So we can expect a small segment of the population will benefit at the expense of the rest of the population. [ QUOTE ] You're ignoring that much of this 23% tax is already imbedded in the price of goods (because of corporate taxes that are passed on to the consumer). [/ QUOTE ] The "23%" tax rate is in reality a 30% tax rate. The 23% comes from a math trick where the final tax total is figured by taking the price of the good + the tax as the total price. IE a good costs 100$, taxes are 30$, the "tax rate" is figured by the dividing 30 by 130, instead of 30/100. My estimate of the price increases being in the 25-30% range is giving some credit to coporate tax rates. [ QUOTE ] The rate of evasion for current sales taxes (which, in TN for instance is approaching 10%) is much lower than for income taxes. [/ QUOTE ] Sales tax rates will increase to rates greater than income tax rates, we can be pretty sure that attempts to avoid those taxes will increase as the benefits for avoiding them increase. [ QUOTE ] These businesses are already doing this work for the collection of state sales taxes. Under the FairTax, state governments collect the federal sales tax at the same time they collect the state sales tax. The businesses operate more or less the same as far as tax collection and accounting go. [/ QUOTE ] If the federal government actually implemented a simple mechanism for figuring the taxes that was similar to what states use currently (or switched to) I will concede this point. However this is not SOP for large, bloated governments like the US. 
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#32
06-30-2007, 12:19 AM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
Certain areas have built their economy around tourism and they can expect to be hurt significantly by the fair tax. [/ QUOTE ] And certain other areas are now being hurt significantly by all other federal taxes. What's your point? [ QUOTE ] Investment will be encouraged in certain areas (those that can export their products and avoid the sales tax) and relatively speaking discouraged in others (those that cater to the American consumer). [/ QUOTE ] Why would investment by businesses catering to the American consumer (who would be getting to spend 100% of his paycheck rather than 66-85%) be discouraged? [ QUOTE ] The "23%" tax rate is in reality a 30% tax rate. The 23% comes from a math trick where the final tax total is figured by taking the price of the good + the tax as the total price. [/ QUOTE ] This "math trick" is done in order to accurately compare an income tax with a consumption tax. You have to quote both either inclusively or exclusively. An income tax rate of 33% (they way we usually express it) compares with a 23% inclusive sales tax. 33% of every dollar you earn goes to taxes, and 23% of every dollar you spend goes to taxes, respectively. Quoted exclusively (as you apparently wish to do) changes that same 33% inclusive income tax to a 50% exclusive tax. You must earn 50% more than the cost of an item to buy it. Under the fair tax, that 23% inclusive rate becomes just under 30%. You must earn 30% more than the cost of an item to buy it. 25% Inclusive Tax Rate (how the income tax AND the FairTax are normally quoted)  33% Exclusive Tax Rate (how state sales taxes are normally quoted)  Express it however you wish, but unless you express them both the same, you're being dishonest. [ QUOTE ] Sales tax rates will increase to rates greater than income tax rates, we can be pretty sure that attempts to avoid those taxes will increase as the benefits for avoiding them increase. [/ QUOTE ] Scores of people are already avoiding the income tax. People break the law. Who wouldda thunk? [ QUOTE ] [ QUOTE ] The businesses operate more or less the same as far as tax collection and accounting go. [/ QUOTE ]If the federal government actually implemented a simple mechanism for figuring the taxes that was similar to what states use currently (or switched to) I will concede this point. However this is not SOP for large, bloated governments like the US. [/ QUOTE ] Granted, but that's how the bill is written in its current form.
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#33
06-30-2007, 01:40 AM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
Why would investment by businesses catering to the American consumer (who would be getting to spend 100% of his paycheck rather than 66-85%) be discouraged? [/ QUOTE ] If you had a choice what business to invest in, which would you choose? A: One in which your product will have a 30% markup due to taxes once it leaves your warehouse B: One which doesn't have any markup due to taxes. [ QUOTE ] This "math trick" is done in order to accurately compare an income tax with a consumption tax. You have to quote both either inclusively or exclusively. [/ QUOTE ] The whole section of that post was to do with how much we would expect to see rices increase. When talking about the increase in prices you would expect the 30% number is the correct number to use. A $1 product having the new taxes added would end up being $1.30 (minus whatever the effect of corporate taxes are) NOT $1.23 (minus whatever the effect of corporate taxes are). [ QUOTE ] Scores of people are already avoiding the income tax. People break the law. Who wouldda thunk? [/ QUOTE ] The point was made in favor of the fair tax that we could get rid of the IRS and therefore save the cost of running the IRS. I simply pointed out that the incentive to cheat doesn't disappear, just shifts the costs of enforcement to different personal.
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#34
06-30-2007, 05:33 AM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
I'm surprised that more of the obvious consequences haven't been mentioned (perhaps they are in the Mises article). The first obvious one is that tourism will drop in the States. Foreign tourists would be double taxed (their income taxes at home and the sales taxes here) and it would become relatively much more expensive to travel here. Secondly now it will be cheaper for Americans to go abroad (relatively). Such a tax structure would discourage money flowing into america and encourage money flowing out. [/ QUOTE ] Damn, someone better let Florida know that they're killing their tourism.
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#35
06-30-2007, 07:42 AM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
[ QUOTE ] The first obvious one is that tourism will drop in the States. Foreign tourists would be double taxed (their income taxes at home and the sales taxes here) and it would become relatively much more expensive to travel here. Secondly now it will be cheaper for Americans to go abroad (relatively). Such a tax structure would discourage money flowing into america and encourage money flowing out. [/ QUOTE ] This is a fallacy. Tourism represents only a small sliver of the financial transactions that go in and out of this country. You cannot conclude the net effect on our trade balance based on the possible effects of the FairTax on tourism. [/ QUOTE ] Here's something I've been wondering about, tourism aside. Maybe you can help explain further: Example 1: U.K. resident wants to buy Widget "A" from either the USA or Canada, via mail order (or maybe via internet). USA has 23% sales tax, Canada doesn't. Next... Example 2: USA resident wants to buy Widget "B" from either the USA or Canada. Not being a local purchase, he buys via mail order (or maybe via internet). Widget "B" has 23% sales tax in USA, Canada doesn't have 23% sales tax... ...so won't this hurt USA consumer sales relative to other countries by A LOT?
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#36
07-01-2007, 07:41 PM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
If you had a choice what business to invest in, which would you choose? A: One in which your product will have a 30% markup due to taxes once it leaves your warehouse B: One which doesn't have any markup due to taxes. [/ QUOTE ] B isn't an option. You either have markup due to sales tax, or you have increased costs (which are essentially markups) due to corporate and capital-gains taxes combined with consumers whose purchasing power is also reduced by income taxes. [ QUOTE ] The whole section of that post was to do with how much we would expect to see rices increase. When talking about the increase in prices you would expect the 30% number is the correct number to use. A $1 product having the new taxes added would end up being $1.30 (minus whatever the effect of corporate taxes are) NOT $1.23 (minus whatever the effect of corporate taxes are). [/ QUOTE ] You're right, I was smoking crack when I wrote that one... The $1 item would be $1.30 if it included a 23% inclusive tax, not $1.23. The points remains, though, that the price of the item would not actually reach $1.30 because imbedded taxes would have been removed, and that calling it a 23% tax is accurate (not a "math trick") when comparing it to how we calculate our current income tax rates. [ QUOTE ] The point was made in favor of the fair tax that we could get rid of the IRS and therefore save the cost of running the IRS. I simply pointed out that the incentive to cheat doesn't disappear, just shifts the costs of enforcement to different personal. [/ QUOTE ] The cost of running the IRS doesn't come only from enforcement. Even if everyone obeyed the law, the cost of running the IRS (let alone complying with them) would still be enormous.
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#37
07-01-2007, 07:51 PM
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Re: The Fairtax and embedded taxes
[ QUOTE ]
Example 1: U.K. resident wants to buy Widget "A" from either the USA or Canada, via mail order (or maybe via internet). USA has 23% sales tax, Canada doesn't. Next... [/ QUOTE ] I might be wrong, but I don't think the federal sales taxes would be charged on sales ordered from overseas, much like state sales taxes aren't charnged when people order goods from out of state. Even if they are, see below. [ QUOTE ] Example 2: USA resident wants to buy Widget "B" from either the USA or Canada. Not being a local purchase, he buys via mail order (or maybe via internet). Widget "B" has 23% sales tax in USA, Canada doesn't have 23% sales tax... ...so won't this hurt USA consumer sales relative to other countries by A LOT? [/ QUOTE ] You're assuming Canada's widgets don't already have onerous taxes already imbedded in the price. The absense of any imbedded corporate taxes in the US should lower the base price of widgets relative to those in Canada, making the final prices comparable.
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