Question: I did some math. We believe that there is an embedded cost of 22% in the cost of everything that we buy. That means that by enacting the fair tax a $100 item would cost around $78. A Sales tax rate of 23% of that 78$ would leave the final price at $95.94. Thats a $4.06 drop in price even with the fair tax. Am I wrong?
This is an example used to explain the 23% tomato or 30% tomato. I did the math and here is the controversy. If you divide 77 dollars by 23 you get a round about percentage of tax of 30%. That ould be true if the tax was exclusive, meaning it is added to the price of the item, but sine the fair tax is inclusive the above sample that I gave should be true.
Allow me to better explain. If the cost of the item under the current tax code is 100$, removal of the embedded costs which is estamated at 22% would leave the price at 78$ without the tax. Multiply 78$ by .23 (23%) and you will get the amount of taxes collected to be $17.94 cents. Add 17.94 cents to 78$ and you get $95.94. Thats a $4.06 drop from the income based price of a 100$ or 4.06% price drop even with the Fair Tax.
Am I wrong?