Fair Tax Nation

Replace All Federal Taxes on Income with the Fair Tax Act , HR 25 and S 122

Questions Regarding an article someone referred me to.

A friend sent me alink to a CNN Money article about The Fair Tax. There is a section at the end of the article which addresses embedded taxes. I would like some feedback on this.

Here is the section:

Part of the problem is the way Boortz and Linder are using the idea of embedded taxes. In an eight-year-old study paid for by AFFT, Harvard economist Dale Jorgenson noted that because the taxes paid by everyone in the chain of production are embedded in the cost of goods, prices could decline an average of 20 percent if all those taxes were scrapped. The FairTax Book devotes an entire chapter to this idea.

What The FairTax Book fails to mention is that prices can only fall this sharply if companies cut wages. I asked Jorgenson about this, and he agreed. Say your salary is $100,000 a year today, but you take home $80,000 after taxes.

Your company is still paying that extra $20,000. In a FairTax world, it will save that money, and be able to lower its prices accordingly, only if it can reduce your salary to $80,000. In other words, your take-home pay is the same as before. Sure, you'd get to "keep 100 percent of your paycheck," as Boortz and Linder repeatedly write, but it would be a smaller paycheck. That's kind of a big thing to leave out.

here is the link:

http://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/

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Comment by Craig Robertson on February 28, 2009 at 9:52pm
Interesting point, but I think it might be misleading. Employers still have to match the payroll tax portion (currently 7.65%). (That portion is a company "overhead" cost, and is not taken from an employee's paycheck.) And that applies all the way up the production chain. All sellers of goods and services (whether businesses or individuals) also have to pay income taxes. They also have to pay the costs associated with compliance with the tax code, and spend resources planning how to allocate capital as it relates to the tax consequences. Even if it doesn't work out to a 20% reduction in cost, prices are still going to go down. And people will be able to shop with 100% of their paycheck.

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