Cafeoutdoors.com: Taxes

It wouldn't be worse, in fact much better. More-less this came from a book called "Fair Tax Plan, a way to abolish the IRS" It was written by Congressman John Linder and Neil Boartz. It would simply turn the tax world on end and it wouldn't raise taxes at the end of the day. It is a consumption tax. The more you buy, then obviously the more tax you pay. (Only on new items, not used, buy a used car for $5,000 and you don't pay a penny in taxes.) The reason the tax wouldn't raise is two fold. There would be NO income tax, yup you keep all your money, no FICA no nothing, secondly you as a consumer are already paying the taxes. Business, in essence doesn't pay taxes, they only pass the taxes through. (Business will make the same margin no matter what the taxes are because taxes are the same for all competitors, it is not a function of productivity.) Business adds the cost of the tax to the final goods, which is argued in the book to be the same as the 20-23% that they say would be the fair consumption tax. More less tit for tat. (The passed through taxes on goods are called imbedded taxes.) On top of this it would help US businesses and US jobs. We don't tax imports like other countries tax our exports to them. This would simply put China and Japan on the same playing field as the US. They get a 20% consumption tax the same as a US manufacturer. (Remeber they don't have the US imbedded taxes, but in fact tax breaks from their own government to them for selling exports to us.) Add 20% to the cost of their goods and see who's economy will boost. The final cost of US goods would go down roughly 20% due to the loss of the embedded taxes and the nature of competition. Say Budweiser and Coors sell a 12 pack for $10 and are making $5 on each. All of a sudden they make $2 more because the inbeded cost burden is taken away. Now they are making $7 on a $10 item. To increase business and keep the stockholders happy, Coors will reduce their price $2 in hopes to increase market share because they are happy with the $5 of profit they previously made on a $10 item. (50% margin is good) When Budweiser sees this they will obviously not want to lose market share, lose their economy of scale and eventually the bottom line so they too will reduce the price by the same amount as the imbedded tax to stay profitable and competitve. There is obviously more to it than this simple explanation but it is a book that is definaltely worth the read. Sorry for the E-Con lesson.

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