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    Hammer Scenario By Dan Borowicz

    August 1st, 2014 by HR25 Fair Tax Review   |   1 Comment

    HammerScenario

    Dan Borowic

    One Response

    1. Ed Sarlls says:

      I have a couple of points for clarification to your readers of this article. 1) The “22% out”, while not identified in this posting, goes back to a 1998 Dale Jorgensen study of all taxation and included payroll taxes and income taxes paid by employees. To remove this entire “22% embedded tax”, the employee take home pay would have to stay the same as after tax income today. I don’t believe that would be acceptable to many employees, who expect to take home their current gross pay under the FairTax.
      2) There are other operating cost reductions due to the FairTax that are not included in the Jorgensen study and are not specifically mentioned above. These include: a) Operating efficiency because operations decisions are not biased by tax implications, and b) Reduced tax accounting needs.
      3) Each business will balance how they adjust to the reduced overhead under the FairTax. The Transitional Inventory Credit starts off FairTax inclusive retail prices at the same level as current retail prices by rebating the FairTax to producers for items produced under the Income Tax. This prevents double taxation for existing inventory and promotes a smooth retail transition. After that the reduced overhead will be divided between a) higher wages, b) lower prices, and c) retained earnings (stock value, reduced debt, capital investment). Just as today, the balance of these areas differs by business and varies over time due to market conditions. In businesses with competition, the net profit margin will likely balance out about the same as today. Wal-Mart and Target will each constantly balance payroll and prices to optimize their return to investors.
      4) Because of these uncertainties, I expect tax exclusive FairTax retail prices to average about 10-15% less than today’s prices. This means the after FairTax price will be somewhat higher. This is balanced by higher take home wages (your entire gross pay), the Family Consumption Allowance, and the complete un-taxing of used goods, investments, and education.
      Thank you for producing these articles.

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