Fair Tax Revisited

Quite some time ago I wrote a post concerning the Fair Tax and how I thought it would aid in not only in rescuing the economy, but how I thought it would help to curb corruption in the halls of government. In that post I reviewed my understanding of the Fair Tax and just how it would rescue our economy. Imagine my surprise when I actually received a comment from someone named Dutchman 3 (Fair Tax Skeptic). He argued the following:

Using the 2007 data in the Kotlikoff/BHI study about what Fairtax rate would work, with retail sales of $9.5 trillion, businesses paid $291 billion in income taxes or 3% of sales; businesses paid $435 billion in FICA or 4.5% of sales; and businesses paid $265 billion in compliance costs or 2.5% of sales. Add them up and, if you agree that businesses can't save more than they paid in tax related costs, then businesses might reduce costs by 10%. Add the 30% sales tax to their costs and retail prices will rise by 17%. (1.00 x .9 x 1.30 = 1.17). Simple math. And, please note that retail merchants have to add 30%, not 23%, to their costs in order to arrive at a 23% inclusive price.

In a nutshell, Dutchman 3 argues against the Fair Tax folks, who claim that on average 23% of the retail selling price of goods and services is made up of direct and indirect tax costs. Dutchman 3 asserts that at most, 10% of any particular retail could be saved through implementing the Fair Tax and that the Fair Tax is actually 30%, not 23%. Obviously Dutchman 3 is very articulate in his criticism and utilizes Fair Tax research in his critique. I've given Dutchman 3's rebuke of the Fair Tax quite a bit of thought and after some time came back to consider his argument.

In this response, I won't argue with Dutchman 3's numbers, rather I will use them to demonstrate that even when one considers that 10% of the average retail today is due to tax burdens rather than the 23% the Fair Tax uses, that the Fair Tax is still the way to go.

So, let's consider a product today that retails today for $100.00 and the gross margin associated with that item is 30% or $30.00, and therefore the cost of that product is $70.00. Per Dutchman 3, the tax burden of that $100.00 retail is $10.00, not $23.00 as the Fair Tax would suggest.

Well then, let's implement the Dutchman 3's Fair Tax savings of $10.00 and see what happens. Rather than a cost of 70.00, the new cost to the retailer is $60.00 ($70.00 - $10.00 tax savings = $60.00 post Fair Tax Cost). Now let's mark that $60.00 item up to generate a 30% gross profit as before. ($60.00/.70 = $85.71 retail), add the 23% Fair Tax ($85.71 + 23% Fair Tax = $85.71 + $19.71= a total Fair Tax retail of $105.43). The new retail is only 5.43% higher than the original retail of $100.00 and that is using Dutchman 3's tax savings of 10%.

Now I don't know about you, but if I could tell someone making Sixty Grand today that they would take home approximately $300.00 more per week ($1,200 more per month) with the Fair Tax; a 39% increase in take home pay given a 28% tax bracket, but that they may have to pay $105.00 for something that costs $100.00 today; do you think they would think that a good deal? Oh and that is only if that item is new, if it is used, there is no tax.

No matter how you slice it, I think the Fair Tax is the way to go.

Tone Deaf?

I just received my latest letter from the NRSC (National Republican Senatorial Committee) urgently asking for donation for the 2010 elections. Thing is; I don't know that they deserve it.

I watched Fox News with Chris Wallace this past Sunday as he interviewed the Chairman of the NRSC, John Cornyn. In this interview Chris Wallace asked some general questions about the Tea Party Movement and noted that it seemed that members of the Tea Party were not just dismayed with Democrats, but with Republicans as well, and he asked Senator Cornyn what the Senator thought of that.

Senator Cornyn's answer was predictable; he thought that the Republicans should listen to what those that make up the Tea Party movement have to say. Well to that I say just when is that going to happen? When are Republicans in power actually going to stand up and demonstrate with deeds, and not just words that they "get it" because I don't think that they really do just yet.

Just go to the NRSC's website www.nrsc.org and see for yourself. It's pretty easy to see who they support by state. Click on Illinois and you see a picture and bio of Mark Kirk, the same Mark Kirk that voted for both Cap and Trade and the Stimulus as a Congressman. There is no mention of Patrick Hughes; he seems to be against both of those pieces of legislation. Click on the state of Florida and you see Charlie Crist, the same Charlie Crist that was for the stimulus and traveled the state with Mr. Obama in support of that legislation. There is no mention of Mark Rubio, the same Mark Rubio that has Tea Party Movement Support in Florida.

Senator Cornyn said that each state should let their primaries play out to get the best Republican for office. If that is the case, why is it that neither Patrick Huges nor Mark Rubio are mentioned on the NRSC site? I see this as further evidence that Republican leaders truly don't get it yet. If the NRSC is not going to vet candidates to gauge their views properly, you can rest assured that the those in the Tea Party movement will.

Until I see true Republican Support of true conservatives, the NRSC will not see one dime of my money.