Do the Math…Fair tax

Neal Boortz, conservative radio host, who pretty much wrote the bible on the fair tax shows why its foolish to get policy ideas from conservative talk radio hosts:

We really do hate to break it to the editorial board at the Wall Street Journal, but the simple fact of the matter is that the FairTax is not calculated like other sales taxes. The FairTax is included in the price, not added on top of the price. Perhaps the board would be less inclined to misstate the terms of the FairTax if they actually read the book or H.R. 25, but we’re patient people, so we’ll explain this one more time:

(a) Current state sales taxes: You look at the item on the shelf. The item is priced at $100.00. You take that item to the cashier. The cashier adds the state sales tax to the $100. If that sales tax is 7 percent, you pay $107, take your receipt and walk out.

(b) FairTax: You look at the item on the shelf. The item is priced at $100. You take the item to the cashier. The cashier asks you for $100. You pay your $100, take your receipt and walk out. You look at the receipt. The receipt tells you that 23 percent of the $100 you paid for that item is the FairTax and will be forwarded to the federal government. You call upon your years of education and quickly calculate that $23 is 23 percent of $100

* sigh * …Neal, Neal, Neal. Do you really believe that business’ are going to eat the cost of taxes now that there’s a fair tax. If a retailer currently charges $100, where tax is exclude, the retailer will only INCREASE the price post fair tax. The Wall Street Journal points out:

So according to Boortz, under the current system, when you buy a $100 item, you pay $107, including sales tax. Under the fair tax, you’d pay $100–and you wouldn’t pay any taxes on your income either. It’s not just a free lunch, it’s a free dinner and a couple of free rounds of top-shelf booze!

Well, sorry to burst Boortz’s bubble. In reality, retailers are not going to reduce their prices to absorb the new tax. That means under the fair tax, you wouldn’t get a $100 item for $100. You’d get a $77 item, on which you’d pay $23, or 29.9%, in federal tax.

And you would actually pay more than $100. The fair tax doesn’t do away with state sales taxes, so that in Boortz’s hypothetical example, you’d pay either $5.39 or $7 additionally (depending on whether the basis is the after-tax price or the actual value of the item) on the $77 item with the $100 price tag. That means the total tax on the $77 item would be either 36.9% ($28.39) or 39% ($30).

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2 thoughts on “Do the Math…Fair tax

  1. Correct. Retailers will not lower there prices. The will get out of their suppliers. The Walmarts and Costcos will demand that the corporate and payroll tax no longer paid be passed on the form of lower prices. I bet they’ll get it to.
    “That means under the fair tax, you wouldn’t get a $100 item for $100. You’d get a $77 item, on which you’d pay $23, or 29.9%, in federal tax.” Not sure I follow you. The $100 item under the fair tax still costs $100.? For the challenged, $77 + $23 = $100. hmm. Still cost $100 in my book. At least now I have the choice of paying $23 in sales tax. Now I just fork over the $23 up front to the gov for every $100 I earn. Now that is fair isn’t it?

  2. John

    If the fair tax requires a 30% tax to stay revenue neutral right now, meaning it brings in enough money to cover government expenditures. But the fair tax leads to MAJOR tax cuts for corporations, you do realize that we would have to substantially raise the fair tax rates right?

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