Fair Tax: Corporations or Consumers, Who Pays the Tax?
Who pays taxes? Great question. The common answers will be income earners, investors, and corporations. What if I told you that corporations don't really pay taxes? You would say I'm crazy right. Well call me crazy then but Nobel Prize winning economist Dr. Milton Friedman agrees with me. He stated in a President's Advisory Panel hearing for Federal Tax Reform on March 31, 2005 that, "[a]ll taxes ultimately-the consumers pay the taxes. Nobody else pays the taxes. Corporations don't pay taxes. The collect them, but they don't pay them."
Still think I'm crazy? Well here's why Dr. Friedman is correct in his assertion.
In every process of manufacturing corporations, companies, and etc. pay taxes on this things that they buy to produce their products. For example, consider some of the processes in making something as simple as cereal. First the grains must be grown by a farmer who pays for a harvesting machine, fertilizer, and pesticides. He pays taxes for everyone of the products that the previous manufacturer had to pay for the chemicals, metal, or plastics to create those products who likewise had to pay the taxes. After the product is harvested it has to go to the mill to get turned into a usable product and they add on their own tax burden into the final cost of their product. Finally, the cereal manufacturer creates the cereal, paying taxes on all the purchases they have made including the plastic bags and cardboard boxes. All these taxes get added up and passed onto YOU the consumer who buys that item.
In addition don't forget about the cost of the human element as well. Corporations must take into account the pay increase that will be required because of income, pay roll taxes, and their matching "contributions" for Social Security and Medicare. These all get added into the final price of that box of cereal, loaf of bread, or other products that you buy.
A Harvard study done by Dr. Dale Jorgenson concluded that 22% of the total cost of the item are these taxes that are added onto every step of the manufacturing process and then are graciously passed onto you. Great isn't it!
That means even those people who fall into a category where they pay no income taxes pay these taxes. Not to mention the fact that they don't take home their full paycheck each month making life even more difficult for them and unfair. On average about 25% of a paycheck is deducted due to income taxes. Don't forget to add on your contributions for Medicare and Social Security which in some cases mean that over 30% of your paycheck is never reaching your bank account.
Now let's take into account what the Fair Tax will do.
The Fair Tax as already stated is a national sales tax that will be added only onto the final purchase of a NEW product or service. The sales tax rate will be at 23%.
But wait, are price going to increase by 23%? The simple answer is no. Since corporations will no longer have taxes to pay or contributions to make towards Social Security or Medicare they will be able to decrease their prices on their products around 22% due to the embedded taxes that are currently added at each step of the process. Some corporations will try to maintain their prices at the current rate but as smaller companies who wish to be more competitive and gain traction versus larger entities, the larger entities will be forced to knock down their prices.
On average the price of products will only increase by a single percentage point. That is $.01 more for each dollar spent. This is now the time to come out and say that this is a plan to increase revenue for the government. Wrong! Don't forget that you will be receiving your entire paycheck with no taxes or contributions taken out. In addition you will be able to save and invest without penalty.
Finally, if you so desire you can cut back your spending and pay no taxes by spending only up to the poverty line. Why? Simple, every American citizen will receive a pre-bate each month through wire transfer to a credit or checking account or through a check covering the taxes on spending up to the poverty line.
The Fair Tax is totally voluntary, if you don't want to pay you can just save your money.
Look for more posts in the coming days and weeks about the Fair Tax.
Have questions or comments, please post a comment or send me an email to srk.sb6@gmail.com.
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To take action now go to changedc.org or visit fairtax.org to sign a petition that will be presented to our elected officials and political candidates on Tax Day 2008 (April 15th for those of you not in the know). Let your voice be heard. For more information or to see other ways you can join millions of other supporters around the country in spreading the message about the Fair Tax now, visit fairtax.org or pick up one of the two books written by Neal Boortz and Congressman John Linder that are listed in my "Try Reading Something" section.
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