Back to the $1 loaf of bread...
The grocer can lower the price by the embedded tax, so can the baker, so can the flour mill and the yeast factory, the farmer, and the seed company also drop their prices by the embedded taxes. Oh and all the transportation steps from farm to mill to bakery to store, these also cut prices by their respective slice of the embedded tax. And what else the electricity for lights & ovens & grinders & silos & conveyors... they drop by the embedded tax too.
What I'm trying to convey only partially is called fan-out. Each step in the process from store, to bakery, to flour mill, to wheat farm, to grain seed has suppliers that also have suppliers.
Every supplier in this chain pays taxes on their labor and their profits. The mathematicians have developed a simple way to tally up all the contributions from a single point in the chain; calculus comes to our aid allowing us to sum all the contributions from a long and expanding supply chain.
Believe it or not, this stuff is taught in every Econ 101 class; it's up to the student to learn it.
So Mark did get it partially correct on the 1st step. The grocer saves the 6% soc sec contribution match. But then his public school education failed him... The grocer's cost of labor just dropped 6%.
Let's look at his cost of a loaf... Since the baker also gained a 6% labor cost cut the price of the loafs also dropped by some portion too (hint: it's less than 6% so far, but be patient) So did all his other costs, like bags, twine, cash register tape, shopping cart wheels... *everything*
So the grocer's operating expenses have now taken a significant dip. If he's greedy he could try to keep his price the same and make more profit, but news spreads fast! Competition will force the prices down to the point where the profits are back to what they were. Plenty of data and precedent to support this.
Now the government isn't gonna let the world operate tax free, so in their own interest they're gonna slap a tax on tho keep their appetites satisfied. So they all but say, *WE* want the difference between what you saved and the old price of $1. So the price stays the same and the gumming gets their revenue. The point of collection is the retail vendor, the tax is buried in the retail price, still, but because it's all lumped in in one place it's really easy to identify. That's the supply chain part of the story...
Let's see what happens after all that supply chain dust settles...
The grocer also saves the income tax on his profit, let's say the grocer makes $0.10 profit and his income tax rate is 20%. Just like the supply chain for goods, the grocer is paying for the tax on the profits of his suppliers. It's another ripple back, each supplier has suppliers...
Again, there isn't much argument here as to whether or not the effects of a price put downstream will exist or not. We all seem to recognize they will. (there are a few who still don't get the "embedded vs. inclusive/exclusive" and think that the $1 loaf will cost a $1.30, but they're just too stupid to endure)
When we consider the income tax as just another $0.02 in the series of cost reductions, we see that the price of the $1.00 loaf of bread is still $1.00, it's just that we're starting to see how the gov takes it's cut.
Finally, let's look at the controversial issue of "keeping what you earn". First, if you think you do now, you're just plain foolish! Let's examine SocSec. 6% of what you "earn" is lifted from your paycheck. You don't get it! So we can move that from the Income tax policy to the FairTax policy without any argument. If you don't like it, fight the law today as it exists... write us from jail.
So in one paragraph we just decreased the nations labor cost by another 6%, and since most folks never reach the SocSec cap, arguing the point is moot.
Next item on the block for transfer from Income tax to FairTax: Medicare ~2% So between the first two social taxes we've knocked 14% off the cost of labor for every link in the chain.
The items identified thus far are what are referred to an non-controversial. You may not like the SocSec or Medicare taxes moving from the Income to the FairTax side via employers, but it really makes zero difference (unless you're already cheating on your taxes).
The linchpin issue for many opponents is the FICA. Employers withhold part of your earnings and send them to the IRS as a courtesy. (some courtesy, it's the law) You file taxes on what you earn on April 15. Depending on what your taxes really are you may see a change in your "wages" but since we've already shown those 'wages' to be fictional you should keep reading.
Let's look at the 'normal' worker, we'll come back and look at extraordinary & unusual situations later. Each week FICA withholds from 0% to 28% of your fictitious 'gross pay' we'll use 15% from now on... so every week you live on 71% of your gross pay or your "net pay".
The folks that had their withholding correct, well they're gonna see the same paycheck next week that they saw last week. For these folks the issue is a pass.
Now some folks count on that refund check every year, which means their net pay really should have been a little more than it was. Take last years 1040 to HR, and you get an instant raise in take home pay!
Other folks actually windup having to send Uncle Sam a check because they owe more than they had withheld. The upside for them is that they won't be paying those Income taxes any more, but in fairness the employer might feel that they're some room for redress. Some folks claim 20 exemptions and they really shouldn't. These folks might get called into HR and have their wages audited to correct or offset their withholding to the proper level. Before you get all angry, it's not the employers responsibility to absorb the tax liability the guy had for other income. He's paying a wage for work. It's a negotiation at this point. The employer was incurring all the costs for compliance in the past and is now fighting to reduce his cost of labor in a new competitive market. The worker was under-withholding in one place to offset another. The workers change in tax & pay goes away. While I'm not real fond of this outcome it doesn't effect many people, in fact it probably only effects those with considerable assets that generate taxable income. (That should make wealth envier's happy.)
Finally regarding salaries... If' you've been paying attention to this point, the two taxes SocSec & Medicare cut the labor rate by 14% -- I'll look ahead a bit to try to help those without calculus. Our target is 23% that means the employer & the workers could split the difference, we said the FICA was 15%, so the employer could give the average worker a 6% take home pay raise and still meet the 23% reduction of labor costs.
Now whether the worker got a pass/push, a raise, or an offset, they're also gonna get the Prebate under the FairTax, so they'll have some extra $$$ in their checkbook every month. And I hope no one lost tract of the fact that the price of goods (as exemplified buy the loaf of bread) hasn't changed.
There's one more item in the supply chain that helps to reduce costs, all those B2B suppliers that have tax-accounting divisions, can shed that overhead. That's hundreds of billions of dollars of wasted effort that can be redirected into productive efforts instead of useless compliance.
Now at this point, unless you have some calculus, you will simply fail to comprehend the rest. The effect of all these cuts in expenses down the chain add up. Guess what they add up to??? Yup 23% After all that, the new cost of a loaf of bread will be $0.77, the new price of the loaf will be the same as the old price $1.00 What opponents fail to understand is that in the deepest way a car is no different from a loaf, just bigger. Every part from windshield wiper vane, to air conditioner belt, has a supply chain, and each and every one of those components is going to be 23% cheaper! And since they're being sold to businesses, there's none of that silly VAT like our EU competitors have to comply with.
Anyone that's seen my writings (in other fora) knows how opposed to gummint controls I am. The under-withholders issue was painful for me to acknowledge, but it represents a necessary albeit slight evil. And if the difference is less than the 6% window, I can live guilt-free with that.
When I was first introduced to the notion of a 23% 'sales tax', I was incredulous. I thought it was the most foolish thing I'd heard in a long time. As I came to understand it, to research it, I came to realize that with proper execution it would transform the economy in wonderful ways. It's important to realize that 50 years ago the critics would have been correct! Trying to implement the FairTax with 'books' would be impossible; with 'computers' it becomes trivial.
So I make another call to action. Learn people! Try to understand. Put prejudice behind you and study the FairTax on its merit. We live in the 21st century, stop thinking like 19th century farmers.
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Despite attempts to engage the boy, Mark, continues his clueless ramblings against the FairTax. Why? The only logical conclusion is that he has an agenda... but that conclusion supposes that there is some comprehension, some intelligence. Sadly, that seems to be lacking.
Why the ad hominum attack? Sorry, but sometimes you just *want* to shoot the messenger!
When logic fails and there is simply no point in arguing, the person that continues to spout nonsensical positions becomes a source of annoyance.
I'm sure Mark was educated in the public schools by teachers that continuously told him that his opinions were valuable and that despite being wrong he should continue to express them. It was good for his self esteem.
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July 14, 2008 
