The real issue: Fairtax hasn’t really become a bipartisan or ideologically neutral proposal. I happen to like the simplicity and low overhead costs associate with fairtax. The thing is: we have a lot of rational, competent people out there that are concerned that Fairtax could make the problems of distribution of greater concentration of wealth/assets we’ve seen the last 30+ years in the US _worse_. Saying that isn’t going to happen-so it is nothing to worry about isn’t really going to cut it as game plan for those for whom that is a primary concern-or those wanting to be “centrist” politically.

The purpose of this message is to respectly request Mr. Eldridge and Mr. Gieson to present their proposals for federal taxation.

Best Regards,
Kerry

(a)‘(1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for a business purpose in a trade or business.
…
(b) Business Purposes- For purposes of this section, the term ‘purchased for a business purpose in a trade or business’ means purchased by a person engaged in a trade or business and used in that trade or business–‘(1) for resale,‘(2) to produce, provide, render, or sell taxable property or services, or‘(3) in furtherance of other bona fide business purposes.

To your second thought, you appear to be mixing gross pay and net pay. Spendable income under the current system is equivalent to net pay, not gross. If spendable income were to stay the same (although it’s more likely you would receive gross pay), costs would drop due to the removal of tax costs, which would have the effect of maintaining the same approximately after tax prices (costs go down, prices stay the same after the tax component is added). There is “savings” to consumer – the tax burden is still maintained. There is no windfall when replacing one tax system with another. I expect you’re confusing cost savings that reduces pre-tax cost, with post tax prices, which would remain consistent in that scenario.

The prebate is not based on income, it’s based on family size and would be available to all legal residents of the U.S. It is there in order to untax spending up to the poverty level for all and add progressivity to a consumption tax. It is equivalent to a flat tax with a standard deduction.

You sell a house for what the market will take for it, which includes a tax component as one of the factors of production. I don’t get your example of taxing your home equaling double taxation because you purchase other taxable items. All new retail consumption and services is taxed once. Whether you pay it off on day one, or extend the payment for many years, it makes no difference. You yourself put a claim on future income when you purchase a home and accept the payment of the mortgage – tax is just one component of that cost (as it is today – this plan just makes it visible).

First if taxes on B2B transactions are really not going to happen. They claim there will be none. I do not question their intentions they want none. I claim there is nothing in the bill that permanently identifies and exempts B2B transactions.

This is important because of the supply chain issue. The FT bill makes it clear that once an item is identified as such – a shirt – it will be taxed only once. This is clear. But the supply chain has companies that make items that go into the shirt but are not the shirt. There is nothing in the law that shows those companies will not have to charge a tax. There are lots of statements by advocates they don’t want to, but there is nothing in the law that identifies how a company is registered as exempt from charging a tax,

Second – Price Neutral. The argument of the advocates of the FT is that because companies in the supply chain and their employees pay no federal income or payroll tax, that there is a tax component in the price that we can expect will go away.

Oh no we can’t. The largest component are the employee income and payroll tax. But those employees will have to pay a 25% fair tax on anything they buy. They will not be able to afford a cut in pay.

More evidence of this brings us to another bit of dishonesty. All these employees will be getting a prebate. First, if they need a prebate they certainly will not be able to afford a cut in pay. You can’t advocate swapping a sales tax for an income tax and then say the savings from the elimination of the income tax will be passed as a cost savings, unless you also eliminate the sales tax.

Last point of the prebate. Why is it there? The reasons for a thing is usually not the justifications offered. The prebate is justified for the poor among us when actually a lot of the middle will need it so they won’t be behind the 8 ball.

Philosophical Issues
The advocates say that current prices have a tax component. Are they saying that will end? I go into the market and look today to buy a $400,000 house. Under the FT the house is $500,000. I live in the house for twenty years and sell it. What price do I get? Forgetting appreciation or depreciation. Do I get $400,000 or $500,000. If I get $500,000 then $100,000 in tax is being passed on each time the house subsequently is sold.

Advocates say there is no double taxation. If I buy that $500,000 house I pay the tax of $100,000 out of twenty years. In each of those twenty years income I also need the income to pay the sales tax on anything I buy. Is this not taxing my money twice?

Under our current tax regime I pay income tax on my income for the year after which I never pay income taxes on that money again. The Fair Tax puts claim on all future income as a result on an expense in any single year.

Well I suppose some people would try to make up the difference by going further into debt. That happens today with a large percentage of the population. In fact, even some sacrifice non-discretionary things for discretionary. Or vote to get the government to give them more.

But yes, Q may likely go down some and I suspect so would V if people are being more careful with their spending.

Sorry, i meant Q, not V.

In countering the argument that prices can go up ONLY if the fed accomodates, my point was that even if the fed does not expand the money supply (with the FT’s price rise) that people have not only their raises from Income-P/R tax reductions, but if they still experience a cash shortfall, they would reduces discretionary spending in order to fund the higher cost of their necessities – thus,the fed need not accomodate.

Would not a sharp drop in consumer confidence cause Q (the volume of transactions) to contract without regard to M?

I’m not sure I follow what drives people to go from discretionary to non-discretionary (or the other way around) in your scenario. Certainly, if the same dollar gets spent 10 times more often this year than it did last year, prices will go up (if M and Q did not change).
I think the equation, while simple to look at and explain, is misleading. The problem is that V is not truly independent of M and i’m not sure if any of the others are either. I would expect one to be the dependent variable. The equation is an attempt to simplify an extremely complex set of factors in an economy. V will change for a number of reasons (some predictable, some not). If it does, some other parameter in the equation must change (or maybe all 3 others do).
Perhaps the theory is not so good for looking at the short term…..maybe the short term is driven more by current day emotions…..much like the stock market.

Having passed Econ 101 SOLELY because they graded on a curve (20 = a D), your comments make sense to me.

It appears to me that your explanation of V encompasses my practical point that people will shift from discretionary to non-discretionary spending. Do you agree?

re: “I recall the time tested formula MV=PQ, where Prices can only rise if Money increases. ”
Did you fail Econ 101? Oh wait, maybe they taught that in Econ 101, but that result doesn’t fit mathematically.

According to: http://www.investopedia.com/articles/05/010705.asp#axzz1zDqamKQ9

P (average price level) can go up if the money supply, M, increases, or if the velocity of circulation of money (V) increase or if the volume of Transactions of Goods and Services (Q) decreases.
One common assumption is that in the short term, V and Q are constant. But not everyone agrees with that assumption. The arguments point out that the velocity of circulation depends on consumer and business spending impulses, which cannot be constant.