Why Are The Big Retailers Afraid of the FAIRtax?
All of the big retailers agree that the following things are desirable:
• More money in shopper’s pockets
• More higher paying U.S. jobs and job security
• Growing economy
• Lower prices
Because the FAIRtax does not “pre-tax” consumption like the existing income and payroll taxes do, the shoppers go to the store with not 65% to 75% of their earnings to spend because of withholding, but with 100% of their paycheck except for any state deductions.
This means that they have more money in their pockets to use to consume. More money to spend is what the big retailers want.
But Won’t the Prices Be Higher?
Yes, the imposition of the 23% FAIRtax will increase the prices of goods, but by how much?
Most products that we purchase are made up of parts from other manufacturers. It is basic economics that if a business is to stay in business it will have to sell its products for more than it costs to produce them.
One of those costs is the cost of labor. Under the present payroll tax system, the employer’s employee costs are increased by the employer’s need to pay 7.65% on top of each of his employee’s wages. This payroll tax is a cost of the employer. For example, if the cost of the $1.00 product included $.30 of wages, the price would have to be increased by $.30 x 7.65% or $.023 to pay the payroll tax.
Another cost is not as easily seen. A company has to increase the prices of its products by enough to pay their costs and their federal income tax and still have a profit.
For example, if a product costs a dollar to produce, your tax rate is 10% and you want to make a $.10 profit, you could not increase the price to $1.10 because the tax would be $.11 and your profit would only be $.09. You would have to increase your selling price to $1.12 to net the $.10 profit. These increases all add up to mean the final price to the consumer is higher than the price would be without the federal income tax.
In addition, if the cost of the product includes the payment of U.S. wages, the cost will need to be increased because 7.65% of the wages must be paid by the employer in payroll taxes.
While these increases may not seem high in one instance, you have to consider how many people contributed to the production of the product. It is not just the company that produced the product that had to increase their costs, but it is also all of the companies and people that contributed to the product but were not directly in the line of production.
The delivery people have to increase their prices because of federal income and payroll taxes. This increases the cost charged to the manufacturing company which increases their cost of making the product.
While no one knows just how much the prices of goods and services will be driven down by competition, it is safely estimated to be at least 10%. This means that prices charged by stores will likely be 10% lower.
How Does This Affect Spending
If people are comfortable about their jobs and their future, they more freely spend for items that are not considered essential. Because of the economic growth created by the FAIRtax, people are going to be feeling more confident and will see their real wages increase.
According to data from the U.S. Census, the median income in the U.S. is $50,502. If a family of four earns $50,502, they will pay approximately $1,500 in federal income taxes and $3,863 in Social Security taxes for a total of $5,353. This means that they only have $45,139 remaining after federal taxes.
If the family spent every dime it made on new goods and services, they would be able to purchase $45,139 of goods and services under the present system.
When the FAIRtax is enacted, the family of four making $50,502 receives a prebate of $7,328 to cover the tax owed on the first $31,860 of spending on new goods and services. This means that the family has $57,830 to use for consumption.
Under the FAIRtax, if we assume that the prices are going to increase not 23% but 13%, for the family to make the same $45,139 of purchases of new goods and services, it will have to spend $51,007. However, the family now has $57,830, which means that it has an additional $6,823 to spend. After accounting for the 13% of added cost due to the FAIRtax, the family will have an additional $5,936 for the purchase of items for their family. This results in an 11% increase in their ability to consume and a resulting 11% increase in their quality of life.
Many of the large retailers have carved out various income tax benefits and believe that it is better to have the “devil that they know”, the present income and payroll tax system, than the “devil that they don’t know”—the FAIRtax.
This attitude may make sense for short term profits, but if this attitude toward progress prevailed, mankind would still be living in caves. We need to continue to explain our big solution and we will win.
December D.C. Trip
Peggy’s report last week showed why we are all excited about the prospects for real tax reform and that the FAIRtax will at last have the attention it deserves.
To those of you not familiar with the 1040 Club, AFFT is asking people to contribute $10.40 per month to AFFT. This provides a steady funding platform and allows us to spend our time not trying to raise money but actually working with groups to help make passage of the FAIRtax a reality. Thanks to each of you who have joined the 1040 Club. You are ensuring that Americans For Fair Taxation can continue to promote the FAIRtax.
If you are not a member of the 1040 Club, or if you are a member but want to join for someone else, please go to this link and sign up.
FAIRtax Power Radio
Whether you’re a FAIRtax volunteer or an informed citizen who wishes to be better informed, we encourage you to listen to FAIRtax Power Radio, the online radio show that is available when you are. Bob and Ron just finished a series of three episodes in which they discuss criticisms of the FAIRtax that we have all heard over the years. This series is episodes 20, 21 & 22 and can be heard on SoundCloud (which is FREE) at these links:
FTPR 20 http://bit.ly/1h2R4pO
FTPR 21 http://bit.ly/1NX8Qrs
FTPR 22 http://bit.ly/1M4NwlE
AFFT National LOGO Store and Scrolling Signs
The AFFT national store is running a Thanksgiving special. They are offering not only great prices but free shipping and handling through November 30th. They are also offering many discounts on items that you will find very useful in promoting the FAIRtax. Here is a link to the very popular palm card.
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