The Hidden Tax Multiplier: How Federal Taxes Increase Prices for Consumers
When you purchase a loaf of bread, a shirt, an automobile, or almost any service, your receipt will show you the price you paid for each item, plus any applicable sales tax. Just about everyone believes that the tax shown on the receipt is the total amount of tax you paid on that transaction. Just about everyone is dead wrong.
Hidden in the price of every item you buy are the tax costs of every entity that had a hand in the production and distribution of that item. Those costs aren’t listed on your receipt, but they are there nonetheless.
One thing is certain--to stay in business, a business must recover their costs—including labor costs, the cost of material and taxes—through the prices they charge. If they can’t charge enough to cover their costs, they go out of business.
It is estimated that between 15 and 25 percent of the retail prices you pay for the items you buy are these tax costs being passed on to you.
Since most goods and services involve a lot of labor, federal payroll taxes alone demonstrate the magnitude of taxes associated with labor. Social Security and Medicare taxes are 7.65% for the employee and 7.65% for the employer for a total of 15.3%. This number doesn’t include any income tax which many believe can raise the percentage of embedded federal income/payroll taxes to over 20%.
In addition to the payroll taxes, corporate income taxes can also affect consumer prices. Research published by the National Bureau of Economic Research examining actual retail prices found significant corporate-tax pass-through to consumers and estimated that approximately half of the corporate-tax incidence examined in the study ultimately fell on consumers.
To be conservative, we will assume that 15% of the cost generated at each stage of production represents embedded federal income and payroll-tax costs. We will also assume that every business in the production and distribution chain adds a 10% markup to the entire amount it pays for the product or service it purchases from the preceding business so it can make a profit.
That second assumption is important because businesses do not separate an upstream supplier’s embedded taxes from its other costs before calculating a markup. If a wholesaler pays $1.00 for something, it generally treats the entire $1.00 as its cost. Therefore, if 15 cents of that dollar represents embedded federal taxes, the wholesaler’s 10% markup applies to the 15 cents of tax just as surely as it applies to the other 85 cents.
The result is a multiplier effect on embedded taxes.
How a 15-Cent Embedded Tax Quickly Becomes Almost 22 Cents
This example understates the potential cumulative effect. The farmer is not the only participant that incurs federal tax-related costs. The mill employs workers. The bakery employs workers. The trucking company employs drivers. The distributor employs workers. The supermarket employs cashiers, managers, stockers, and other personnel.
The USDA’s Economic Research Service confirms that food prices reflect an extensive supply chain involving agriculture, processing, transportation, wholesaling, retailing, and numerous supporting industries. Its Food Dollar analysis measures the costs incurred throughout those domestic food-production chains.
Each participant can introduce additional federal income and payroll-tax costs into the chain. Those costs become part of that company’s selling price and are then marked up by every subsequent business.
If taxes enter the price at multiple stages and businesses subsequently markup those tax-inclusive costs, part of the final retail price consists not only of the original taxes but also of profits and markups calculated on those embedded taxes. It’s not an easy process for consumers to follow, but the result is hiding in the retail price of every product and service you buy.
CONCLUSION
The FAIRtax repeals federal individual and corporate income taxes and federal payroll taxes and replaces them with a transparent national retail consumption tax. The legislation expressly provides for repeal of both the income tax and payroll taxes.
Isn’t it time that we have a federal tax system that rewards things that benefit society?
People are upset with our present income/payroll tax system because it benefits only a small percentage of the population—the very wealthy and Members of Congress who fund their re-election campaigns by selling favorable tax treatment to the highest bidder.
For the rest of us, it’s an expensive, intrusive, incomprehensible mess that none of us fully understands.
THE FAIRTAX IS THE ANSWER.
The FAIRtax Act (H.R. 25) is more than just a proposal for a retail sales tax; it is a fundamental restructuring of the federal fiscal structure. Unlike other excise taxes which normally are applied to specific products and in different percentage amounts, the FAIRtax applies a 23% rate to all new retail products and retail services.
The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.
Many of you have labored tirelessly for freedom from the federal income tax and the IRS. You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.
It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax.
Make no mistake about it. The FAIRtax is a grave threat to the Ruling Elites. It will strip them of their power and their ability to control us though the tax system. Their opposition to the FAIRtax will be fierce and unrelenting. And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power.
However, with the support of this President, we can finally eliminate the income tax and the IRS!!!
Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well so no future administration can ever shackle the American people with an income tax again.
We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.
This will take the diligent efforts of all of us. We need your financial assistance, and we need your grass roots assistance.
If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.
Please email us at info@FAIRtax.org and we will give you some options on how you can best help us.
At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax. If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already. If not, ask why not. If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
By contributing (investing) $10.40 per month, you help provide a financial base to AFFT. If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.