Re: My take on the flawed "Fair Tax" (repost)


AllYou! wrote:
> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> news:1128438784.135758.175350@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >
> > AllYou! wrote:
> >> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> >> news:1128433360.590580.294270@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >> >
> >> > AllYou! wrote:
> >> >> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> >> >> news:1128377454.830925.178880@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> >> >> > AllYou! wrote:
> >> >> >> "js" <jonathansmith99@xxxxxxxxx> wrote in message
> >> >> >
> >> >> > snipped all the superfolous crap.
> >> >>
> >> >> Well, to be honest, I never saw that coming from you. You've made a bunch
> >> >> of
> >> >> arguments which I didn't think held together, I showed where they did not,
> >> >
> >> > That's the problem. I can't work my way through the thread and find
> >> > where you made any argument other than to say, repeatedly, it is a
> >> > circular argument.
> >>
> >> Well, it is, and you just kept making it over and over again.
> >
> > Well, then that's your opinion. I don't view it as circular at all - I
> > view the arguument as linear and accurate.
> >
> >> To claim that the
> >> employee pays the income tax
> >
> > He does - that is the law and to argue that because it is the law then
> > it is circular is not an answer.
> >
> >> because the withholding is a benefit to the
> >> employee
> >
> > It is a convenience, it is a legal requirement of the firm, and it is
> > part of the process. I can't change that.
> >
> >> because it's a creadit against the liability which the income tax
> >
> > and it is. It's sort of like prepaying life insurance.
> >
> >> itself creates is as circular as it gets.
> >
> > Not circular - very linear.
> >
> >>
> >> A: "Honey, maybe you should get a job"
> >> B: "OK, but the only one available will only net us $500 per week."
> >> A: "but you'll be getting paid $700 per week"
> >> B: "I know, but there's no benefit to the $200 they withhold"
> >> A: "Sure there is. It's a credit against our increased tax liability"
> >> B: "But we wouldn't have an increase in that liability if I didn't work"
> >> A: "You're missing the point. You don't know anything"
> >
> > Honey, maybe you should get a job
> > OK - I earn $700 and we'll get to spend $500 after I pay my taxes.
> > Great - $500 is better than nothing.
> > Oh, and that means we can get the bigger apartment.
> > Well, then we'll only have $200 to spend on a new car.
>
> Actually in missing the point of my story, you've actually stumbled into making
> a great case for the larger argument for me. First, I'll deal with how you
> missed the point.
>
> The point of that hypo exchange was to show the circularity of your argument
> that the income tax is a credit against the liability incurred as a result of
> the income tax..

And once again, the circularity as you refer to it is not circular but
rather longitudinal.

The government has a need to pay for its operational costs. It does so
by levying PITAX an wages. This levy is placed on all wages (actually
on all income). The amount of the levy is dependent on the personal
characteristics of the income earner. Just like commuting to work
costs an employee money and that cost is directly resultant from
employment (he wouldn't have the cost if he didn't work), and just like
suits and ties are a cost to some workers required to dress accordingly
as a condition of employment and such attire would not be part of their
normal attire and as such the cost is derived directly from their
employment, and just like child care is a cost that this particular
family would incur and that cost is DIRECTLY a result of the
employment...

> As you can see, because the two net out, it's invalid to say
> that one benefit of employment is the credit against the tax liability when the
> exact same liability was created by the same act which created the exact same
> credit.

Sure it can. Just like my commuting costs are a direct cost to me as a
result of my employment and my salary pays for those costs. Just like
my child care cost, my uniform cost...you name it - employment fresults
in costs that would otherwise not be incurred by the individual. In
this case, the tax liability on gross wages is just another cost to the
individual.

But you know what? I really don't care anymore. Because it doesn't
matter. All that matters is what happens when taxes are shifted from
income to consumption. What happens to income and what happens to
prices.

> How can it be a benefit of employment when the liability and the credit
> which were both created by that act exactly cancel? See the circularity there?

> No, you'll ignore this argument just like all the others.

I give up - like I said, it really doesn't matter.

> But now onto the larger issue. with you're hypo exchange, you've made the
> perfect case that it's the employer,

The employer NEVER pays the tax. He is a transfer agent. If the
consumer reimburses the producer for the tax, then he is nothing more
than an agent. You can't have it both ways. If both the consumer and
the firm pay the tax, then the tax is paid twice.

> and consequently the consumer, who actually
> pays the tax. The only way the spouse will take a job is if the befits of doing
> so (e.g., car, apartment, etc..) are worth the effort, and they can only gain
> those things with their after-tax income, not their gross pay.

You are arguing the decision process whether second employment is
economically viable. In this process the family must consider ALL of
the following:

Gross wages
Tax immplications
Additional child care costs
Commuting costs
Other work related costs (meals, wardrobe...)

and ultimately, the oportunity cost of time.

That is what goes into the ultimate financial decision at the
family/personal level.

> And for employers to attract employees to work, they must assure that the net
> pay is sufficiently high to do so. And how do they do that? They *gross up*
> the pay until they do so. IOW, they must incur a cost which is higher than the
> employee will actually receive in compensation in order to entice the employee.
> As such. it's a cost to the employer.

All GROSS WAGES appear as a cost on the P&L. I've aggreeded that yes,
these costs of production are part and parcel to the ultimate price
paid at the pump. Labor, like capital and raw materials are ALL input
costs and are ALL reflected in the price of the output. Labor cost is
GROSS wages and benefits. This is GAAP, not me, ok?

> >> That's basically your only argument to my assertion that an employee is only
> >> compensated that for which he receives a direct benefit for the employment.
> >> It's just a big circle.
> >
> > It freakin doesn't matter what you call it.
> >
> > Employers pay gross wages, employees pay personal income taxes.
> > Period.
>
> Your inablity to conduct a logical debate really just amounts to that, doesn't
> it. *This is the way it is......period*. Got it. It's your way, or nobody's
> way.

You cannot make a case against it. Every time you try, I show you,
again, that all others view wages as a cost at GROSS, not net. This is
simple accounting convention, it is consistent with how the government
operates.

> > It doesn't matter that personal income taxes are calculated from line
> > 22 and line 22 includes line 7. It doesn't matter. The liability is
> > the individuals and the PITAX is an expense.
>
> You're much too close to the leaves to see the forest, and so you'll forever be
> lost in the wilderness.

> >> > Because we have PITAX we work to pay ot. Or is it
> >> > because we work we pay PITAX. Well, I guess that isn't too tough a
> >> > conclusion to reach. If you are unemployed, you don't pay income tax
> >> > on wages you don't earn. I tought that was ap pretty simple concept.
> >> > Its hardly an argument.
> >>
> >> That's right. It's not an argument to the assertion that an employee is only
> >> compensated that for which he receives a direct benefit for the employment.
> >> That's my point. So why'd you say it?
> >
> > Excuse me - one last time. Income tax is an expense individuals have
> > pursuant to the generation of income. Just like sales tax is an
> > expense a person has pursuant to the purchase of a commodity. Just
> > like property tax is an expense pursuant to the ownership of property.
> > It's a cost you have as part of owning, working, buying.
>
> <yawn>

Likewise.

> >> >> and
> >> >> so you snip all of it. OK, I can play by whatever rules you wish.
> >> >> Onward.
> >> >
> >> > What I did is snip everything adn start from scratch - consolidating
> >> > what I pereive to be the difference of opinion.
> >>
> >> I know. You started with the same assertions with which you began, which
> >> only
> >> forces me to reargue my case. You never showed where my arguments to your
> >> assertions failed. You seem to like circles.
> >
> > But once again, you posit that the argument that personal income taxes
> > are not taxes paid by individuals but rather by firms has been
> > supported - but only because you insist that anything else is circular
> > and silly. hardly an argument.
>
> That's a lie. What I said was circular was your only counter-argument to mine,
> and that was that the employee benefits from the employment because he generates
> a tax credit which is applied to his tax liability. I never said that your
> whole argument is circular, but just the your single counter-argument to mine
> was.

Yawn.
>
> >> >> > Under the assumption of converting all PITAX to NST, you argue that
> >> >> > wages will fall to "net" and prices will fall accordingly.
> >> >> >
> >> >> > I argue that under conversion, wages will remain the same (gross) and
> >> >> > prices will
> >> >> > rise equivalent to the offset.
> >> >> >
> >> >> > We both agree that in no case is the employee or employer any better
> >> >> > off in the short run.
> >> >> >
> >> >> > In support of your proposition you argue that net wages are the only
> >> >> > "real" cost to employers
> >> >>
> >> >> That's not true, you know it's not true, and you snipped everything
> >> >> wherein
> >> >> I've
> >> >> repeatedly said that's not true. What I have said is that the gross wage
> >> >> is
> >> >> the
> >> >> real cost to employers, however, the real compensation to the employee is
> >> >> the
> >> >> net wage.
> >> >
> >> > The real benefit in terms of purchasing power for commodities is indeed
> >> > what is left after all taxes are paid. There is no question about
> >> > that. But that still doesn't change the fact that part of gross
> >> > compensation goes to paying PITAX.
> >>
> >> And that's not the issue being debated. The issue isn't that it goes to pay
> >> the
> >> tax, the issue is who bears that burden of paying that tax.
> >
> > The income earner bears the burden, the liability, and the
> > consequences.
>
> <yawn>

Next time you file a 1040, let your employer know that he owes the
government the underwithholding and see his reaction.

>
> >> Whereas the real
> >> compensation is what I claimed, then there's no other choice but to conclude
> >> that the employer pays the tax at that point in time, but because it's
> >> included
> >> in his costs, it's passed along to the consumer in the end.
> >
> > Gross wages are included in the cost of production. So? In the end,
> > the consumer pays for everything. There's no argument there.
>
> Then square that with your assertion that the employee pays the income tax.

As soon as you square it with your assertion that the employer pays it.

> >> >> as such, the difference between net and gross remains the cost to the
> >> >> employer.
> >> >
> >> > Of course it does, as are all the wages and benefits used to extract
> >> > value from labor. On the income statement of an employer you will find
> >> > an entry for LABOR cost. This LABOR entry is the sum of all gross
> >> > wages and benefits paid. This is not in dispute.
> >>
> >> Well, if it's not a cost to the employee, but just a cost to the employer,
> >> and
> >> all costs of production are contained in consumer prices, then you seem to
> >> agree
> >> that it's the consumer, and not the employee, who bears the burden of the
> >> PIT.
> >
> > Silly boy. EVERYTHING included in gross wages is born ultimately by
> > the consumer. It's that part of production that is called LABOR. The
> > consumer also bears the burden of the cost of raw materials. So?
>
> So because the employee's compensation is only that for which he derives a
> direct benefit, then it's not the employee who pays the tax.

And it is not the employer either under the same argument. So where
does that leave us?

> And BTW, this silly boy shit is bound to lead to the same kind of crap that most
> other debates in Usenet do. Is that what you want? Please don't do that again.
> That's the only time I'll make the request.

Then don't use silly in your criticism of my arguments, OK?

>
> >> >> > and as such under NST employees will continue
> >> >> > to get their "net" salary and prices will drop as employers no longer
> >> >> > pay PITAX.
> >> >
> >> > And again, I ask - WHY? Employers don't pay PITAX now. The employee
> >> > does. All the employer does is fulfill a tax collection obligation.
> >>
> >> You still refuse to accept what I say. for the very last time, these are my
> >> positions:
> >>
> >> 1) The cost of every aspect of employee wages are a cost to the employer
> >> which
> >> get included in the price of goods and services.
> >
> > Translated - GROSS wages are a cost of production. All costs of
> > production are included in the consumer price.
> >
> >> 2) The compensation which an employee receives in exchange for his efforts is
> >> everything that he takes from the employer which directly benefits him as a
> >> result of his employment, and nothing more. IOW, his real compensation is
> >> the
> >> difference between what he'd receive if he didn't work for the employer, and
> >> what he receives if he does. And other benefits aside, his net after PIT
> >> income
> >> is that compensation.
> >
> > Wrong - His GROSS plus benefits is his compensation.
>
> Well, all you've got is an empty assertion.

No, I have GAAP as my justification. I have BLS as my justification.
I'm sorry, but the rest of the world measures employee compensation as
GROSS salary and then adds in the value of employee benefits.

BLS defines ECEC a:

The Employer Costs for Employee Compensation (ECEC), which measures
employers' costs per hour worked for total compensation...Total
compensation consists of wages and salaries and the cost of employee
benefits.

"A wage is the amount of money paid for some specified quantity of
labour. When expressed with respect to time (usually per hour), it is
typically called the wage rate, and is specified in pre-tax amounts. It
is often the main monetary item upon which the worker and the employer
focus when negotiating an employment contract."
http://en.wikipedia.org/wiki/Wage

Gross Income - as defined by the IRS.

Come on, there is a plethora of support - its not me, its everyone.

> But at the very least, you now know
> that you characterizations of my position are wrong. Remember that.

OK - whatever.


>
> >> 3) Because of 1 and 2 above, the real cost of that PIT is borne by the
> >> consumer,
> >> and no one else.
> >
> > The ultimate cost of gross wages is born by the consumer. The
> > liability for PITAX is borne by the individual, is paid by the
> > individual, and is the ultimate responsibility of the individual. How
> > much of the GROSS WAGE that ultimately goes to net and how much that
> > goes to tax is of no consequence to the firm.
>
> <yawn>

likewise, I'm sure.

>
> >> >> > You then asked:
> >> >> >
> >> >> > "Wages are a cost to employers. We agree.
> >> >>
> >> >> See? There's just one example of where I agree that all wages are a cost
> >> >> to
> >> >> the
> >> >> employer.
> >> >
> >> > OK - what exactly do you mean "just one"?
> >>
> >> Because throughout our debate, there are plenty of other examples where I've
> >> maintained that very thing.
> >
> > GROSS WAGES are a cost to employers - correct. Taxes are an expense to
> > individuals.
>
> <yawn>
>
>
> >> >> > But it's irrelevant to this
> >> >> > situation. What's relevant is which of the costs to the company go to
> >> >> > the
> >> >> > employee, and where do the rest go."
> >> >> >
> >> >> > The correct answer is, unfortunately for you - In both cases (pre and
> >> >> > post NST) ALL the wages go to the employee.
> >> >>
> >> >> Then why were you so afraid to continue the details of the debate wherein
> >> >> I
> >> >> show
> >> >> your argument for this assertion of yours to be lacking any logic or
> >> >> reasoning?
> >> >
> >> > I'm not. But, unfortunately for you, you continue to insist that the
> >> > act of administration of tax policy by acting on behalf of the
> >> > government as a collection agent somehow makes that agent a payer of
> >> > such taxes.
> >>
> >> That's not my reasoning at all. You know it, and I know it.
> >
> > Huh?
>
> That's not my reasoning at all. You know it, and I know it.

Huh?

You mean this reasoning?

"What's relevant is which of the costs to the company go to the
employee, and where do the rest go. All costs other than wages go
where they
go, but as to wages, the employee gets what he takes home plus whatever
benefits
are provided to him by virtue of his employment with the company. It
seems to
me that any claim that the employee receives what's printed on a pay
stub, but
that the employer sent part of it to the government on his behalf is
not much
more than flim-flam."

That argument has as much credibility and support as "circularity" and
"silliness".

> >> > Who pays sales tax? You the consumer or Joe the 7-11 store manager?
> >>
> >> If I could be sure that you'd be capable of an honest debate and wouldn't
> >> simply
> >> ignore my logical arguments to simply reassert your positions, I'd be very
> >> happy
> >> to answer that.
> >
> > And answering it would deflate your previous assertion.
>
> I guess your failure to indicate your willingness to debate the point honestly
> is the answer I've been looking for Paul.....er, js.

I've been trying but you keep repeating yourself and we are getting
nowhere fast.

> >> >> Why did you attempt to erase all of that and simply repost your assertion?
> >> >
> >> > I tried, perhaps in vain, to focus the question back to what I thought
> >> > was the question.
> >>
> >> It's not me who lost track of it, and so there was no need to refocus.
> >
> > Not any more.
> >>
> >> >> > Then some goes to pay
> >> >> > rent, and some goes to buy groceries and under PITAX today, some goes
> >> >> > to pay personal income taxes.
> >> >
> >> >> And once again, I addressed this in detail too.
> >> >
> >> > See, that's the problem. You think you did but I can't see.
> >>
> >> You saw my response, but you simply ignore it. Why not either accept my
> >> arguments, or do as I do with yours when ever you give one, and point out the
> >> flaws in it? I saw a flaw in the whole *credit / liability* argument you
> >> presented, and not only did I claim it was circular, but I gave a reasoned
> >> argument for that claim. But instead of countering, like you should in a
> >> logical debate, you just resorted to saying that I kept repeating my self.
> >> Well, maybe I did, but only because you never gave the counter-argument.
> >
> > Been there, done that.
>
> <yawn>
>
> >> > I am
> >> > hardly unskilled in the area of economics, mathematics, and the law. I
> >> > am not a tax accountant (I hire those), I am not a banker (I hire
> >> > those), but I have been in business in three countries and owned and/or
> >> > operated both small and medium size concerns (semi-retired now).
> >>
> >> But you do seem unable to conduct a logical debate, or even know what one is,
> >> for that matter. you seem to believe that because of what you believe to be
> >> your expansive resume. that I should simply take your arguments at face
> >> value.
> >> Well, there's nothing in any of that experience that qualifies you more than
> >> me
> >> to argue natural economic phenomena, and so I expect you to be able to
> >> provide
> >> logical arguments for your assertions, opinions, and conclusions.
>
>
>
> >>
> >> >> Yet by snipping everything of
> >> >> the debate wherein I've shown this assertion to be devoid of logic, you
> >> >> think
> >> >> that simply reasserting it makes it true. I've got to say that your
> >> >> debating
> >> >> style isn't all that far off from Paul Thomas.
> >> >
> >> > Now you are just being mean. To Paul I would think.
> >> >
> >> > I tried to direct the debate by restating the issue, restating what I
> >> > believe your position is, and by restating what mine is. This is, by
> >> > the way, exactly what debaters don't do - because it leaves them wide
> >> > open to rebuttal without recourse.
> >> >
> >> >> If you want an honest debate,
> >> >> then you need to abandon this penchant you have of just reasserting your
> >> >> position when you can't come up with any response to being shown where
> >> >> your
> >> >> logic is flawed.
> >> >
> >> > WHERE IS IT FLAWED? And reasserting that it is circular just doesn't
> >> > cut it.
> >>
> >>
> >> It does cut it if I show how it's flawed, and I have. Circular arguments are
> >> flawed,
> >
> > You said that because taxes are a result of work then taxes are a cost
> > of employers.
>
> No, that's not true. Your argument to my assertion that employee compensation
> is limited to those things which directly benefit the employee was that the
> employee gets a credit against his tax liability. That's why I said was
> circular and therefore meaningless. And whereas that was your only
> counter-argument, then min claim stands as valid.

But the government, the FASB, GAAP, BLS and everyone else defines
employee compensation the way I do - why is it I need to subscribe to a
differnt interpretation?

> > And I said, employers GROSS wages are a cost, and the burden of taxes
> > on wages is born by the individual.
> >
> > And the conclusion is, if one removes PITAX, GROSS wages stay the same.
> >
> >
> > Do you disagree?
>
> The question is a lot like Paul's, it's totally disingenuous because it's scope
> id too narrow.

I believe it to be the crux of the argument.

Here is what I think. If we were to eliminate business income tax
tomorrow and replace it with a consumer sales tax, I believe that on
average, the transaction price of goods at retail would remain
unchanged. I believe that the producer price (the transaction price to
the retailer) would decrease and this decrease would (after a period of
jockeying about over time) reflect closely, on average, the retail
(transaction) price less the tax. And I believe that ater a period of
equalization, that the consumer price with tax added would not have
changed at all.

As an example - assume business tax is 10% ($10) of the $100 selling
price of Product X. The business tax is eliminated and as such the
selling price now $90 before tax. The tax, in the perfect world,
allocated to this transaction is $10. Therefore, consumers still pay
$100 for Product X.

I believe that if we were to eliminate personal income tax, the price
of all goods, on average BEFORE adding NST would remain exactly the
same and that the individual tax savings would match the increases in
transaction prices (after tax) perfectly, on average.

As an example - assume personal income tax, on average, is 23%
inclusive. Product X sells for $100 - this is $100 that the channel
gets from which it pays its expenses and profits. Therefore, from the
consumer's perspective, Product X which retails currently for $100
requires GROSS wages of $130. If personal income tax were removed, the
price of Product X remains the same, $100. However, the consumer would
receive $130 in compensation and in the absence of adding NST, would
receive a windfall. However, NST is implemented at 23% inclusive and
as such, the retail selling price is $130. Of this $130, 30 goes to
the government and the remaining $100 back to the channel participants
to offset their costs and contribute to profit.

This effect, on retail prices is what I argue occurs BECAUSE the
personal income tax is a tax liability that accrues to the wage earner
and as both a wage earner and consumer, the same amount of tax
liability will accrue post-NST.

Am I correct to say that you posit that BECAUSE PITAX is a employer
paid cost of doing business that removing this cost and replacing it
with NST, through competitive mechanisms, will drive REAL prices to
retailers down to a point where the added tax will result in the total
transaction price to remain unchanged AND employees will be indiffernt
because they will continue to receive their net pay, unchanged from
previous net pay and prices will remain the same.

In conclusion, do you posit that the elimination of PITAX will result
in changes as I detailed would occur by the elimination of business
income tax?

If you honestly believe that the firm pays personal income tax, is it
not appropriate to specify this result as the effect?

If you waffle answering this question by some offhanded derisive
remark, then I know we are done.

js

.

Relevant Pages

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