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Caligastia
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quote:
Originally posted by MichaeltheGreat
Wonder who's paying Boortz? His "analysis" is full of ****. |
What does he have wrong specifically?
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MichaeltheGreat
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Apolyton Grand Executioner
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mooning the house that Ruth built.
Oct 1999
time: 21:34
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First, Boortz assumes that if costs decrease, sellers will instantly and completely pass those decreases on to consumers. That doesn't happen. Sellers have a goal of maximizing profits, not selling at the lowest possible price. If margins are tight and costs go down, most sellers will hold prices. If sales go down, that's not good, unless margins have gone up, then the only thing that really matters is the net. Lower sales volume can also allow for layoffs, reduced inventory and warehousing costs (more layoffs), and reduced transportation costs (more layoffs).
Second, Boortz makes the assumption that seller's costs will decrease in an amount roughly corresponding to the level of tax. Most products are a mix of processed material and labor costs, and their source materials are also a mix of materials and labor costs, right until you get back to the raw commodities in the ground, or in the cow, or whatever is the processed material's ultimate commodity source. The raw cost of commodities won't change as a result of a different method labor taxation, only the value added components. Going back to your final retail product, whatever portion of its cost that is based on raw commodity costs won't be affected at all, but that portion of the cost will still be taxed the same as the labor portion of the cost.
So you have tax on 100% of the total cost, but the potential for price reduction on only the labor-related portion of the product's cost. When you get to more complex products like automobiles, there are other cost layers - cost of capital and debt for the manufacturing facilities, inventory costs, energy costs, etc., so no matter what, direct labor costs are always a fraction of total costs.
The next problem is the idea of labor cost savings:
How would costs go down enough to offset the tax, except by lower labor costs? For payroll taxes, employers pay only two things - their matching share of FICA (social security and medicare taxes) and state and federal unemployment taxes. FICA matching share is 7.65 percent (forget about the SS tax cap, since most people make less than 88 grand per year). Federal and state unemployment run about $250-500 per year per employee, depending roughly on the company's turnover rate.
Assume unemployment taxes aren't touched by this scheme, then the only savings to the employer from the tax change is the 7.65 percent from the employer's share of FICA taxes. The rest of any "savings" will come from reducing the gross pay of employees. If people get paid less, then the net difference between pay minus income tax under the current system, and pay without tax under this new system becomes minimal.
No change in what the peasant makes, but additional tax on everything the peasant buys.
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Caligastia
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quote:
Originally posted by MichaeltheGreat
First, Boortz assumes that if costs decrease, sellers will instantly and completely pass those decreases on to consumers. That doesn't happen. |
It might not happen instantly, but surely a competitive market will end up reducing prices. If costs decrease there will be more room for competitive pricing.
quote:
Sellers have a goal of maximizing profits, not selling at the lowest possible price. |
Yes, but competition among sellers will surely force them to reduce prices somewhat.
quote:
If margins are tight and costs go down, most sellers will hold prices. |
Perhaps to begin with, but why were margins tight in the first place? I hate to be repetitive, but tight margins could indicate an already competitive marketplace.
quote:
Second, Boortz makes the assumption that seller's costs will decrease in an amount roughly corresponding to the level of tax. |
The assumption probably originates with the Fair Tax people, but is it merely an assumption? My understanding was that a fair amount of research had gone into this.
quote:
Most products are a mix of processed material and labor costs, and their source materials are also a mix of materials and labor costs, right until you get back to the raw commodities in the ground, or in the cow, or whatever is the processed material's ultimate commodity source. The raw cost of commodities won't change as a result of a different method labor taxation, only the value added components. Going back to your final retail product, whatever portion of its cost that is based on raw commodity costs won't be affected at all, but that portion of the cost will still be taxed the same as the labor portion of the cost. |
True, but I think in some cases this would be offset by savings made in the administration of income tax.
quote:
So you have tax on 100% of the total cost, but the potential for price reduction on only the labor-related portion of the product's cost. When you get to more complex products like automobiles, there are other cost layers - cost of capital and debt for the manufacturing facilities, inventory costs, energy costs, etc., so no matter what, direct labor costs are always a fraction of total costs.
The next problem is the idea of labor cost savings:
How would costs go down enough to offset the tax, except by lower labor costs? For payroll taxes, employers pay only two things - their matching share of FICA (social security and medicare taxes) and state and federal unemployment taxes. FICA matching share is 7.65 percent (forget about the SS tax cap, since most people make less than 88 grand per year). Federal and state unemployment run about $250-500 per year per employee, depending roughly on the company's turnover rate.
Assume unemployment taxes aren't touched by this scheme, then the only savings to the employer from the tax change is the 7.65 percent from the employer's share of FICA taxes. The rest of any "savings" will come from reducing the gross pay of employees. If people get paid less, then the net difference between pay minus income tax under the current system, and pay without tax under this new system becomes minimal.
No change in what the peasant makes, but additional tax on everything the peasant buys. |
I think I need to do some more reading on the Fair Tax before commenting on the rest of this.
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Dauphin
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Caught in a tuna net
Jan 1970
time: 05:34
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NM for the moment.
Last edited by Dauphin on 13-08-2004 at 23:23
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MichaeltheGreat
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Apolyton Grand Executioner
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mooning the house that Ruth built.
Oct 1999
time: 21:34
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quote:
Originally posted by Caligastia
It might not happen instantly, but surely a competitive market will end up reducing prices. If costs decrease there will be more room for competitive pricing.
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How often do you see neighboring gas stations try to compete each other down on prices? How much real, across-the-board competition do you see in grocery store prices? During the UFCW strike that ended early this year, the three major (supposedly competing) grocery chains entered into price-fixing agreements with each other.
quote:
Yes, but competition among sellers will surely force them to reduce prices somewhat.
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It's nice to put on a show, but if the net reductions in price don't at least equal the additional tax burden and adjustment in income, consumers pay more.
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Perhaps to begin with, but why were margins tight in the first place? I hate to be repetitive, but tight margins could indicate an already competitive marketplace.
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In many cases in US industries today, high debt loads and high fixed obligations. You can't raise prices significantly without affecting sales volume, and if you have a high proportion of fixed to variable operating costs, it's easy to reduce margins whether you raise or lower prices.
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The assumption probably originates with the Fair Tax people, but is it merely an assumption? My understanding was that a fair amount of research had gone into this.
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By definition it's an assumption, since it's based on some form of financial modeling.
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True, but I think in some cases this would be offset by savings made in the administration of income tax.
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Those costs are widely distributed between IRS, SSA, taxpayers and payroll tax related services, so they don't have a large impact on any particular party. Much of IRS and SSA's operating costs are fixed, and variable costs specifically related to collection, processing and audit of personal FIT and FICA revenue and reporting are a pretty small portion of those agency's budgets.
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13-08-2004 10:43
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