America needs to regain the fundamentals of a strong economy for a number of important reasons. National socio-economic health, political and diplomatic influence in the world for trade, defense, and standard of living all depend on a fundamentally strong economy. The fundamentals of a strong economy, from a non-economist’s view – mine, start with comparative advantage in world trade. This is something which our country and our leadership and labor unions have taken for granted over the last 20 years, letting this precious commodity dwindle away. We also have mistaken productivity and its usefulness toward comparative advantage with an effective trade economy. Remember, while productivity helps our trade advantage, it does little to help our trade related employment number or the quality of the trade related jobs. Simply put, the definition of comparative trade advantage is “what do we have to offer in the deal that makes us come out ahead of the other guy?”
We hear about free trade agreements and that trade is good – and it is! Entering into the world trade arena without a trade advantage or at least a trade equilibrium is just down right dumb and we have run headlong into this arena stark naked. We need to rediscover our comparative trade advantage or discover a new one, if we are to successfully compete in world trade.
Look around, the world has oil and we need it, the world has cheap goods and we need them to keep inflation down, the world has the capability to produce both quality goods and cheap goods that it could not produce 50 years ago, the world has cheap labor – shall I go on? What do we offer? Well we still have some bright minds, even though they may be heavily populated with foreigners, we still can grow food with the best of them, we still offer innovation, but we have no monopoly any longer on innovation. Our dollar is losing value which helps us produce relatively cheaper goods for the world market and thus lower the trade deficit.
A devalued dollar is a two edged sword as also it brings us a higher cost of living and a lower standard of living relative to the world. What do we plan to do about this obvious problem? Well Senators Obama and Clinton want to tax us more – mostly business and the rich – you know, tax the engines of investment and growth! Senator McCain wants to keep personal income taxes low and cut spending, but this will not bring us back to a fundamentally strong economy even though it is good start. It is how, when, and who we tax that is the problem. We are an economy that taxes income accumulation. We should be taxing the disposable money spent on “stuff” and not the money earned and used for growth re-investment.
Businesses pay a 35% Federal corporate tax rate and varying state corporate tax rates, bringing the total corporate income tax on profit to between 40% and 50% for the most part. Remember the corporations only collect the tax and anyone who buys their goods pays the taxes. If a corporation works on a 15% profit margin, and they make a set of golf clubs which they wholesale for $500, $65 is taxable profit of which the retailer pays $30 of the income taxes due on the item. When the item is resold at retail at $800, assuming a 15% profit margin, $105 is the taxable profit and $47 is the income tax due on the item paid by the end user, the consumer, you. Actually you pay a total of $77 of the corporation’s and reseller’s income taxes.
Granted, this example is clunky and probably filled with holes, but it does serve to demonstrate that when we tax corporations for manufacturing or reselling all we do is raise the price of the item. This works fine when all the competition is paying the same taxes. If does not work fine when world trade is involved, because our goods and services are then less competitive with the goods and services of other nations. We already start out with a disadvantage, in that we pay our workers more than the workers in far off lands receive, but this can be adjusted with productivity.
Unless we seriously look at our tax structure and make changes sooner rather than later – maybe move to a consumption tax or a fair tax and get away from inhibiting investment, growth, and production with income taxes, we can expect to have a lower dollar value, a lower standard of living, etc. Income taxes on domestic corporations foster a comparative trade disadvantage for us. Our government must find ways to domestically foster healthy manufacturing and servicing sectors so we can compete with the rest of the world without giving up good paying jobs. If the tax burden shifts from corporations to individuals, their will be no real change in who pays the taxes, except we will compete in the world trade markets effectively, create good jobs, and restore a fundamental of a good economy.
How will taxing renters 30% on their rent help our economy?
How will taxing cancer victims 30% on their surgery and chemo help our economy?
How will taxing nursing home patients 20-30,000 a year help our economy?
How will taxing people who buy new homes 50-200,000 help the sale of new houses?
Fairtax is actually absurd nonsense. Not only would it be the worlds HIGHEST sales tax — it would be a tax on things no other country even taxes — medical costs for example.
But the biggest absurdity of this farce – and fairtax is literally a farce — is that Fairtax would make the FEDERAL government pay 800 billion a year — TO ITSELF. Which is about as dumb as you can get, and still be able to exhale. The federal government CAN NOT POSSIBLY pay itself 800 billion or more a year. Or even 8 dollars a year.
Neal Boortz writes in his Fairtax (Farcetax) book, page 148 “The federal government ITSELF would become a MAJOR taxpayer.”
Nonsense — utter nonsense. When the federal government “pays” itself, it has to WRITE the check that it CASHES. Where on earth do you think the money will COME from, when it PAYS those checks?
This absurdity is how Fairtax can make fools believe the tax would “only” be 23%. Take away this absurdity, and the REAL rate would be over 50%.
Imagine a 50% sales tax on a new house. Imagine what THAT would do to new home sales. Imagine what a 50% sales tax would do to new car sales, to nursing home patients.
This lunatic fairtax is on car insurance too — health insurance, utility bills, gasoline, phone bills, cable bills, food, everything you buy.
I actually hope it passes. Its so stupid, so insane, so absurd, that maybe if we pass it, we can learn something about economics in this country.
Mark, apparently you missed the point that consumers are already paying these taxes in the form of prices that include the mark-up of the income tax the business or provider must pay on profits. In addition, any tax would need parameters ans certain exemptions such as nursing home bills and private home sales. You also must have missed the point that we need to place our businesses on a level playing field in international trade to build outbound trade and thus build strong jobs.
Mark, from the comment above, is Mark Douglas Curran of Quincy, Illinois. He is a convicted pedophile. He is certifiably insane as evidenced by his blog: fairtaxabsurdity dot blogspot dot com
See also: absurdityofabsurdity dot blogspot dot com
Regarding Mark:
I could have pulled either or both comments, but chose to leave them. I have no knowledge if the accounts are true, if so it is sad and despicable, but a person still can have an opinion. If not true, then the posting is sad and despicable, if it is designed to slander. You be the judge.
Ken, if what is true? Oh the guy who is trashing me – ugh, well Ive turned him over to authorities and if we ever find out his name, we will see him in court, but thats a long story. And yes, its slander, in fact, he just hated things I was saying about fairtax, so he warned me before he would ruin my credit, my reputation, etc, unless I quit speaking my piece on Fairtax.
I decided to keep my first amendment rights to freedom of speech, and this is how he fullfills his threats. Well, every dog has his day, if you know his name, let me or my attorney know.
As far as the tax system, check out the claims by Fairtax, vs the reality of HR25. Fairtax claims all kinds of things, you would think its about take home pay and lowering prices — etc.
No. Thats the hype. The act itself HR25, is simply a very very high sales tax, the world’s highest in fact, and it on things like your rent.
Did they mention its on your RENT and car insurance? And your utilities?
Think about getting the worlds highest sales tax on your rent, car insurance, food, water, gasoline, utility bills, phone bill -etc.
Are we really paying all that now?
No, we are not. They are fast and loose with their promises on Fairtax, and fast and loose with their math.
For example, do you know that the huge savings they claim — the 22% drop in prices — is BASED on wage earners accepting a 30% cut in their gross pay? Thats right, they sorta hid that fact way down in the fine print.
For example, Boortz doesnt call it a cut – he calls it a “readjustment” and offers all kinds of excuses for it.
But it boils down to this– the ONLY way for those prices to fall like Fairtax PROMISES you they will – is for workers — all workers — to accept a substantial cut in wages.
So what Fairtax is promising you, really, is that all the workers will accept a 30% cut in gross wages, and pay sales taxes on whats left,
The more you see what Fairtax is really about, the more you realize its pretty much a con game.