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PaperclipPerfector  1yr ago (text post)   37122 thread views

Culture War Roundup for the week of April 10, 2023

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I think you’re thinking of it like a VAT, 30% on top of what’s already asked at the register. It’s actually a replacement of existing “embedded” taxes, referring to how the consumer’s prices are already hiding the cost of the employees’ income taxes.

The 30% is adjusted out of the initial price by law during the transition year. Since companies will no longer pay employees the amount which goes to FICA and employment taxes, they’re expected to drop baseline prices and then add the tax back in. The resulting prices are equivalent, and anyone caught gouging will be fined harshly.

EDIT: Whoops! I added that last bit myself from a half-remembered statement. The actual penalty provisions of the bill are plain and limited, as you can see. What it mainly comes down to is that nobody except businesses will have to fear the tax man, and the bill deliberately makes compliance so conceptually and logistically easy that Etsy sellers and Tupperware consultants can do their own taxes.

Well thankfully I completely misremembered that part of the bill. See my reply on ToaKraka's fork above/below.

transition year

anyone caught gouging will be fined harshly

The text of the bill appears to include no such provisions. (And there's nothing wrong with "price gouging" in the first place.)

As a free-market libertarian, I generally agree on "price gouging" - the real value is what the market pays. However, there is a moral risk of a bunch of companies just raising their prices precipitously and blaming the FairTax: "It's not our fault, it's the government." Therefore, there are provisions for transition relief.

When I heard it on the radio over 15 years ago, it was phrased in terms of price gouging; it's actually found in the text of the bill in the form of an inventory tax credit to avoid double taxation (and thus avoid price gouging). Here's an article on the transition rules from the people pushing the FairTax, or hear the article read aloud in a 10-minute YouTube video. I've included the URL here ➡ with a time-stamp for the three explicit transition period rules, and pasted the relevant one below:

First, since inventory is not deductible under the income tax until it is sold, existing inventory will have been acquired with after-tax dollars. To then subject inventory held prior to the effective date of the FAIRtax to a sales tax would constitute double taxation and disrupt markets. Businesses that have inventory held on the date prior to the enactment of the FAIRtax qualify for a “transitional inventory credit” if the inventory is sold subject to the FAIRtax within a two year period. Qualified inventory shall have the cost that it had for federal income tax purposes for the active business as of the end of the final income tax year. The credit is equal to the cost of the qualified inventory times the FAIRtax rate.

To ensure that the inventory credit can follow qualified inventory through the supply chains, businesses may sell the right to receive the inventory credit. The inventory credit indirectly allows for a transitional period for manufacturing and retailing to adjust to pricing without the inclusion of income and payroll taxes, corporate taxes, and compliance costs that before the FAIRtax were a large percentage of the cost passed along to the consumer. This means being able to keep some prices the same immediately after the effective date and then change prices over time, removing the inducement to buy or sell just before the effective date.

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