re: President Trump is considering abolishing federal income tax

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always get a little nervous when politicians talk about cutting taxes.

It seems like almost every tax cut has increased the amount of taxes I pay.

The most recent example is Governor Jeffery Landry's tax "reduction" passed last year. I estimate it's going to cost me about $1,000 more in various state taxes a year.

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I just love how people think that eliminating corporate tax will reduce prices.

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So our take home pay increases by almost 30%, but the cost of everything also jumps up by 30%. Does that really help?

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No offense, but this is the most common misconception about the plan. In 20+ years of researching and understanding it, that perspective is usually rooted in a fundamental misunderstanding of how corporate income taxes are paid. At the risk of repeating myself from earlier in the thread:

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Corporations do not pay corporate income taxes, they collect them. The NRST simply replaces the embedded federal income taxes which are passed down along each step of the supply chain, from manufacturer to wholesaler to distributor to retailer, and ultimately paid by the consumer.

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In a NRST scenario, there is no need for the 22% embedded corporate income tax that is already baked into the price you pay at the register. Market forces will drive retail prices down to their rightful place, and the price paid at the register will effectively be the same as it was under the old IRS/income tax model. The major difference being that it's purchased with your whole paycheck, because withholding will have gone away due to obsolescence.


This is going to wander into TL;DR territory, but those who are truly interested are going to stick around. The howler monkeys are going to sit in the cheap seats and fling feces no matter how long the post is.

For ease of discussion, let's talk about something that costs $10 at retail right now. We're going to call it Item ABC. Only around $7.80 of what you're paying covers the cost of that item - from production to wholesale to distribution to retail profit. The other $2.20 is tacked on at the various stops along the way to recoup the corporate income taxes that are incurred. Ultimately, that bill comes due for the retail consumer. Again, corporations do not PAY income taxes, they COLLECT them.

In the National Retail Sales Tax scenario, the income tax is abolished and what's left of the IRS is simply a clearinghouse entity within the US Treasury to receive the taxes collected by retailers. If there is no more income taxes to be collected, then the cynical folks in the room would believe that the NRST would be tacked on to that $10 price tag for Item ABC, and you'd now pay $12.20.

There's a couple of things that would prevent that from happening, thanks to economics and folks who sell Item ABC wanting to make the sale. Let's say that Grocery World sees a chance to make a quick buck and on day one of the NRST being implemented, they keep the price of Item ABC $10. With the sales tax applied at the register, they don't care that you're paying $12.20, they just want the sale. If that scenario persists, then the consumers are the net loser (though there's a case to be made that +22% at retail is better than -45% on your gross income, but that's a discussion for another time).

While Grocery World is continuing to charge $10 for Item ABC, their competitor Circus Mart is savvy enough to realize that they can make the same margins as before plus a little extra if they drop the price of Item ABC down to $9.00. Obviously, Grocery World would be putting themselves at a competitive disadvantage if they continued to keep their prices at the old levels. This back and forth continues among competitors, and one of them realizes that at $7.80, they would be making the same margins as under the old income tax model, and they were totally fine with that markup.

Simultaneously, Item ABC has a competitor product at the same price point of $10 - Thing 123. The makers of Thing 123 are smart enough to realize that they have that identical $7.80 break-even point that Item ABC has at retail. Even if the retailers weren't bright enough to realize that continuing to offer the old price point is a losing proposition, so they can make their pricing cuts to remove their corporate income tax liability that was previously passed on to the wholesalers. (Remember, the wholesalers were taking that income tax paid and including it in their cost charged to the distributors, and the distributors were passing theirs on to the retailers who ultimately baked all of it in a the register where the consumers foot the bill for the whole thing).

If the makers of Thing 123 are selling their inventory for less, then it's going to have an impact at the retail level. Thing 123 would be a much more attractive option than Item ABC for savvy consumers.

Two different opportunities for market forces to dictate that the previously-buried corporate income taxes paid by the consumer at retail are weeded out under the NRST system.

If you stick around the FairTax/NRST discussion long enough, you'll find that most opposition to the plan comes from folks who a) misrepresent the terms of the plan, either from ignorance or intellectual dishonesty, and/or b) inject hypothetical situations which are not part of the plan (e.g. assuming a higher tax rate than calculated in the base bill, deliberately flip-flopping between inclusive vs. exclusive tax calculations where it's advantageous to make their case; presuming double-taxation between the NRST and mistakenly presenting the income tax as returning, etc.)

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It just takes Congress passing a bill, which isn't going to happen.

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President Trump is considering abolishing federal income tax

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