Submitted by Ed Harrison, Jan 10, 2008 09:42

Ms. DIANA FURCHTGOTT-ROTH,

I just read your article. I am impressed by the strong argument you made for investigating the fair tax seriously. Many of us share your view, and are in fact, even more enthusiastic about the merits.

I was disappointed, however, by your lack of reference to the current amount of embedded taxes in retail sales. Your figures on "New Yorkers paying $169B billion in federal taxes in 2005" is misleading. I assume you are referring to federal income taxes only. In that regard, let me ask a few additional questions.

What about the payroll taxes for Social Security and Medicare that were paid by both the employee, and the employer (FICA) in the state of New York? Unemployment Taxes (FUTA) paid in New York? Federal income taxes paid by businesses in New York? Can you see where this is heading?

Take a simple example we can all understand like a retail store that sells a candy bar to a customer and that customer pays the $1.00 at checkout, before adding any state or local taxes. Let's look at that $1.00 price a little closer, as far as everything that is contained. Employee wages and benefits, building rent, utilities, computers, software, store equipment, replacement, repairs, returns, inventory shrinkage, store profit, AND yes, the candy bar itself.

Every single item I just mentioned that contributed to the cost, and also had an existing FEDERAL TAX COMPONENT already included, which is already EMBEDDED deeply in the $1.00 price of the candy bar. For example, some part of the wages paid to the store employee were in the price. Then the FICA on the wages that were paid have to be recovered and is also added. Then the FUTA on the wages that were paid also have to be recovered and is added. Then some health insurance, and maybe life insurance which is provided by a insurance company is added. But wait. That insurance company that sold the insurance to the store also paid FUTA and FICA on it's employees, and it must recover it's costs, so that was also included in the price to the store, which now is also included in the price of the candy bar. But wait. The broker that is involved in handling the wholesale insurance policy (re-insurer) has also paid FUTA and FICA on it's employees, and that cost must be recovered, so it was added to the insurance, which was paid and now was passed on and is finally also added to the cost of the candy bar. But wait. The insurance company pays rent on it's offices and leases the computers and pays utilities, and their employees were paid wages, which meant that FUTA and FICA were also collected, and thus had to be recovered, were passed on, and ultimately were added to and are contained in the cost of the candy bar. Along with the leasing companies, computer companies, software companies as well as every single component involved in the delivery of the $1.00 candy bar. And we haven't even started to look at the cost by the candy bar distributor who purchased it from the manufacturer, and everything involved in the ingredients, factory equipment, energy, transportation, packaging, distribution costs, fuel, and all the FEDERAL TAXES already paid that have been added into the price that are also ultimately passed on in the $1.00 candy bar.

You can see that we are a LONG WAY in my example from even getting to the real cost of the candy bar. Every step of the way, there were costs that were added due to the EMBEDDED FEDERAL TAXES which were already paid. This total cost, all along the way, has been estimated to be .23 of that $1.00 price, that WE, AS CONSUMERS, ALREADY PAY AT THE CHECKOUT COUNTER.

If the $.23 embedded federal tax is removed at the checkout counter, then the new price of the candy bar is $.77. Now add, as you say, the 30% FAIR TAX back in, you have the $1.00. But compared to the current at the checkout counter price today, the candy bar cost remains the same - $1.00. So much for the 30% figure being discussed, which implies a dramatic increase over today's prices, which is misleading. It is the SAME price as today because it is already embedded.

Now, back to your original statement about New Yorkers paying $169B in taxes. By example, I think you can see it is a much larger number, because of the embedded taxes we all now already pay. This is the most compelling argument for the FAIR TAX.

Best Regards,

Ed Harrison

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