Part of the FairTax Week on eFIPO.com

You ever wonder how much tax you’re paying for products? You might be thinking to yourself that it’s just the tax that you pay at the register. I wish! Unfortunately, you pay taxes every single time something gets pushed through the supply chain. So from the raw material to the end product, you end up paying hidden taxes every single time it gets to a new company in the chain.

Example (summarized from the FairTax book p.52)

We will use a loaf of bread as an example to demonstrate how embedded taxes are in every product we buy. First comes the seed producer, followed by the farmer who buys the seed to plant the wheat. The seed producer is a taxpayer, and the taxes are included in the price he charges his customers to purchase the seed. The farmer also purchases fertilizer, irrigation equipment, fuel for his tractors, and labor. All of these costs have taxes associated within the products too.

This is just for the seeds! Imagine all the taxes that are thrown together before you make yourself that sandwich. But trust me the example that I introduced makes up about 5% of the total supply chain. There are plenty of other simple taxes that we didn�t cover such as: utility costs, Social Security, rent, and Medicare. So when you pick up that loaf of bread and bring it to the counter you are about to pay tax on a product that has already been taxed a hundred times.

This is the reason why taking out embedded taxes would be extremely beneficial to the customer and the business. If we were to pay taxes just when we purchase the bread, it removes a lot of compliance costs that the producer no longer has to take care of. The FairTax introduces a 23% sales tax on everything. So when you take out the embedded taxes and then add the 23% sales tax products will roughly cost about the same. But again, when you think of the compliance costs that businesses will no longer have to pay, prices will inevitably go down.

Here are some articles you should read on why the American tax system is so confusing. Articles are presented by Free Money Finance.

The Problem with the U.S. Tax System

Best of Free Money Finance: Tax Posts

Good discussion post about FairTax at AllFinancialMatters- Anyone Read “The Fair Tax”�

To learn more about this subject head over to SpeckBlog, eFIPO.com, and FairTax.org