In this essay I will give my thoughts on how:

1. 1.      The U.S. tax system puts U.S. companies at a disadvantage vs. international competition
2. 2.      Many other countries have tax policy that actually creates an advantage for their business.
3. 3.      What we can do about it.

Tax rates around the world is a page on Wikipedia.org.

It appears that the United States is the only country with payroll taxes (Social Security + Medicare) though I do see that the UK has a National Insurance Tax which appears to be similar. U.S. Payroll taxes cause U.S. workforce costs to be ~7.65% higher than most international competition. Multiply that 7.65% on salaries/wages across all business functions (both internal and supplied) in order to get a product produced, marketed, distributed, and out to end consumers and it is not difficult to see how higher costs creep into the end pricing to consumers.

In addition, U.S. Corporate Tax is among the highest in the world – up to 39%. We all know that corporate taxes are simply passed along to consumers, right? So while Washington may seem like they are playing good guys by taxing the evil corporations, you and I are paying for it either (a) at the register or (b) through loss of jobs to international competition.

As an example, a U.S. company that manufactures widgets has $100 million in gross wages/salaries which results in employer-side payroll taxes of approximately $7.5 million. If it has cost-of-goods sold and other costs (raw materials, plant & equipment, etc.) of $72.5 million for total costs of $180 million and then sold its widgets to a U.S. distributor for $200 million and makes $20 million it must hand over one third to the government which leaves about $13 million in profit.

Now let’s move the manufacturing to Ireland and assume that relative wages/salaries are similar.
Does Ireland have payroll taxes? No. That’s a $7.5 million savings. 
Ireland’s corporate tax is 12.5%. 

If the Irish company charged the same $200 million for its widgets and had similar raw materials and operating costs ($72.5 million) it would stand to profit about $28.5 million before corporate taxes of about $3.6 million which would leave nearly $25 million in after-tax profit.

Let’s say that the Irish company wants to be more competitive than the U.S. company. It could charge $10 million less than the U.S. manufacturer and still make greater profit. So the Irish company wins the business, the American consumer gets a less expensive Irish product, but the U.S. manufacturing struggles and eventually either closes or relocates. Either way the jobs are no longer American Jobs.

So how would this manufacturing example unfold with the FairTax?

The U.S. workforce costs would come to $100 million even (not $107.5 million)
Other before-tax costs remain constant at $72.5 million
There is no Corporate Tax so in order to make $13 million in profit our company would charge $179.5 million.

To recap, in order to get $13 million in after-tax profit:

1. 1.      Before the FairTax our U.S. company must charge $200 million
2. 2.      The Irish company could charge slightly less than $190 million
3. 3.      After the FairTax our U.S. company could charge $179.5 million

Ever hear of the tremendous trade deficit that our county runs? Well, if we take this newfound competitiveness under the FairTax system and apply it to U.S. exports exports as well, we will see a rapid reversal of the trade imbalance and have even greater prosperity in our lands.