I need to work on publicizing my next word:
Just some random thoughts from the mind of Steve
I don't think I did a good enough job covering the difference between inclusive and exclusive tax rates.
"I am buying a twinkie for $1.00 and I pay 30% tax, so $1.00 + ($1.00 * 0.30) = $1.00 + $0.30 = $1.30"
"I am paying $1.30 for this twinkie (total amount), and 23% of that is tax, so $1.30 * 0.23 = $0.299 = $0.30 (tax). The twinkie must be worth $1.30 - $0.30 = $1.00."
All the same numbers, just spoken differently.
When talking about sales taxes, it seems foreign (and misleading) to discuss it in terms of inclusive rates. But when talking about income taxes, it's natural.
"I make $100,000 (total amount), and I pay a marginal tax rate of 28%, so $100K * 0.28 = $28,000 (tax). My take home pay is $100,000 - $28,000 = $72,000."
"I take home $72,000, and I pay $28,000 in tax, so $28,000/$72,000 = 39%. Or, $72K+ ($72K * 0.39) = $72K + $28K = $100K."
Just to loop back: if the twinkie cost $72K, and tax was 39%, you'd pay $100,000. ("That's one big twinkie.") Yes, an inclusive income tax rate of 28% is an exclusive income tax rate of 39%. That's why a 23% FairTax rate can be demonstrated to be 30% sales tax.
Once again, the FairTax uses inclusive in order to more easily compare to the IRS. They are not trying to hide anything (necessarily); it is simpler and "fairer" to compare the two taxation systems on the same basis, so FairTax converts to inclusive rates rather than quoting Income Tax as exclusive rates. After all, if all you heard was "you're paying 39% to the IRS", your first thought would be, "no I'm not..."