I don't think I did a good enough job covering the difference between inclusive and exclusive tax rates.

Exclusive:

"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"

Inclusive:

"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.

Inclusive:

"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."

Exclusive:

"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..."

Balloon Juice � Blog Archive � Wingnut math: "Let’s cover this 23, 30% divide Dennis. If we can. If I want a dollar for a pencil at the end of the transaction, I make a pencil I want to have a dollar in my pocket, I’m going to have to charge $1.30 under the Fair Tax plan. Do you call that a 23% tax or a 30$ (sic) tax?"

This is one of the easiest things to demagogue about the FairTax argument - 'They are lying because they say 23% instead of 30%.' (The other easy target is the removal of corporate income taxes, but I won't go there right now.) Unfortunately, so many people have trouble with the difference between inclusive tax and exclusive tax. Sales taxes are commonly referred to in the form of exclusive taxes, being added on top of the original value. Income taxes are commonly referred to in the form of inclusive taxes, being stated as the portion of the original value that is being taken away. The math: Exclusive = 1 - 1/(1-Inclusive) , as in 1 - 1/(1-.23) = ~.30

When the FairTax crowd wrote up their data, they chose to state the inclusive rate of 23% rather than the exclusive rate of 30%. Why? They claim it is because they are comparing it to income taxes. However, it could just as easily be because it is a lower value and sounds better to people who hate paying taxes (which includes just about everyone).

Oh, and I love it when people state income taxes as exclusive rates. They numbers become downright scary.