8.07.2005

MLM and tax reform

I have been reading a book about proposed tax reform legislation (HR 25) known as the FairTax. Without going into the specific details here, the essence of this reform would eliminate all Federal Income Tax, Social Security Tax, assorted Payroll tax, Medicare Tax and all other embedded taxes in the goods and services we purchase and would replace it with a national retail sales tax. Also, without entering debate about the viability of such a proposal, I wanted to explore the possible impact of such a reform on the Network Marketing / MLM industry.

There are currently approximately 22 percent embedded taxes in goods and services we purchase. Without respect to the lack of sales tax for items purchased online, those taxes still exist through the supply/manufacture/distribution processes and currently figure into the cost of goods. If passed, these embedded taxes would disappear and the new consumption tax would kick in to essentially replace them. Actual costs would go down as marketplace forces would seek competitive advantage. Hence, the internet purchases are now taxed but as each working American is now keeping 100% of their paycheck, actual purchasing power would increase.

For those networking companies that present the tax benefits for starting their own business, this would no longer be valid as there would no longer be an income tax and with that, no business deductions. At first, I thought how that may impact the ability for an organization to attract new prospects. Then, it dawned on me - maybe the larger concern would be how many people would QUIT an organization where most of those involved LOSE money. There must certainly be those that don't mind losing money in their businesses if they are reaping a tax benefit on April 15th.

What would that mean? Well, those involved in a self-consumption business would lose a great deal of their attractiveness for those using it as a "tax loss-leader". Imagine. These companies would have to decide whether they were going to try to compete in the MLM marketplace by actually helping people become profitable.

Another thought just occurred to me - What would the impact be upon those groups that use tapes systems for their secondary source of revenue?

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