"Based on what you wrote, if there is a consumption tax, you say that the demand for products produced in the USA will go up because we will export more, because the price (cost of production) will go down. But in the same thought you write that it will cause income to rise. How can both be true? How can we have both lower costs of production and higher incomes based solely on the establishment of a consumption tax? If the tax take is the same, if one compares the income tax to a consumption tax, then, where did the money come from to pay workers more if the cost of goods goes down?"
First, I do believe that, initially, all consumption will slow down. I also believe that after a few short months it will rebound here and be stronger than ever. Second, demand for American products will increase internationally as American products will now be about 20% cheaper. They are cheaper because they are not taxed in the United States if they are not sold to American consumers. This drives demand. The cost of production goes down as a result of removing embedded taxes. This is even more profound for companies that have moved production to cheap labor markets and spend extraordinary shipping costs to get their product back to America. Right now, the considerably cheaper labor offsets the cost of shipping and nets a company more profit. Now, remove the tax burden and pay more in labor while reducing shipping costs and the company should realize more profit. As more company's move to America, there are more jobs to be had. As workers are in demand, salaries and wages will go up (as they did in the 90's). These are side affects of the implementation of the fair tax, not the sole reason for implementing it. And it is all theory of which I have researched and have some confidence in.
"BTW, explain to me how Chinese and Mexican, or Costa Rican companies will move factories to the USA for cheaper labor and lower production costs if the incomes of the workers go up and when the government's total tax burden remains the same?"
Who do you think Chinese, Mexican, Costa Rican largest export customer is? It may not be as big a deal for the American Continent, but for the Asian and European market, which are much more significant, it would be very appealing. Why do you think Puerto Rico is the world's pharmacuetical manufacturing headquarters? It is not because Puerto Rico is where all the worlds best scientists are. It is because for years the industry has paid $0 in taxes to the US property. Amazingly, their economy is doing well without the taxes from Lilly, Genentech, Biogen, Pfizer, etc.
The attraction is that if you can reduce the shipping costs and tax burdens, than a company can afford the higher labor costs, especially if its biggest market is in the United States.
this just creates an arbitrage when shipping costs are less than the tax rate.
Unfortunately for Puerto Rico, not anymore. The Commonwealth's Legislature voted to repeal those tax cuts and the economy is tanking big time. Manufacturers, (HP, Sensormatic, Avon, Hanes, Bluebell, PPG, Converse, Hush Puppy, BVD, to name a few), are closing shop fast. Last I heard, the unemployment rate is around or above 20%.
You can always count on politicians to pick the worst, of the available choices.
Best Regards
Sergio