What do you think will happen to the PRICE of a gallon of milk under the FairTax. Or a car?
I say that the shelf price (pre-tax) might drop as much as 8%, making a $10 item cost $9.20. Then if the rate was only 29.87% as you all promise, the tax would be $2.75 and the total out-the-door price would be $11.95. That is 19.5% higher than it is today under the income tax.
If I had a bunch of after tax dollars and I was planning to buy a retirement home, then this same 19.5% price increase would cause me to need 19.5% more dollars to have saved up in order to buy it.
I call that instant inflation, you can call it something else if you want. The saved dollars are worth less.
Of course all the wage earning people will have more dollars because they are promised their entire paychecks. They will have more dollars and things will cost more. Prices and wages have both been inflated for the wage earner.
Don't you think Kotlikoff, Gale, Jorgenson - anyone - who has studied that plan would have brought that up?
I say we get Paul Volcker back in the Fed and raise interest rates by 800% because ROB SAYS we are going to have inflation.
How does he know? Easy, he explains it.
Where is the economic paper? I mean your inflation numbers are big news and would have a drastic impact on the entire world. Shouldn't some economist somewhere have been able to noodle out your little equation?
First of all Rob the tax wouldn't affect Real Estate, because it probably would be exempt from sales taxes as it is now. Things such as Property, vehicles (in most states), and other "real" property is assessed sales taxes and wouldn't fall under consumer goods taxed under the fait tax, I would hope.
Also, your assumption of an 8% price drop, IMO, is quite conservative. The price drop could actually be more like 15-20% with the removal of many business related taxes, and the increase in consumption that will occur due to individuals having more money to spend. The Christmas season is a microcosm of the effect. In years where the economy is doing well during the season consumption is high, whereas in seasons where there was even a perceived depression or resession consumption was down. It will be on the news this year as well, I'm sure. But with the fair tax, and the drastic increase in disposible income for most families every season will be a good Christmas Season.
"Transitional issues are often perceived to present a formidable obstacle to the enactment of a consumption tax reform. Although a wide variety of transitional problems would arise with such a reform, most discussions have focused on two issues. First, in the absence of transition rules, the enactment of a consumption tax reform might result in a one-time fall in equity prices. Under a value-added tax or national retail sales tax, this would most likely occur due to inflation in the form of a one-time tax-induced increase in consumer prices that would reduce the purchasing power of existing real assets."