Nothing is difficult to understand about it.
What you do not seem to understand is that there are many other areas that will benefit. Both sides must be quantified and compared to see what the NET effect is.
For example, suppose you are 55 years old and planning to work until 65. You have $200K in already-taxed savings, and can afford to add $5K per year under the income tax. Without income and payroll taxes you could afford to add $20K per year.
This is the breakdown of earnings, savings, and spending:
Earnings: $125K
PIT:
Savings (401k): $15K
Savings (A-T): $5K
Fed Income + Payroll Taxes: $35K
Spending: $70K
FairTax:
Savings (401k): $15K
Savings (A-T): $20K
Spending: $70K
FairTax: $20K
When you were 65, assuming a 7% rate of return and 28% Federal Tax bracket, the 401k accounts are equal, but the A-T accounts are very different:
Income Tax would allow A-T savings to grow to only: $390K
Under the FairTax, your A-T savings would have grown to: $670K
Spending that money over a 25 year period would allow for withdrawals:
Under income tax system: $2,800/month
Under the FairTax system: $4,800/month
Since only $3,640 would be needed to buy $2,800 of goods and pay the $840 FairTax, this person with 10 years left to work gains so much by his accelerated savings rate that the FairTax leaves him with MORE purchasing power in retirement. He can spend $3,700 + $1,100FT each month compared to $2,800 he would have had under the income tax -- if he actually owed any income tax on the interest, he'd have even less.
Even if we assume all the gains on his savings was long-term capital gains at a 15% tax rate rather than 28%, those savings would grown to only $422K and allow for only $3,100/month withdrawals.
Note:
I assumed ZERO income tax owed on gains after retirement.
I assumed ZERO price drop under the FairTax.
I assumed FULL 23% rate of FairTax, no FCA benefit counted.
So your original comment "damned near everyone over 50 who has saved anything (will get screwed)" doesn't bear out, does it ? Here is an example of your typical 55 year old middle-income worker that benefits greatly.
Problem is, that can not be done without making more guesses than most rational people would be comfortable with.
This is the breakdown of earnings, savings, and spending:The income tax + payroll on $125,000 with $15,000 put into a 401(k) would be ~$31,000, not $35,000. And that's assuming a couple both working so the payroll tax is applied to the full amount and nothing but the standard deductions.