There are millions of people with Roth IRAs planning to spend them down during retirement. Not to mention the trillions of dollars in other savings and investments in citizen’s hands.
You’re hand-waving away a fatal problem.
A tone of hostility rather than discourse can limit response. Putting that aside, here is how it works:
There is no “fatal” anything in allowing Americans certain limited temporary exemptions from consumption tax. Exemptions are always temporary and single-use during a period of transition.
Exemptions are always temporary for the simple reason that once exercised, the exempt assets are no longer exempt. Hence, a wave of exempt transactions is followed by ongoing non-exempt waves. The impact on Treasury has less to do with the amount of exempt money than it has to do with the velocity of non-exempt money.
Purchases of used assets are always exempt.
Exemptions can be granted to documented assets that remain after federal tax treatment. It is a trivial task to designate asset classes as post-tax. Accountants do this as a matter of course; ebitda versus post-ebitda net profits.
Funds remaining after taxes are easily verified from bank or recorded financial statements. An individual can carry a payment card linked to a bank or financial entity that designates how many dollars are exempt, and how many are not within a framework of rebate tagging.
Each purchase can calculate how much tax is owed based on exempt versus non-exempt dollars used. The tax can be reduced as a matter of course depending whether rebate limits have been reached. Rebates can be done real-time.
Transitory exemptiions can fold in with rebate allowance credits. Rebates are ongoing and permanent.
Repeating: Any tax exemption would be transitory and of minimal effect because once the exempt funds are used, they become non-exempt.
After a short few years, exemptions will be rare to non-existent. In this sense, transitory exemptions can be used to make a consumption tax very appealing because the current income tax system does not allow for consumption to avoid embedded taxes in products and services.
The income tax system leads to double, triple, multiple taxation. Simply put, our post-tax funds are used for purchasing items that are loaded with embedded taxes passed on to us. We pay the taxes of producers when we purchase their products.
Exempting certain fund accounts or conversion of qualified assets is straightforward. Accounting practices can clearly designate which assets have already undergone federal income tax treatment. Assets so designated can be credited with exemption status when used in retail transactions.
Card transactions linked to banks can easily keep track of how many exemption credits remain until they are used up. This is a tractable process requiring only a designation and/or registration of exempt assets. Keeping in mind exempt assets are transitory, they won’t exist for long inside a rebate framework.
A prevalent example in use today that can be adapted for rebates and exemptions is the cashback Visa/MasterCard. A cashback system can be modified to preload exempt or rebate credits with offsetting debits for each retail transaction.
Cash transaction exemptions will need outside verification. Scannable coupons or card verification might be used, otherwise cash purchases will be taxed. Cash can be or be supplemented with rebate cash.
All the above are under the hood workings. The FairTax system in operation is designed to be easy and simple.
The highest negative to focus on with problem solving is in #22 above.
The reality is in the expectation of much pushback, perhaps “fatal” or the 51-year variety, because the past one hundred years have coincided with the building of an income tax infrastructure that would need to be demolished. That alone makes the FairTax a radical proposition no matter how much it outshines its competition.
Deradicalization of FairTax policy can be achieved via special economic zones. County level FairTax implementation is feasible, especially in rural areas or counties with sparse population. Outside commerce would need conditions and restrictions.