The only other Fairtax possibility is all prices go up 20-30% which doesn't put the US at any advantage vs. imports, and would be grossly unfair to anyone with accumulated savings.
Dear RobFromGa,
Thanks.
Yeah, either folks don't get back their taxes, in which case, take-home wages stay the same, but then prices can fall to accommodate the NSRT, or folks get back the taxes they pay or are paid on their behalf, and retail prices increase by 30%. If 30% is the right number (I think it may wind up being a little low), well, it's supposed to be revenue-neutral, so overall, on average, folks break even.
Because, there really isn't much by way of "embedded tax costs" or "embedded compliance costs" in the economy.
Ironically, Rob, it would have been different if this had been proposed 30 years ago, or so.
Back then, corporate profits were much higher, and corporate income taxes were a much larger part of GDP. Corporate income taxes averaged well over 5% of GDP. Cascade that a couple of levels, and you really do wind up with significant savings to be had by eliminating the corporate income tax. Maybe not 22%, but maybe 10% - 15%.
But the last 20 years have seen increasing competitive pressures in the US economy, and companies have squeezed down costs, and accepted much lower levels of profitability. I read an article not too long ago that gave significant credit for this result to Wal-Mart, all by itself.
That's because Wal-Mart has a pretty strict ethic of taking low net profits on revenues (and thus owing little by way of corporate income taxes), and has pushed hard on its own suppliers to keep their costs as low as possible, thus depressing their profits, as well. Their pricing discipline has permitted them to compete ruthlessly, and gain huge market share in their market segments. It's been an excellent plan for them, in that their total revenues now amount to more than 2% of the GDP of the United States. Think about that one!
Price competition, and the use of technology to intensify price competition, have squeezed a lot of profits (and thus corporate income taxes) out of the corporate economy.
This has been good, overall, for consumers.
But it means that there is little by way of "cascading taxes" or "compliance costs" with which to lower overall price levels.
That's just the reality of things, no matter how much others assert (without evidence) to the contrary.
sitetest