For a tax proposal to be revenue neutral, the Feds will be getting the same revenue before as after. Since the individual is the only "real" taxpayer in the system, your real taxes will not be reduced. They will probably go up, because the leisure class will be able to avoid even more taxes.
My guess is that these "fair tax" people are going after the one time buldge in tax receipts they will get from the double taxation of the retirement savings from the "baby boomers" about ready to retire.
You are forgetting the expenses to a business that will be removed -- without reducing the employee gross at all. Businesses pay an average of 3% of revenue as income taxes and 2% of revenue as employer-matching of FICA taxes. So that is 5% right off the top at the retail level. Now add in the expenses associated with paying and tracking those taxes. The employees that do nothing else. The business decisions that are made for tax reasons rather than sound business reasons. The higher cost of borrowing money because the lender must pay income taxes on the interest they charge. It goes on and on.
Now apply that same saving to each layer of a supply chain.
It is logically impossible that there would be no price reduction. That price reduction will be MORE than the taxes the business paid. It has to be, or else you are claiming all the other costs which did not contribute to the value of the product must have been FREE.
So you can esitmate the price reduction two ways:
1) Figure it for each business in a supply chain and add up the savings to each business.
2) Take the total taxes paid by businesses -- including non-coporate businesses -- and their compliance costs, then divide that by the total revenue for all those businesses.
The "compliance cost" is an unknown. Estimates range from $200B to $800B. The actual taxes paid are readily availabe from the IRS databook -- they total $800B. So there is somewhere between $1T and $1.6T that business will save with income and payroll taxes removed. That is not a trivial cost reduction. It is between 9% and 15% of the GDP. And it doesn't include any of the costs of the economic inefficiency of all that wasted effort or poor business decisions.
The 22% price drop may not happen. But it is fairly easy to see that SOME significant price drop is available.
If businesses can't drop prices more than 10% without reducing gross wages, then that is all they'll drop them. It seems unlikely that they'll fight employees to take a cut in gross wages.
As far as "double taxation" of retirement savings goes, how much of that is there ? If it was saved in a 401k or IRA, it never got income taxed. It did have SS taxes against it -- unless it was earnings above the SS cutoff point. If it is savings outside of a tax-deferred plan, then it is paying income tax on its interest earned -- and that won't be the case after the FairTax is in place. That money will grow faster without having income taxes siphoned off of it each year. And when it is finally spent, it will be spent on items that cost less than they would have under the income tax system.
Actually, if the income tax continues, the IRS is currently owed $3T on income that had its taxes deferred by going into 401K and IRA accounts. It seems unfair that Roth IRA and other non-deferred accounts have already paid income taxes and won't get as big a break as the tax-deferred account holders. In fact, there are two aspects of the FairTax I'm not wild about and would change if I could. This tax holiday on income-tax-deferred accounts is one of them. If the deferred income taxes were collected from those accounts, we could reduce the FairTax rate from 23% to 19%. The second thing I'd change would be the "Prebate". I see no reason why everyone shouldn't contribute to the cost of running the country on a flat percentage of what they consume -- progressivity is just a way of punishing success . Eliminating the Prebate would lower the rate still further -- from 19% to 16%. These two changes would reduce the temptation to evade the FairTax, as well as stop those that are currently paying no taxes from voting for more spending and higher taxes to pay for it.