As I said, it might be workable on the PTS accounts. Adjusting for the price drop industry by industry or even item by item sounds cumbersome to me, and I wonder how anyone would know if they were being charged correctly if the amount exempted due to a PTS card fluctuated that way.
How about the future earnings on the PTS money ? Would that not be allowed to accumulate in the PTS account but be immediately transferred to a non-PTS account ? That sounds cumbersome, too. If I have 1000 shares of a stock in my PTS account and those shares are valued at $25K at cutover, then I sell 500 shares five years later for $18K, would we be leaving $12.5K in the PTS account and automatically transfering the other $5.5K to a non-PTS account ? Sounds like a lot of work for my broker, but technically possible. What about losses ?
It almost sounds like you'd have to perpetuate the Income Tax for those PTS accounts, plus some additional complicated rules.
As my example shows, it doesn't seem necessary to do all that to maintain fairness.
Actually, I guess the value of investments within the PTS accounts at cutover would be the cost basis when they were purchased, rather than their present day value. Otherwise you'd be exempting from FairTax more than the already-taxed money in the PTS.
Say I paid $10K of after-tax money for some stocks and have never realized any gains, so I've never paid any income tax on the gains. Those shares are now worth $30K, but the PTS exempt value should only be $10K, right ?
Complicated if there are losses to account for as well. Maybe a one-time credit into the Prebate account for the FairTax rate would be easier. But then you get into the whole issue of whether the PTS money would actually all be spent on items subject to the FairTax.
As my example above shows, it isn't unreasonable to expect only 2/3 of retirement spending to be on FairTaxable items. That makes the FairTax rate an almost identical replacement for the effective income taxe rate on future earnings of the nestegg.
You haven't commented on my example. Is there something about it that you have questions on ? I kept it simple.
How would they know for sure?
They wouldn't.
Who would slpit hairs about being off by 2% or 3% when the alternative is at least a 23% body blow?
Perfection is the enemy of the good.
Yes, it is cumbersome and it might take 100 or 200 U.S. Government bean-counters working year-round to keep it all straight (more or less) using U.S. Government monthly cost of living data.
Being very generous, if we pay each of those 200 U.S. Government bean-counters $70,000 per year to do that "cumbersome" work, it will cost the United States of America $14 million to protect the hundreds of billions of dollars of already-taxed savings that American citizens have saved.
How about the future earnings on the PTS money ?
Very simple.
Your PTS Debit Card would be worth exactly the amount that you had in post-tax savings the second before the Fair Tax took effect. Period.
What about future earnings?
Those were earned during the Fair Tax era and they would fall under the Fair Tax rules. If you wish, you could withdraw the amount to spend as you would any other Fair Tax money. However, that money will not add a penny to your PTS Debit Card amount that was fixed the second before the Fair Tax era began.
The PTS Debit Card amount is carved in stone the minute the Fair Tax takes effect.
There is nothing "cumbersome" about it.
If your PTS Debit Card account started out at $1 million the day the Fair tax took effect, the amount in your PTS Debit Card is $1 million. It will go down as you spend it but it can never go up by a single penny.
Once your PTS Debit Cards amount hits zero, that's it. It's gone and you are now living 100% in the Fair Tax era.
But what if your investment doubled your money in a year.
Good for you. The $1 million in your PTS Debit Card does not get a single penny added to it. The other $1 million is under the Fair Tax rules.......No income tax but you pay the Fair Tax when you spend it.
What about if you make a foolish investment? What if you had $1 million on your PTS Debit Card to start out but you blew half of it and only have $500,000 left in your account?
Too bad. So sad.
Once your PTS account goes to zero, your PTS Debit Card goes "Poof". Sorry. All your post-tax money is gone. Shoulda been more careful with it.
As my example shows, it doesn't seem necessary to do all that to maintain fairness.
As we said before, every person will have a different portfolio. "Close enough for Government work" might mean a few hundred dollars for one person or hundreds of thousands of dollars for another.
In my souvenir collection, I have an uncashed check from my Navy warship (with the ship's name on it) dated 1981 for..........17 cents.
The U.S. Navy would round out your pay to the nearest dollar every pay period. However, at the end of the fiscal year, if you had been short changed, even by 17 cents, the Navy would cut you a check. All the human programmer has to do is give it the instructions.
When you have spent decades of your life during the income tax era sacrificing to build your savings, you don't want a "good enough for Government work" treatment of it.
You want it done correctly or a near imitation thereof.
Maybe getting it down to the last 17 cents is being way too anal-retentive but "give or take 23% to 28%" is definitely not acceptable.