But Dr Jorgensen assumed an excessive amount of labor costs in his calculations. In this country labor is making up a smaller and smaller amount of production costs of manufactured goods as the efficiency of capital rises year after year.
To the savings in actual embedded tax and embedded fica, you have to add the enormous burden of tax accounting, and reporting that is imposed on business. In anything but the smallest business it is the cost-center that falls right after raw materials and labor. For most manufacturing businesses this would totally disappear. Corporations would not pay or file taxes unless they engage in retail sales.
The calculation model for Fairtax has been rigorously gone over by large number of economists (check the faq) and it has been found to be very sound.
Pick at all the nits as you may, it does not collect more (or less) Tax, and will not raise the total price at the register more than the increase in your paycheck. It couldn't.
I agree with you on those points.
Take the two possible extremes on my conversion from the current income tax to the Fair Tax:
1. Businesses reduce their pretax prices by the entire 22% embedded tax amount which is increased back to current price levels by the sales tax, but businesses reduce payrolls so employee's new full paycheck is equal to their old net. As an employee, I will continue to take home my current net pay and spend the same amount on goods and services. I end up about the same as now. I can buy just as much stuff with the sales tax as I could with the income tax.
2. Businesses continue pay employees their full gross, but cannot reduce prices significantly. Prices - after the addition of the 23% (inclusive) sales tax - will go up. I get more pay, but I have to spend more money for the same goods and services. I end up about the same as now. I can buy just as much stuff with the sales tax as I could with the income tax.
You could pick other cases in between those two extremes if you want a small decrease in gross pay and a small increase in after-tax prices.
There is no option 3 where I take home my current gross paycheck, but prices after the sales tax remain at their current levels. If that were true, I would be able to buy about 25% more goods and services than now. If everyone could do that, that would imply an immediate increase of the real GDP of 25%. That's not going to happen in a year because of changing the method of collecting the same amount of tax.
Getting rid of the IRS, the progressive tax code, all of the social engineering, all of the bribes to Congressmen, all of the accounting and all of the inefficient actions by companies and people who are trying to avoid income taxes would be a help to the economy. It would boost the economy tremendously. Even a 1% per year increase in the GDP would be huge. Just don't tell me I get my entire current gross paycheck and current prices remain the same with the Fair Tax. That's just a lie.