Rob
I went back and read your "Fair Tax Primer" from the link on this post. I don't argue with the numbers you used to judge the amount business could lower the price of their product. I have a problem with the numbers you didnt use, the ones that show the reduction in cost of their incoming raw materials, the reduction their suppliers realized. Obviously this will vary from business sector to business sector but your analysis is oversimplistic.
Good clarification.
The largest area of tax savings in the FairTax will be the elimination of the employer half of the SS/M payment. This is 7.65% which can be saved on the total payroll of the company. If we assume that a company's costs are all labor, with a 10% profit margin (after paying all costs of doing business), and no one makes more than $94k wages, then the potential for savings is 6.9% if the company keeps all of the "employer half". (90% of 7.65%). Then there is compliance savings which for most businesses will be below 1%. And corporate taxes are only paid by C corps. So, for most businesses the corporate tax rate is zero. So, this example gives a max 8% savings, and with a entity that pays corporate taxes it might be as much as 10% cost savings to pass along.
In the case of a business that was not all labor, say 40% payroll costs, and 50% incoming raw materials (let's say all domestic supplied, no foreign content), and the same 10% profit margins.
In this case the savings on payroll would be 40% of 7.65% which is 3% savings, plus the previously calculated max 10% savings on the incoming raw materials, which is 50% x 10% = 5% more savings, plus the 1% compliance savings and we are at 9% plus corporate taxes (in the case of C corps).
If they have more incoming raw material costs, they have lower payroll costs, and vice versa. Both areas will have about the same amount of savings, about 8%, so the percentage of raw materials to labor doesn't matter too much for a rough calculation, which these admittedly are.
I am only trying to show that the 22-23% savings numbers bandied about by the FairTax folk are a farce, and that the real potential savings are in the 8-10% range.
The basic idea is that if I am making a pizza and I save 10% on my pepperoni, and 10% on my cheese, and 10% on my flour, and 10% on my labor, and 10% on my rent-- I have not saved 50% of my costs. I have reduced my costs by AT MOST 10% in this example.
Now if these raw materials are foreign, like oil and many commodities, then there is no cost savings on that part of your cost structure.
I do to. He refuses to acknowlegde the existence of those savings by simply saying "there won't be any".