That is a definite problem, and I’ll admit I don’t have a good answer. I’m one of those folks set to get screwed by the change-over. If I oaid income tax on a Roth IRA, and I take that money out to buy a can of beans with the fair tax attached, I’m paying tax twice on the same money.
Any change in the tax system will be subject to that problem. I don’t see any way to get around it; either you build a whole new bureaucracy to distinguish pre-tax from post-tax money, or you just suck it up. Any transition has short-term pain, and that shouldn’t blind us to the long-term benefit.
I repeat, for emphasis, that I’m one of the folks who will pay the double-tax. I still think it’s worth it in the long run.
It’s one of many flaws in the FairTax plan. And not every tax reform plan will have the same problem. In this case, with the retail sales tax, you wouldn’t have the problem if people were expecting to get approximately their current take home pay (employees and business owners).
But the promise of 25% larger paychecks (the guy up higher in this thread is expecting a 40% higher paycheck) is where most of the problems with the FairTax stem from...