You are correct. My math was indeed faulty.
A 21,000 car today contains about 23% in hidden U.S. taxes that the Fair Tax will remove. This will drop the price (assuming the manufacturer passes on all of the savings) to $16170. Add the Fair Tax of 23% and the car is back up to 21,000.
(No, that's not an error. The Fair Tax rate of 23% is not applied like a sales tax even though it's called a sales tax. It's applied like an income tax.
For example, a $100 item on the shelf contains $23 in Fair Tax. Ergo, 23%. The item without the tax is therefore $77. A tax of $23 on a $77 item is a 30% sales tax.)
Back to the cars. So a domestic car stays at at 21,000. If the import it competed against was also priced at $21,000, its price will be going up to $27,300. (That price contains 23% or $6,300 in Fair Tax added to a $21,000 car.) The price of the import can't be reduced because there are no hidden U.S. taxes.
"All of a sudden the US economy gets a big shot in the arm because domestic cars are now competitive with the foreign"
They sure are! What used to be head-to-head competition is now a blowout! $21,000 for domestic vs $27,300 for foreign? A no brainer!
Now, between us boys, how long do you think Detroit will keep its cars at $21,000 when imports are at $27,300? Hell, they can go to $26,300 and still undercut them foreigners by a thousand bucks! And that gives them $5000 per car to give them union boys a big raise and the whiny stockholders some dividends.
Am I right?
“Now, between us boys, how long do you think Detroit will keep its cars at $21,000 when imports are at $27,300? Hell, they can go to $26,300 and still undercut them foreigners by a thousand bucks! And that gives them $5000 per car to give them union boys a big raise and the whiny stockholders some dividends.
Am I right?”
Maybe...The union boys got a big raise when they no longer have to pay income tax. And union wages in the US auto industry, along with really lousy management, are why US cars became uncompetitive. The other part of this - I believe foreign manufacturing costs, especially in the Far East, are less, and they have room to maneuver on price. This is even true where the foreign manufacturer is making the cars in Marysville, Ohio (Honda) etc. They make a lot of their parts (and profit by inflating parts cost to the US plant)outside this country...that is how they keep profits in Japan and pay little income tax in the US.
Then there are the cars with foreign names that are produced domestically.