“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.
On to fallacy #2 - that prices will remain the same and you'll have your entire (gross) paycheck. Well, no. It's either/or. (C'mon, you knew deep down it was too good to be true.)
Remember I said the manufacturer had 23% in hidden taxes with which to reduce his price? Well, that 23% includes withholding -- plus the employee portion of FICA and Medicare (7.65%) plus the employer portion of FICA and Medicare (7.65%) plus corporate income taxes. (Keep in mind that labor costs are only about half the cost of the car -- materials and overhead represent the rest.)
This had been a basic argument on this board -- how much is there in hidden taxes (I've seen claims as high as 32%) and how many of those taxes will be kept by the employer and used to reduce the price of the product (before the Fair Tax is added).
The other side of the argument, the one you alluded to, is where the employee gets his gross pay (his withholding and his portion of FICA) and the employer only keeps his portion of FICA and corporate income taxes. In that scenario, the general concensus on the board has been that represents about 9% of the price of the product.
In that case, a $21,000 domestic car will reduce to $19,110 -- add the 23% Fair Tax and the price is now $24,843. Still under the import. And, again, that's assuming the domestic manufacturer will pass on the entire 9%. He's not required to.
But you do have more to spend. How much more depends, of course, on how much tax you're currently paying (after deductions).
Under the "I get my gross paycheck", I've demonstrated that domestic goods will go up around 18% (for example, the car from $21,000 to $24,843) and imports 30%. Assuming you buy the same amount of each, that means an average price increase of 24%.
"I believe foreign manufacturing costs, especially in the Far East, are less, and they have room to maneuver on price."
Sure, foreign manufacturers may have some flexibilty. But any "maneuvering" will cut into profits. Or quality. Plus, foreign governments aren't going to be real happy with what the Fair Tax has done to their competitiveness. Your attitude may be, "Good, see how they like it !", but I'm saying they may retaliate with a tariff on our exports to their country. I doubt they're going to just sit there and watch their factories close.