They want to shift all the tax burden to sales because it acts as a subsidy to exports because exported goods are not taxed.
It also acts like an import tariff because all of the tax burden is on sales and it is born equally by both domestic and foreign goods. Most foreign goods would also have embedded taxes from their home country as well that contribute to their cost.
The shift from an income tax to a sales tax will also generate a huge spike in the price of purchasing items (including the taxes). You will get more dollars in your take home pay to offset that, but each dollar buys less.
If you think the weak dollar is a problem now, what do you think an instant 20% to 30% drop in domestic purchasing power would do?
How do you think all the nations that have been financing out debt that we would then pay back in devalued dollars would feel about that?
I'm thinking it would be much harder to get financing for our national debt, and since we are constantly paying off and refinancing short term debt, it wouldn't just be a problem with borrowing for new spending. A lot of the debt we owe would come due, and we wouldn't able to refinance the old debt either.
The "Fair Tax" would very likely bankrupt the US simply because we would screw over our creditors to the point where they wouldn't continue to lend us money any more.
Superb analysis. Thanks!