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Here’s how I look at my after-tax cash and portfolio.

First, part of my wealth is the ‘growth’ portion from original after-tax principle amounts. For example, $100,000 put into a Roth IRA is now worth $250,000. Only $100,000 was taxed.

The same with stock if we are lucky enough to not have a paper loss in today’s market, I would look at my initial after-tax investment of say about $1 million and see that it has grown to $2.5 million. So $1.5 million is not after-tax, it is untaxed. And under the FairTax, the $2.5 million will have no cap gain, and $1.5 million will be taxed for the first time if it is spent on retail.

So I am looking at having $230,000 of the the original taxed amount of $1 million be given over to the federal government. And at this level of wealth, the rebate doesn’t matter much.

But what would I buy for $1 million? Would I draw on it in retirement for living expenses? Living expenses would not be large expense items for me so the Rebate would mean something then.

Would I buy real estate? New or used?

If I buy a beautiful new home for $1 million, I will see $230,000 go to the federal government. But as it stands now, if I buy the new home, I am paying everybody in the supply and production chain and the builder, I am paying all their federal taxes associated with bring that home to market. Numerous analyses put those taxes at 20%.

On the other hand, if I buy outside the USA, I will probably pay little if no tax at all on the purchase of new real estate, except for the embedded taxes of the building and suppliers, etc.

And that is how it stands for any major new purchase.

Now what might be feasible to overcome this double taxation objection is to include a provision that those withdrawing from a Roth or from documented after-tax principle amounts only (not growth), that they can present a certified letter from their bank or retirement account, and be exempt from paying the NRST, except for a ‘glitch’.

This ‘glitch’ is exemplied as follows. To build a home under the FairTax, it will be less costly, there is no doubt because all the present taxes will be gone. Costs will be lower all up and down the production and supply chains. A stud at Home Dept selling today for $2 retail will be priced on the shelf at $1.60. Adding in the 29.9% NRST exclusive rate will bring its purchase price to $2.08. For a builder it will be much less.

In other words, new homes will not cost as much to build under the FairTax. They will be sold at roughly the same price as today because the NRST will be added.

That means when you spend your after-tax savings on new items, your price will not be much more. So there is an argument against giving you and me a huge tax break via exemption.

If I or you want to buy a new home with our after-tax principle, we may petition the FairTax legislation for an exemption but we may also have to get cost appraisals on the new property comp’d with similar used properties to show we are not getting hammered twice.

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