RE: I their federal tax rate went down to 9%, don’t you think the competiton between car companies would cause them to lower their prices—lower them enough to cover the additional sales tax
Here’s the problem as I see it, no matter how many times you make this same explanation, there will still be people who do not believe that competition will drive down prices. In fact, I know of many people wo insist that the drop in tax rate will cause companies to USE the extra money for other things (e.g. padding their bottom line). Benefits to consumers will be the last thing on their mind.
This mentality of course, flies in the face of actual experience in other countries.
Australia introduced a GST ( Goods and Services Tax in conjunction with a huge lowering of income tax rates under the 10 year term of Prime Minister John Howard starting in 2000 ).
The same worries about the price of food and clothing skyrocketing were written in paper after paper ( I should know, my own family lives there and I visit there quite often, and READ about it on the internet ).
A subsequent study 4 years later by the Queensland University of Technology showed that the total effect on consumer goods by the introduction of the GST was NEUTRAL.
Beyond a small one off lift in price of 2.8% when it was first introduced, the long term effects were statistically insignificant.
See here:
http://eprints.qut.edu.au/423/
I know that this will not convince the unconvinceable, but a real life 10 year experience is there for all to see.