Yes, tax-deferred would be taxed once under the FairTax.
Under the PIT, however, the tax-deferred money would have been taxed twice.
So the fairness issue in comparison to the non-deferred account holder is still an issue.
Perhaps it was not clear from my original post when I said I am convinced retail prices include hidden taxes, so the double-taxation implied was not evident.
The FairTax view of the current PIT/Payroll Tax system is that the burden of business taxes and compliance costs fall on the consumer. I accept this as a working assumption in my proposal.
This means that under the current system, ALL income that is spent is being taxed twice -- once by the PIT/Payroll paid by the individual and again by the hidden taxes in the retail price of goods and services.
So under the CURRENT SYSTEM the non-deferred-account money has only been taxed once until it is spent. At that point it is taxed a second time.
Under the CURRENT SYSTEM, the deferred-account money has not been taxed at all yet, but will be taxed twice by the time it has been spent -- once when withdrawn, and again when it pays for the hidden taxes in the goods or services purchased.
Under the FAIRTAX SYSTEM, the non-deferred-account money has been taxed once under PIT, and it will be taxed a second time at purchase.
Under the FAIRTAX SYSTEM, the deferred-account money has not been taxed at all yet, and it will be taxed only once when used to purchase goods and services because there are no longer hidden taxes embedded in the price.
So the benefit to the deferred-account holder is a windfall compared to the CURRENT SYSTEM, whereas the non-deferred-account holder is not penalized compared to the CURRENT SYSTEM, but he does not receive the windfall.