TL;DR: Even analyses promoted by FairTax.org show after-tax prices immediately increasing by 24% after implementation of the FairTax. This would be offset by increased income. As for the value of my current savings... who knows...
The $265 billion spent on compliance is just for the accountants and lawyers hired to understand the tax code, you're also not factoring in the % of the price built in to cover all of the various taxes the business pays.
Yeah, but to think that the 30% sales tax increase would be completely neutralized by price reductions is magical thinking. Let's assume the businesses use 100% of their portion of the payroll taxes (500 billion) and 100% of corporate income taxes (270 billion) toward lowering prices. That still leaves 1.3 billion in income tax savings (paid by the worker, not the corporation) and 500 billion of payroll tax savings paid by the worker. Since those aren't paid by the emplyer, they don't see that savings unless they cut wages, so those tax shifts can't be used to lower prices. So, in the best case, only about 30% of the current federal taxes could possibly be reflected in lower prices, as only 30% of these taxes are paid by employers and 70% are paid by the income earners.
That would mean there would still be a
price increase of 21% (70% of the 30% FairTax) attributable to the fair tax in the
best case scenario.
That is pretty close to the estimate that the FairTax proponents publish. I found
an analysis on the FairTax site that predicts a
one time immediate after tax price increase of 24% to prices of goods and services and a
one-time immediate increase of 27.4% to income. this is based on the fairly extreme assumption that 100% of payroll tax savings would be reflected in price reductions rather than any increase in corporate profits or hiring.
...we assume that all corporations pass the payroll tax savings to consumers, putting downward pressure on before sales-tax prices.
That pretty much puts to bed the notion Travis put forth that a 30% sales tax won't increase afer-tax prices. Granted, the FairTax argument is that income will increase more than prices. In the long term, that may be good, but we are talking a major shitstorm for a while as prices settle out, and suddenly, any new products I want to buy with my mustachina savings just spiked in cost by 24%. Craigslist will do a booming business...
If you ask me, there is a reason that the FairTax FAQ skirts around the issue of price increases by stating "it will depend on market forces", and I suspect it is the same reason they call a 30% sales tax a "23% inclusive tax".
It is because the real numbers will scare the shit out of people.
Anyway, I've spent about as much mental energy on this as I care to. It's been fun to discuss, but I've come to the conclusion that a national consumption tax would work better as a VAT than as a retail sales tax like the FairTax.