Well, one thing about such a tax, if it's applicable to new items but not used, is that it would definitely have a significant impact on how people shop for and sell items that are typically available in both new and used conditions. Right now, a new vehicle takes a significant drop in value (compared to what the purchaser paid for it) when it gets driven off the lot. Now, it might not--people wanting to sell a six-month-old vehicle, for example, that might previously have been able to get, say, 80% of the purchase value, would now potentially be able to ask more, by pointing out that even if the buyer pays 90% or even 100%, they're still saving considerably, as they're getting a "like-new" car without having to pay the significant sales tax. Not saying that this is good, bad, or other--but it would certainly have an impact.
Rich, I just took a look at that website, and looked at their PDF on Fair Tax fundamentals--and one significant problem with their assertions comes to mind immediately: such a system will cause short term havoc on the entire real estate system, but will likely in the long term end up with a significant increase in the cost of home purchasing, to the point where it consumes most of the money that isn't otherwise spent on taxes.
The problem, that they don't seem to take into consideration, is supply and demand. Let's say that the Fair Tax is implemented, and let's also say that, as that PDF suggests, it results in the tax burden being reduced for most people. This means that more people have more money in their pockets. Now, let's say that half a dozen of those people are wanting to buy a certain house, that in today's market and tax system is worth $230K, and for all of them, that $230K is the limit of what they can practically afford in today's system. But in this new tax system, they now have more money left from their taxes--and a new house is the single most likely place that people are going to be willing to spend that money. So these people will bid against each other, using that extra money they're getting from their tax breaks, and thus will push the price of that house upward significantly by trying to outbid each other. I'm not sure how high--but based on the fact that the site's PDF says that the overall lifetime cost of a $230K home would be $123K less--over 50% of the home's original cost--and this difference doesn't take into account the tax reductions the buyers would receive in other parts of their lives that could be applied to home purchases, I wouldn't be surprised if the new-found affluence caused by the fair tax would cause those home prices to increase 50-100%, as people would now have that much available to invest in the cost of their home. Their chart in the PDF, showing how much cheaper a $230K home would be under the Fair Tax than it is under the current tax is not a fair comparison, as there's no way a $230K home under the current sytem would cost $230K in the new one. This is why home prices have so significantly increased the last ten years or so, and are now plateauing or falling--they increased because the income that people had available to spend on a home increased, and they are plateauing and fallin because the income that people have available to spend on a home now has plateaued or fallen.
In either system, people who are in the same income level still need to have their dollars compete with the dollars of others in their same income level for the items they wish to purchase. I can't imagine that the "Fair Tax" is going to somehow convince people that they need to save the money they gain through the tax change, rather than spend it. And when everyone in the group receives a similar increase in spending ability, that increases demand--which in turn increases price. And when people pay that increased price, the net gain to those people will likely end up being just about--zero. Either I pay it to the government, or I pay it to the
