If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups. Except that with consumption taking a hit, there might not be a sufficiently large market for all that new business.
“If the wealthy were to reduce taxable consumption, that would be great for capital formation and business startups.”
But they won’t reduce consumption, they’ll simply consume outside the FairTax zone. Instead of maintaining a household with staff, vehicles, parties, etc. in the USA, their main home will be outside the USA and they’ll simply visit often enough to make those business decision that can’t be made remotely — of which there are very few.
Even if they stayed here and simply saved their money, the additional capital available may grow the economy some, but not enough to make up for the loss in FairTax revenue. The top 1% of Americans earn $2.5T and spend $2T each year, and the FairTax assumes it will collect virtually the entire 23% tax on that spending. If they save rather than spend, then the FairTax receipts are immediately short almost $500B/yr.