“Under the Fair Tax, the Ford would sell for $16,000 and at the time of sale the consumer would pay $4,000 in taxes”
I can’t see prices being lowered by business owners, at least initially. I think that once they don’t have the tax burden, they will look at it as bonus income. Maybe over time prices would be reduced due to competition, but I just can’t see them coming down that much that quickly.
This is one of the complexities of introducing the Fair Tax that is most times not addressed in discussions. The examples with the automobile is when the system is fully in place and functioning. Right now, all inventory, both finished and in process has embedded tax value. A methodology to transition from embedded tax value to point of sale taxation would be required. There are several options available that would work and since the overall trend has been toward just in time inventories, the transition period would not necessarily very long, probably less than two years in even the most complex businesses. Yes, there would be some foolish businesses that would think of it as a bonus and not realize that the funds reclaimed from the tax flow are not a bonus but must be used to maintain wages and dividends. If the Fair Tax system is set up as revenue neutral, the consumer still needs the same size pay check since their tax burden has not gone down, they will just be paying the tax in a different way.
If you believe prices are set by competition and the laws of supply and demand, then prices will come down as the embedded tax burden is eliminated. For anyone who doesn't believe that, then there is no point in further discussion. The prupose of the example was to indicate what an economic windfall the transition to the Fair Tax would be. Take the current total trade deficit and multiply it by 10%. This would be a good approximation of the lost revenue that the US consumer would regain. The number is huge and it is there for the taking.
Also, because income is not withheld by fed, you have more cash to pay the pos tax, painless