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PaperclipPerfector  1yr ago (text post)   36399 thread views

Culture War Roundup for the week of April 10, 2023

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As a free-market libertarian, I generally agree on "price gouging" - the real value is what the market pays. However, there is a moral risk of a bunch of companies just raising their prices precipitously and blaming the FairTax: "It's not our fault, it's the government." Therefore, there are provisions for transition relief.

When I heard it on the radio over 15 years ago, it was phrased in terms of price gouging; it's actually found in the text of the bill in the form of an inventory tax credit to avoid double taxation (and thus avoid price gouging). Here's an article on the transition rules from the people pushing the FairTax, or hear the article read aloud in a 10-minute YouTube video. I've included the URL here ➡ with a time-stamp for the three explicit transition period rules, and pasted the relevant one below:

First, since inventory is not deductible under the income tax until it is sold, existing inventory will have been acquired with after-tax dollars. To then subject inventory held prior to the effective date of the FAIRtax to a sales tax would constitute double taxation and disrupt markets. Businesses that have inventory held on the date prior to the enactment of the FAIRtax qualify for a “transitional inventory credit” if the inventory is sold subject to the FAIRtax within a two year period. Qualified inventory shall have the cost that it had for federal income tax purposes for the active business as of the end of the final income tax year. The credit is equal to the cost of the qualified inventory times the FAIRtax rate.

To ensure that the inventory credit can follow qualified inventory through the supply chains, businesses may sell the right to receive the inventory credit. The inventory credit indirectly allows for a transitional period for manufacturing and retailing to adjust to pricing without the inclusion of income and payroll taxes, corporate taxes, and compliance costs that before the FAIRtax were a large percentage of the cost passed along to the consumer. This means being able to keep some prices the same immediately after the effective date and then change prices over time, removing the inducement to buy or sell just before the effective date.

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