NST Fair Tax and Two Currencies

Buongiorno specie al mio preferito!

Gov. Huckabee almost has me convinced with the Fair Tax proposal.

I get the uniform minimum exemption, to relieve the burden on the poor.

I get the slick way that it captures currently untaxed economies in our economies.

I get the way that it unburdens incentives on saving and investment, and doesn't punish creation of wealth.

As long as it is an end use tax only, I can see how it might eliminate hidden compound/pass along taxation.

I get the way it eliminates a convoluted tax code and IRS, and replaces it with a what should be simpler and easier to understand NST collection and reporting agency.

I get the way it throws millions of tax accountants out of work. I mean, displaces their efforts.

It has way more positives than negatives, but there is one thorny issue that I've never gotten a Fair Tax advocate to address, and that is, the Transition Problem.

When I bring it up, it gets hand waved away. If that is how it is going to be treated, then if it ever happens, it is going to create an enormous opportunity for displacement of wealth between those paying attention and those not to the fact that the transition is going to create two currencies in the economies for some period of time, PRETAX currency and AFTER TAX currency.

Something tells me that banks and financial institutions are going to be able to figure this out.

Something tells me that an awful lot of just plain folks with money in their checking and savings accounts will be among the folks not figuring this out.

One day, you deposit your hard earned AFTERTAX dollars into your checking account, and some time later, you withdraw your brand new PRETAX dollars, ready to go spend and be taxed again.

One day, you are a retiree living on AFTERTAX assets, and the next day, you are retiree freshly finding out that you are living on PRETAX assets.

I seriously doubt that we are going to go to the trouble of actually issuing a new currency, or establishing an exchange rate between them, and so on. Too complicated.

So...that leaves, opportunities to pay attention and not get hosed, or just live your life and get hosed. IOW, for some of us to game other of us and/or the economies to extract value from the unsuspecting.

Rest assured, banks and lending institutions will pay attention to the details.

For example, if you borrow AFTERTAX dollars from someone, I doubt if they will be happy with being paid back with PRETAX dollars without an adjustment in the interest rate being paid. Got a 30 yr mortgage? Been paying it off with AFTERTAX dollars? It will be a relief to pay it off with PRETAX dollars, won't it?

Of course, that's the way the bank will feel, too, when it has to pony up those demand accounts. You deposited AFTERTAX dollars, but they will deliver PRETAX dollars when you make a withdrawal.

I'm wondering, will you keep your old currency in demand accounts during the transition to Fair Tax? Some will, some won't.

Will you attempt to convert as much of your AFTERTAX assets as possible in the old economies into real/transferable assets of some type and carry them into the new economies?

Will you attempt to borrow as much AFTERTAX credit as you can in the old economies to do same, and then pay back those loans with PRETAX dollars in the new economies?

Of all the things a Fair tax is or isn't, what it clearly also is is an opportunity to tax the same income TWICE during the transition, if folks try to carry AFTERTAX proxies across the transition.

I mean, assuming this complicated transition issue is not addressed by recognition of the two currency problem, and advocates just hand wave it away and claim "it will take care of itself."

Eyes glaze over.

"Not a big problem. It will work itself out."

Then...get ready for more sharks in the water.

Reguarda,
Frediano