The FairTax treats new homes and existing homes differently. New homes are taxed and existing homes are not.
New homes are taxed under the FairTax; however, the embedded taxes are eliminated, which could reduce the purchase price of a new home by 12-20%, depending on the market.
Existing homes comes under “used goods”, which are not taxed; however, the embedded taxes will remain in the used home, which pretty much equalizes the new home and the used home.
New Homebuyers will worry about the added taxes on a new home. What they need to realize is that this home will be 12-20% lower in price than under the previous income tax. Another thing they need to remember is they will be purchasing this home with 100% of their income, so they will have more money to put down and more money to spend on payments.
Builders will worry about a 23% sales tax being added to the cost of the new home he is selling. What the builder needs to realize is that he will not be paying any taxes on the materials that go into the new home (goods can only be taxed once, remember?) On top of that, the builder will no longer have to pay embedded (hidden) taxes such as corporate income taxes and payroll taxes that are also embedded in the manufacture of these materials. And in addition to that, the builder will no longer have to pay ½ of the social security & medicare for his workers plus the compliance costs that go along with the present system of income taxes. The builder will end up with a better profit , or at least the same amount of profit (and 100% at that!), the workers will end up with 100% of his paycheck and hopefully a pay raise if the builder passes some of his savings on to them.
The home buyer will be paying pretty much the same amount for the new home that he would have before the FairTax. He will simply be paying part of that cost in taxes that he can see, not hidden, embedded taxes all the way up the manufacturing line. The home buyer won’t even worry about not getting a mortgage deduction, since the income tax no longer exists, the interest rates will be 25% cheaper and he can qualify for a larger home. He will be a happy camper in his new home!
The Realtor will worry at first that every home buyer will insist on a used home so they won’t have to pay taxes. Sellers would no longer want to sell in order to buy a new home. Then they will see that the price structure of the new home doesn’t really change and that the market remains stable for both new and used homes. The Title company takes care of collecting the taxes at closing and the Realtor gets to pocket 100% of their income! No more having to pay 100% of their social security and medicare, which is the one thing you cannot lower with income tax deductions.
EVERYBODY IS HAPPY! – IT’S A WIN-WIN