This FairTax volunteer clarifies a lot for us:
There are some responses to the criticism that the Fair Tax taxes consumption of income that has already paid tax. Most retirement savings, $16 trillion, are in "qualified plans" such as IRA's and 401K's. These tax-advantaged plans deferred taxes going in, as well as the income accumulating on the contributions.
Seniors withdrawing from these plans pay tax when the money comes out, and presumably when the seniors are in a lower tax bracket. Under the Fair Tax, money comes out of qualified plans income-tax-free, thus rewarding those seniors who had the forsight and discipline to save. Those seniors will enjoy a double benefit offset only by slightly higher prices.
Second, money coming out of tax-advantaged funds can push your social security benefits into a taxable status today. Your social security contributions were double-taxed going in, yes, payroll-taxed and income-taxed, each on 1005 of the same income. Under the Fair Tax there is no payroll or income tax on the money going in, nor is there income tax on the money coming out.
Pension income is untaxed under the Fair Tax. True, people who go into the corpus of savings or trust funds will be slightly disadvantaged. In that sense, the Fair Tax is a wealth tax. Many seniors think it is important that they can sell homes without paying capital gains tax and pass their estates on to their offspring without paying gift tax, estate tax and generation-skipping tax. The Fair Tax has an appeal to those groups.
People who are working and have not yet become seniors can save more rapidly for retirement under the Fair Tax without resort to IRA's and 401k's and other qualified plans.
I hope this has given you some ammunition. Best regards and Happy New Year,~Jim