The Grassroots Corner July 26, 2021

HOSTILE ARGUMENT: WHAT ABOUT NEW HOUSES?

This Grassroots Corner continues a series on hostile questions and comments that people may raise about the FAIRtax. Many of these suggested responses will be good comebacks for you to have in your pocket when you need them. Some of these suggested responses can be too long to insert into an actual conversation. You may want to boil them down to where they'll be more useful when you're talking face-to-face with someone attacking the FAIRtax.

This week, we take on the criticism that the FAIRtax will kill construction of new houses. A house is the largest purchase that most of us make in a lifetime, and putting a tax on a new house would be burdensome. And taxing new houses will make the prices of existing homes rise to adapt to the higher prices of new houses.

Buying a new house under the FAIRtax is no different from buying anything else that is new. What is different with the FAIRtax is that your purchasing power is significantly higher. You have more money in your pocket because there’s no such thing as after-tax income. There is no withholding and no payroll taxes. You bring home 100% of your paycheck, retirement distribution or investment income.

Would you be willing to pay slightly more for a new house if not only local property taxes and mortgage interest were tax-deductible, but:
 

1) Mortgage principal was tax-deductible?

2) The down payment on the house was tax-deductible?

3) The capital gain on the sale of the new house was tax-deductible?

- and -

4) All of the above applied equally to your employment taxes?

You would probably say, “Yes!” With the FAIRtax, all of the above apply because there is no tax on income or payroll in the first place.

Consider also:

If a builder buys land and a tear-down from a private person, he gets a “business use conversion credit” that he can pass on. This credit is based on the cost of the privately-owned property he bought and converted to business use. In effect, the consumer pays tax only on the portion of the house that truly represents new construction if we assume the builder passes on the business use conversion credit to the consumer. New construction on existing land is much like adding a wing to an existing house.

The builder pays no embedded tax costs for his labor and materials. These savings can result in a 12.5% reduction in the cost of labor and materials that the builder would have to pay today. The builder could pass this reduction on to the consumer.

The builder's cost of borrowing drops dramatically for the same reason municipal bonds today pay less interest than corporate bonds. Interest under the FAIRtax is not taxable. For builders, borrowing costs can be significant.

I would love to hear from you about how to squeeze this explanation into a soundbite.
 

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