Replace All Federal Taxes on Income with the Fair Tax Act , HR 25

FairTax and NEW Home Construction

I watched the Ways and Means Committee meeting (back when it happened)
concerning the Fair Tax and flat tax proposals. I was disappointed in the
juvenile format of the discussion. One particular unanswered question related to
"new home construction." Since new construction homes carry the 23% tax, yet
existing homes do not, what is the consensus of the experts regarding the effect
on the new home construction industry?
I'd be happy to get either an answer or a link to an answer.
Matt Snyder

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Replies to This Discussion

Permalink Reply by William Payne on October 13, 2011 at 6:07pm

My opinion? The FairTax may well inhibit new home construction for a period of time. Is that a problem? No - not as part of the big picture. The fact is, we are still in a housing bubble that hasn't found equilibrium yet. It is likely not to level out until interest rates are no longer held at artificially low rates and the market is allowed to deflate some. Market deflation is always painful, but not nearly as painful as when the bubble breaks, and the market crashes. Meanwhile, we have gazillions of new, or nearly new, homes that sit unoccupied. The market for them is poor for a lot of reasons, but poor nonetheless. When the market is poor in a business sector, those businesses have to roll with the punches and diversify their services to include other related activity until the market for their primary specialty improves.

The FairTax will affect the new home construction industry slightly and for a short period of time, until all the embedded taxes in the materials and sub-contracted services disappear (maybe 1 year?) and free-market forces and competition cause prices - including the FairTax - to return to near previous levels.