Unfortunately we have all seen articles in which the authors spew twisted facts and incredible fallacies in an attempt to discredit the pending legislation, HR25 “The Fair Tax Act of 2013”. I am writing to set the record straight.
First, allow me to strike at their chief solution to our current tax mess. They propose a 10% flat tax with no entitlements or special benefits. Yet basic economics tells us that a 10% flat tax on personal income will only raise $1.34 trillion (total personal income is $13.4 trillion annually as of 2012, the last year fully available). With current US spending at $3.6 trillion that same year, their chief solution is a program that will create a yearly deficit of $2.3 trillion or more (greatly in excess of the $1.1 trillion deficit in 2012). To generate the same amount of income as the current system, any Flat Tax would have to be 19% from the first dollar earned to get close. (This would disproportionately hurt the lower and middle classes the most.) Additionally, a Flat Tax is easily turned back into a graduated income tax with special interest interference.
These issues are among the issues that led me to personally seek a better tax solution for our society, which after much searching and research led me to the FairTax. Now let me address several fallacious claims regarding the FairTax…
Would anyone call their tax refund a huge “entitlement program”? I don’t think so. Yet some persist in calling the FairTax “prebate” (which I contend is more accurately called a “prefund”), a “$600 billion entitlement”. The “prebate” simply serves as an advance tax refund; in other words, you get it before you pay your taxes, instead of after. Additionally, in contrast with our current system, every legal resident gets a “prebate” based upon their family size, notincome, and the “prebate” does not vary based upon income, so the lower and middle classes benefit more than those with higher incomes.
Important point: this “prebate” serves a vital purpose… removing the tax burden on all residents up to the government-defined “poverty level” of spending.
Example: The government has defined that it takes approximately $31,000 yearly for a two-adult family of four to afford basic housing, utilities, transportation, food and clothing; the “prebate” pays back that family – monthly, in advance – the taxes they will pay on $31,000 of annual spending ($31k x .23, then divide by 12 months= $595 per month). The prebate varies based upon the number of adults and children in the household, so the net result is that no legal resident should pay taxes until they spend more than the poverty level of spending. This is a huge benefit to the poor and middle class, who currently pay taxes on their first dollar of spending — and on every dollar thereafter.
These same individuals also misrepresent the “prebate” as “to merely repay the poor for any Fair Tax they pay”. That is not the purpose of the “prebate”; if it were, it would require different payments to every person, and intense, intrusive tracking of people’s spending habits! No, the “prebate” is intended as an advance reimbursement of spending for every legal resident up to the poverty level of spending. The “prebate” makes the FairTax progressive, as people who earn less will spend less, and therefore have more of their spending offset by the “prebate”; these lower-earners will therefore pay less in taxes than people who earn more and spend more.