March 03, 2014
Monday PM

For some reason Stephen Eldridge has taken it upon himself to be a one man wrecking crew whenever he gets a Google Alert that someone has said something in print favorable to the FairTax.

Whatever Stephen says you can just about be guaranteed he is either misinformed or intentional dense.  In the interest of brevity, I will just present the reasoning behind the “prebate” since that seems to be one of Stephen’s main rants.

Consumption taxes have always been criticized for being regressive, that is the burden fails disproportionately on the poor. The prebate is what makes the FairTax progressive, and it does so simply and elegantly:

• The FairTax unfairly targets the poor.  The argument would have had legitimacy in the earliest days of the proposal.  But when the FairTax went to DC, cosponsors were added in bipartisan teams, one Republican and one Democrat.  The original Democrat cosponsors, perhaps most notable among them, Colin Peterson of Minnesota, pointed out the flaw.  The result of that negotiation was something called the “prebate”.   The prebate untaxes expenditures for necessities such as food, clothing and medical expenses up to the poverty income level as determined by the HHS each year.  In 2014 the prebate for a family of four is $595 each month.   Just to be clear, the prebate is available to all Social Security card holders regardless of income.
• The FairTax is regressive.   This criticism is not to be taken lightly.  We have come to expect that for any system of taxes in this country that the rich will pay more in relative terms (percentage) than the poor.  Indeed we have come to expect that the poor will be exempted from income taxes altogether.  Under today’s system we tolerate two very regressive taxes without thinking.   The first is the Payroll Tax which is levied against all citizens without regard for income.  That makes the Payroll Tax regressive by definition, and it is by far the biggest tax burden on those at the poverty level.  The other, even more regressive tax we pay without thinking, is something called embedded tax.  At each stage of manufacture tax costs are added to the product, which gets compounded as it makes its way up the supply ladder on its way to the retail counter.  It is estimated at least 12.5% of today’s retail costs will be removed by the FairTax.  Taken together, the prebate, the removal of the Payroll Tax, and the removal of embedded taxes at retail, the FairTax comes out even more progressive than our admittedly progressive Income Tax.

Received February 25, 2014 - Published March 03, 2014

Related Viewpoint:

The Fair Tax (“FT”) INCREASES WELFARE By Stephen C. Eldridge

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