Don’t forget that under the FairTax, about 1/3rd of the FairTax is supporting SS/M. So we’ll have retirees who’ve paid their whole working lives into those programs continue contributing into them even as they get benefits back out from them. As you say, sometimes having to pay that tax from money that was already taxed once.
Of course, nobody mentions that the FairTax effectively lifts the cap on the SS taxes. Someone earning $500K/yr will no longer stop paying into SS when their earnings exceed $97K — they’ll continue paying on all their purchases, even though their SS benefit will be no larger.
Since FairTax is on all purchases, we’d also be dragging school teachers, railroad workers, etc. into the SS system, creating a huge new liability of people that don’t currently pay into or receive benefits from SS.
And isn’t the Prebate a spiffy solution ? It panders to people by promising they’ll pay an effective zero tax rate if their spending is low enough. Somebody that currently at least pays into SS/M can pay nothing under the FairTax and yet still receive SS/M benefits when they retire. Heck, let’s all vote for huge increases in the fastest growing entitlement programs because our income is low enough that the prebate will pay for any increase in FairTax rate !
Eliminate the prebate, keep SS/M funding as a separate tax on wages, and use a 12% FairTax rate.
Keep in mind too that some number of those under the present tax system are missing (from the standpoint of tax payments) from contributions to even payroll taxes. I think it's less of a cut and dried system than you seem to believe.