I understand the point you make but do not quite agree. If a person has only $10,000 income in this day and age that is far down into the poverty level. In an instance like this I think the taxpayer deservews the prebate so that he has, in effect, his tax paid and then some - a negative fax effect. Offering no prebate would be greatly regressive and make the taxpayer far worse off than at present.
Having the prebate in a case like this greatly helps the taxpayer and I don't see how this help undermines the prices falling. The difference between prebate and no prebate (t-i basis) is only about a 3.4% rate difference. I don't view that as a big enough difference to make a great difference in price decreases even if the entire 3.4% were removed and there were no prebate. Obviously were that done, the FairTax would be quite regressive from that standpoint - at least at the lower end.
One of the intentions of the prebate is to greatly help those on the low end of the scale and the case you cites illustrates this sort of help. I don't think the fact that this taxpayer actually benefits from the FairTax necessarily means that prices falling undermines the prebate. To have a prebate obviously some particular point and methodology must be chosen and I think that using the basis as done in the FairTax is a good choice all things considered.
If for no other reason such help for the low income takes away a huge lever from the status quo backers who would otherwise claim with some justification that the Fairtax is regressive. With the prebate that argument goes away.
Perhaps when the bill is marked up that sort of prebate review will come under investigation. Hard to say, but certainly I agree with most of your observations. If we don't agree about the price falling/prebate issue that's OK. I think that will be ironed out as we go along.
Well, it seems I am not being clear.
It isn't that I think the Prebate wilAFFECT how much prices fall. I don't.
My point is that if prices really fall by 22%, then the effective buying power of those at pverty level has been increased. That may be fine with many people, and liberals especially. But we should not mistake it for "fairness", because it isn't. It is "kind". It is "compassionate". But since it is a benefit for the poorest at the expense of the higher-earner, it should rightly be called "welfare" wealth redistribution.
You are correct that to not provide the Prebate opens up the class warfare arguments, just as any truly "flat" tax system does.
I just wish that, at some point, everyone would acknowledge that EVERYONE should pay for the benefits that a government is supposed to provide.
Today, the poor DO PAY to the tune of whatever has been embedded in retail prices -- presumably, 22% of their income is paying (very inefficeiently) some taxes. The FairTax -- if prices do not fall at all -- completely untaxes them. To whatever extent prices do fall, the poorest actually come out far ahead. If their income all avoids the payroll tax, then they come out 20% ahead, and every rise in the sales tax rate makes that even higher. If their income is subject to payroll tax, then they come out 33% ahead, and again, a rise in the sales tax rate increases this windfall.
This imbalance means they actually have an INCENTIVE for the sales tax rate to be higher. That is not healthy for the country. Completely compensating for the sales tax at the poverty level means a higher rate rewards an entire group of voters. Creating a group of voters that would SUPPORT increasing the rate is going to come back and bite us.