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.
I think there's something we need to clarify. You originally said the $10,000 person was paying $2,200 in taxes presently due to the embedded taxes. That's not really the case.
He is paying $2,200 in higher prices CAUSED by taxation but paying no tax. That's a big difference. Presently the taxpayer is paying no tax while under the FairTax he would be receiving the $2,141.30 prebate (2004 data) and if he spent his entire income for consumption he'd be buying about what he now does but would be paying $2,300 in sales tax while doing so (prices would fall, sales tax would raise them back to some level).
This would actually increase his net tax paid from $0 to $158.70 which, while small, perhaps, to some would be noticeable to him no doubt and would represent a share of federal taxation he does not now pay. It is in no respect, however, a windfall.
IOW, I don't think it's correct to believe those at the poverty level pay taxes because they are the victims of higher prices (as are we all) CAUSED by the income tax. And it is not really welfare since they must now pay the sales tax as the same rate as you, I, or Bill Gates.
I believe it is, in fact, a very good solution to a difficult problem of regressivity. The FairTax is the only plan on the table that actually taxes everyone to help pay for this overblown government. Once that is in operation and people see clearly what "our" government really costs us, I believe there will be far more grassroots pressure upon Congress to begin to reduce spending - precisely because even the $10,000 income person is paying along with the rest of us ... and is not doing so now.
Raising the FairTax rate would not be so easy as you might think since ANY change affects all taxpayers. The $10,000 man may think he would be helped, but if he did much figuring he'd see that he is already above the level for the prebate to pay all his sales tax and he would be contributing even more to the federal coffers. Hamilton even knew that there was a point beyond which raising sales tax rates actually reduced the amount of government revenue.