Welcome to the discussion, Dread. You aren't butting in. I welcome feedback on my suggestions with regards to FairTax implementation.
I am not suggesting the struggling poor be taxed more than they are now. I am not suggesting they should end up with less "buying power" than they have now. I am suggesting that having them benefit at the expense of others is welfare.
Put it this way: What is more important when considering two tax alternatives ? 1) How much tax a person pays, or 2) how their buying power is affected.
I would rather make $50K per year and have taxes leave me with $50K buying power than make $200K and have taxes leave me with $40K buying power. I would have no preference whether I make $50K and be left with $40K buying power or make $40K and be left with $40K buying power.
What matters is what any tax system leaves you with in terms of buying power. It doesn't help to have the government give you money with one hand and take it away with the other.
If prices fall by 22%, then the FairTax even at 23% would make prices basically the same as they are now. The buying power has not changed. Even without any Prebate at all, a person's buying power has not diminished. So why is it needed ?
If eliminating the Prebate allows a rate of 20% rather than 23%, this has no effect on prices -- prices still fall by 22% -- so buying power has increased. With no Prebate. (Actually, I can see an argument that prices would fall more with the Prebate because it is more spendable income in the hands of consumers. But only if supply can meet additional demand, otherwise the extra money makes prices rise instead.)
"...folks that struggle to keep a roof over their heads and food on the table ..."
This is an argument based on compassion, charity and social engineering, not fiscal basics. It is the same argument that any "progressive" tax scheme relies on. But it opens the door to all manner of government intrusion -- witness existing "sin" taxes and ponder how long it would take for "the people" to decide there was something wrong with Prebate money paying for those "sins". If the government gives you money, watch out, because they are eventually going to want control over how it is spent. Instead of a check, we might end up with a debit card that would only be valid for certain things -- groceries, "basic" clothing, etc. Sure the FairTax is not written that way now, but I can see it evolving that way because it has been all too easy to tax "sins" and "luxuries" in the past and get away with it.
Of course, the government could give everyone a check as large as they would like. All it requires is that they raise taxes enough to pay for it. When that tax is flat or progressive, the result is income re-distribution.
Without a Prebate, the FairTax needs to raise $1.7T
With the Prebate, the FairTax needs to raise $2.0T
The difference in the FairTax rate with and without Prebate is 3.4%
So the "loser" point for a single person receiving a $2,141 Prebate is when they spend more than $63K.
The "loser" point for a family of four receiving a $5,902 Prebate is when they spend more than $175K.
People with spending below the above levels benefit from the Prebate. People spending above it are having part of their income redistributed to those below it. A single person spending $100K of his income will have $1,250 of his income given away to others. A single person spending $300K of his income (my family dentist, say) will have $8K "redistributed". A really successfull CEO spending lavishly $10M of his income will have $338K of his income given away to others.
And these others were already better off than under the old tax system. So the Prebate is just making them even better off -- at the expense of other people. Charity should be charity. The government shouldn't be playing Robin Hood. Based on the numbers above, it looks like the government will be robbing 10% of the people to hand out goodies to the other 90%.
To me, it sounds like the Prebate exists as an expensive sound bite to buy off support from liberals. And it sets a dangerous precedent. It raises the cost of government as a percentage of GDP, which many studies have shown results in slower growth and lower real wages. It also makes the FairTax a harder sell to those that pay more attention to the rate -- and the total rate when combined with State & Local taxes -- than they do to a Prebate check.
In California, if the FairTax was adopted for State & Local (7% rate) at the same time as nationally (23%), $30 out of every $100 spent would be taxes. Without the Prebate (FED 19.6%, CA 5.5%), it would be only $25. Without the Prebate and without the Windfall on tax-deferred savings in my first post, it (FED 14.5%, CA 5.5%)would be only $20. So the Prebate and Windfall features make the combined tax 50% higher than it otherwise needs to be.
I think careful thought is in order before saddling people with a tax rate 50% higher than it needs to be. If keeping these features is the cost of moving to the FairTax, then let's at least be clear on what those costs are. To say "...only a very slight raising of the sales tax rate ..." is not the whole story.
I think you're looking at it from the other side of the river than I am.
My view is that there is a basic level of spending required to sustain living that shouldn't be taxed. -- The "poverty level" chart is as good a guide as any to define what that level is.
The only way to do that, without getting involved in the financial affairs of the individual or what they buy, is a blanket credit of tax that will be paid on those basic goods. Once the citizen has provided himself with the minimal basics of life, will the state get a share of his spending.
Since every citizen is eligible for the FCA, the prebate is not at the expense of another. It's a refund of your own taxes that you paid to buy those basic necessities.
This is an argument based on compassion, charity and social engineering, not fiscal basics. It is the same argument that any "progressive" tax scheme relies on. But it opens the door to all manner of government intrusion -- witness existing "sin" taxes and ponder how long it would take for "the people" to decide there was something wrong with Prebate money paying for those "sins". If the government gives you money, watch out, because they are eventually going to want control over how it is spent. Instead of a check, we might end up with a debit card that would only be valid for certain things -- groceries, "basic" clothing, etc. Sure the FairTax is not written that way now, but I can see it evolving that way because it has been all too easy to tax "sins" and "luxuries" in the past and get away with it.
Yes, it is an argument based on compassion. Although I think "ethics" is the better word for it.
Even under medieval land tenure, the serf was provided for by the lord during winter and the planting. Only after the harvest could the owner take his share.
The other two ideas that you mention "charity and social engineering"; can only come about if government is involved in your finances and your spending (like it does now). By broadly taxing all consumption and giving everyone a fungible check to credit the tax paid on the basics, you eliminate the main excuses for the state to meddle in the affairs of the citizens.
The limited "welfare" debit card is a possibility that we would have to contently watch-out for; there are (and always have been) politicians that believe the nanny-state should keep track of and control what the livestock citizens are doing.
In your example, you're not considering all of the facts when you say:
"If prices fall by 22%, then the FairTax even at 23% would make prices basically the same as they are now. The buying power has not changed."
But, you see, the buying power HAS changed and quite dramatically in favor of the FairTax since you now have your (formerly taxed) income as tax free while paying the same for purchases as before the FairTax (when you were using after-tax income). That's a net gain in buying power no matter how you slice it.
Reducing that increased buying power by enough to provide the prebate is not a significant change since the rate difference between prebate and no prebate would be about 3 to 4%.
In addition I believe you need to review your analysis of those spending $59,000 and $175,000 since they are incorrect - or perhaps I misunderstand your point. Anyone spending $59,000 will be paying the FairTax of $13,570 and the higher spending will pay much more. Since these spenders are both gaining greatly in purchasing power with the FairTax it is hardly reasonable to describe them as "losing" at the sums you mention even though they would be able to purchase slightly less due to the prebate. Try to recognize where they would probably have been with the presennt system, for example.
Also keep in mind you are not factoring in any sort of investment (interest, dividends, etc.) by these individuals which would work even more to their benefit. You apparently assume they spend all their income. That may not be realistic in many if not most cases. Investment benefits would also redound to the benefit of the FairTax (which, of course, merely adds to their purchasing power).
I have no doubt that we differ at least in degree in viewpoint since I believe that a taxpayer who has his purchasing power greatly increased by the FairTax (though slightly less than it would be increased if there were no rebate) should reasonably be pleased to help some others at the low end of the economic ladder with such a relatively painless method of doing so.
I think it is very beneficial to society that this can be done and I do not believe for one moment - as apparently you do - that it sets a welfare precedent that can be greatly expanded by the government at their whim. Keep in mind that any rate increase in the future (and it is actually more likely that the rate will decrease rather than increase due to economic expansion caused by the FairTax) would affect ALL taxpayers so that politicians will have to tread very carefully. Today, however, rates can be diddled and fiddled along with exemptions, deductions, etc. and "artfully" hidden from the taxpayer.
With the FairTax that ALL goes away and the single rate is there for all to see.
I guess that rather than viewing the taxpayers you note as having a "loser" point at their income levels, I would more likely think them guilty of considerable selfishness or even greed to not be willing to help others with such an easy method available to them. And, no I certainly do not consider it "welfare" at least not in the sense you describe it.
The analysis of the combined state and Federal tax rates also needs some looking into, but I'm not going in to that right now. Step back from the arithmetic of adding up tax rates (which are operating on differing bases, BTW) and think about the effects of the bigger picture of state sales tax due to the FairTax.