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I always thought prebating was silly. It perpetuates the idea that government should be paid for by those who can “afford” it, as though government has no value to those living at poverty level. I am no fan of progressivism and that is what the prebate does. Excluding “necessities” is just another form of that, with the whole goal being to untax the “poor” and overtax the “rich”, with government flunkies deciding what is a “necessity”.

I would say the real hangup is the incredibly high rate necessary to replace all other revenues. A high rate and a territorial tax means anyone who CAN choose to spend their money outside the territory WILL spend it outside the territory.

The top 1% earns over $2.5T of income and currently spends that money here because we have no VAT and they would still owe the income tax even if they lived and spent their money elsewhere. A high retail sales tax replacing the income tax would mean they have less reason to stay here and spend here. Without the revenue from a sales tax on their spending, a huge hole is left in the projected revenues. The Fairtax, for example, does not take this exodus into account and therefor expects $500B/yr more revenue than I think it should.

Even for people who stay, the high rate encourages evasion that a small rate applied at stages and embedded in prices would not allow. The Fairtax writers consider a high rate at retail to be a “feature” because it makes the high cost of government visible. I do not think they adequately (or at all) account for legal avoidance (expat) and illegal evasion in their revenue expectations. I started out as a Fairtax proponent and donated a lot of money to the campaigns of the sponsors in Congress, until the psychological effects really sunk in. The fact that pre-tax prices should be lower would not offset the psychological effect of a 29% sales tax.