The true potential behind the FairTax Prebate

The Prebate Potential – What FairTaxers see that most others don’t.

Everyone who knows what the FairTax Prebate is, sees it a little differently. Most simply see how it untaxes our necessities, many see how it makes the FairTax progressive, some see it as help for the poor, others understand how it closes loopholes, and few even misinterpret it as an “entitlement program”, but very few see it for what it is truly worth. I’m gonna help you with that.

What is the FairTax Prebate?

If you don’t already know the basics of the Prebate, I urge you to read the following links first. This will be here when you get back.

Playing with the code.

If history has taught us anything about taxes, it’s that Congress loves to play with the tax code. They like to inject virtually invisible taxes into our lives and they are very successful at it. Politicians in DC rake in MILLIONS of dollars annually just from the Lobbyists who lobby for tax breaks (exemptions). Exemptions in the tax system create loopholes for other companies to exploit or use to their advantage. Each of those loopholes are in place because one company or another has paid to have their products or services exempted from Income Taxes. Large companies often spend millions of dollars annually attempting to reduce the taxes they owe. That money generally ends up in the pockets of two groups of people. What most corporations will do is pay tax attorneys to influence our Congress members. The Congress members then use their influence to inject the loopholes into the tax code.

NEW products/services are taxed equally.

The FairTax was written to replace all forms of Income and Payroll Based Taxes; including personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security/Medicare, FICA and SECA (self-employment) taxes with a single-rate tax on the consumption of all NEW goods and services.

At this point, without the prebate, the FairTax is just another regressive sales tax, because it taxes everyone equally at the register. The prebate is the mechanism to protect individuals on fixed or low incomes from spending the majority of their earnings on necessities.

Loopholes are eliminated, but not prevented

With the elimination of income taxes, comes the invalidation of all the current tax breaks, exemptions, and loopholes. This, in and of itself, is an amazing feat no other tax plan has ever effectively proposed; and I doubt any other ever will.

So now we’ve closed the loopholes and prevented Congress from playing with our taxes, right? WRONG! We may have closed the loopholes for now, but we all know Large Corporations, their tax attorneys, and Congress are much smarter than that. They’ll figure out how to untax their products one way or another. That’s what they do, don’t underestimate them. I’ll explain how the prebate prevents this later.

The Benefits of the Prebate

The first, frequently seen, benefit of the FairTax Prebate is that it ensures no legal US citizen pay taxes on their necessities. What many people don’t understand, however, is that under the FairTax, YOU are now in charge of determining what your necessities are. Never again will the US Govt tell you that you can only buy certain types of products tax-free, but not others. The money is provided to you at the beginning of each month, you choose to buy what you need. That means you are in charge of how and where you spend that money.

The second, frequently seen, benefit of the FairTax Prebate is that it turns a naturally regressive Sales Tax into the progressive FairTax. What most people don’t fully understand is that, although progressive, the FairTax still treats every person and every business equally and with 100% fairness. In other words, no two individuals are treated differently under the FairTax. As you read above, the FairTax taxes everyone the same at the register. That means that everyone who purchases new goods or services will pay taxes every time they make those purchases. The FairTax also provides the same prebate to everyone who qualifies. That means your tax burden is reduced to only the money you spend on products/services above the poverty level. What could be more fair than everyone paying taxes, while nobody pays taxes below the poverty level?

The third, frequently seen, benefit of the FairTax Prebate is that it untaxes the poor. What many people don’t realize is that it untaxes every legal US citizen equally; regardless of your income level. The FairTax was engineered in such a way that the prebate ensures every legal US citizen receives the same dollar amount. As of 2013, that amount is $220/adult and $77/child per month. Although that amount may fluctuate annually with the National Poverty Guideline, the prebate cannot be changed on a whim by our politicians, it will always be equal to the taxes you pay below the poverty guideline, and it will always be there for you.

The fourth and probably most important benefit of the FairTax Prebate is that it closes loopholes by eliminating exemptions and tax breaks found in the Income Tax system. But what very few people see is that the prebate also prevents future loopholes from opening by ensuring that everything we purchase (below the poverty level) remains 100% tax free. If virtually everything we buy is tax-free when purchased below the poverty level, then corporations have no reason to lobby for tax breaks.  This means that the prebate single-handedly eliminates the lobbying power many corporations require under the Income Tax system, but wouldn’t need under the FairTax. It also means that they would spend less money on tax attorneys and even less money would end up in the hands of our illustrious Congress members. With less money crossing the hands of politicians, there is less of a chance they would be in DC in search of money that isn’t there. If politicians aren’t in DC to make money, they may just be in DC to do what they are supposed to do: work for We The People. Hmmm…Still wonder why most Congress members lie about and don’t support the FairTax? There’s your answer.

Last, but certainly not least, as I mentioned a few times above, the FairTax Prebate provides you with money to pay for your necessities. Well, some FairTax opponents claim that giving you that money will “make you dependent on it” and that it creates another entitlement program that will contribute to the US becoming a “Nanny State”. First, let me point out that the money you will receive from the prebate is YOUR money. The FairTax rate was increased by a fraction of a percent to ensure that money is returned to you IN ADVANCE. So understand, it is YOUR money, it’s not coming from anyone else. Second, you –should- “become dependent” on the prebate, just as you would become dependent on a pay raise at work or how you would become dependent on the lack of Automobile or Mortgage payments. Most of the people who believe we will become “dependent on the prebate” seem to equate it with the temporary “Bush Tax Cuts” that were handed out as a “stimulus”. However, once the prebate is afforded to you, it won’t be taken away.

I see the prebate as more of an “Entitlement-Reduction Program” because it consolidates many entitlement programs currently being used. Because so many Americans currently rely on numerous entitlement programs, it isn’t possible to just eliminate all of them. The prebate is, however, one of the best solutions to reducing the amount of entitlements being distributed today. And it does so while continuing to provide Americans with a viable means of paying for their sub-poverty necessities, tax-free. and Donald B. Marron of the Tax Policy Center say this about the FairTax Prebate:

The estimated number of households for 2011 is 114.8 million. Assuming 100 percent participation by all eligible households, the maximum cost of the prebate would be $543 billion. For comparative purposes, this amount is less than one-half of the amount of tax expenditures (standard deductions, personal exemptions, Earned Income Tax Credit, mortgage interest and charitable contribution deductions, and various other tax preferences) doled out under the current federal income tax system that are repealed when the FairTax is enacted. For 2012, the total of all of these tax breaks is estimated to be $1.25 trillion. ~

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I'm the grandson of an Underwood and have been mapping my Underwood Family Tree for a couple years now.

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