Fair Tax: What is the Prebate?
One of the most common questions on the Fair Tax is what exactly is the "prebate" is and how it would work. It is a simple concept that upholds the basic principles of the founding of our government that "all men are created equal."
The "prebate" is by definition a rebate for the taxes that any person would incur up to the poverty line as designated by the Department of Health and Human Services. To further define, the poverty level is the minimum level of which must be earned to be able to provide the basic necessities in life. This figure is adjusted yearly for inflation, takes into account for family size, and in some instances your state (Hawaii and Alaska). The poverty guidelines can be found a the Department of Health and Human Services Website if you have questions about your current level of income as regard to where it stands.
The "prebate" would be given out monthly to every citizen in the country regardless of income level because no person should be required to pay taxes for the "necessities of life." This sounds like a lot of work but could be done quite simply. Each year you would file a report, a single page, to the US government your family size (parents/guardians and dependents), the names of the individuals, their Social Security number, address, and a financial institution where the money could be electronically deposited each month. Paper checks would also be available for those who choose to do so.
On a side note, some of the major credit card companies have expressed interest in such a system and have indicated that they would be willing to pay the electronic transfer fee's incurred by the federal government to have the privilege of the money transfered to one of their credit cards. Another possibility would be the issuance of a debit card specifically for the purpose of depositing the tax rebate.
Well, How much would I get back?
To find a detailed list of how much your family would be rebated each month and yearly please visit the figures provided by FairTax.org FAQ page. The calculation is easy to perform though. Take the poverty line for your family, as provided by the Department of Health and Human Services, and multiply by .23 (this is the 23% Fair Tax rate on all new items or services). This number is the yearly rebate (divide by 12 for the monthly rebate). A family of 4 would expect to be rebated $337 each month or $4,048 yearly. It is simple math and simple to understand.
Some ask "Why not just untax 'items of necessity'?"
The answer is two parts. First, politicians will never be able to agree which items are "items of necessity" nor should they tell you that these certain items are and these aren't. For instance, potatoes but not potato chips. The choice should be left up to each individual and each family. Second, people who earn more tend to spend more on food and other "items of necessity" of which is not are not necessary to the preservation of the basic levels of living. These items are not "needs" but "wants" like buying a Jaguar versus a Honda. Both items provide transport but one is pure luxury. Basically, no person should have to pay taxes on the "necessities of life."
What does this mean? Quite simply, the Fair Tax is voluntary. If you decide to save your money or become more frugal with your spending you have no tax burden because of the "prebate". It is your choice. Also remember that taxes are only paid on new items or services so buying that used car or house will never result in taxation.
For more information on the Fair Tax view my March 2008 blog archives or visit FairTax.org.
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Tax day is just around the corner. To help put a stop to thousands of wasted man hours and money just to prepare your income tax (not to mention the headaches of just trying to figure out how to compute them or getting the IRS to help you and give you a right answer) please sign the petition at ChangeDC.org by April 15th, 2008. Be part of the solution and take a stand for Fairness in our tax system!
