The Fair Tax increases welfare

By Stephen C Eldridge

The FT’s Pebate is a WELFARE check that leaves many dependent upon the government for a large portion of their monthly income – a very bad idea. The Prebate is explained as being needed to insure that the poor pay no FT, merely assuming that we all agree with that goal. Further analysis exposes that the Prebate goes much further – it gives the poor a large FT PROFIT.

The Prebate gives every family a monthly check purportedly to cover the FT they would pay on “poverty level purchases” as defined by the US HHS Dept.’s Poverty Guidelines and makes “adjustments” to them. The Prebate next “assumes” that EVERY family of each size spend a certain amount of dollars ($11,490/adult, $4,020/child) which is then multiplied by 23% (the tax-INCLUSIVE rate) to yield the Prebate that will reimburse all of that FT ($2,642/adult, $925/child).

To illustrate, assume there is a family of 5; Husband, Wife, 2 kids, and the Wife’s Sister lives with them. They would be “assumed” to spend a total of $42,510 ($11,490 x 3, plus $4,020 x 2).  Their Prebate would be $9,777 ($42,510 x 23%, the “tax-inclusive” FT rate).  The $9,277 Prebate is calculated to pay back 100% of the FT THEORETICALLY paid by the family, but as shown below, it greatly OVERPAYS that THEORETICAL FT paid by the family.

Point 1.  The FT corrects for the “Marriage Penalty”

It does so by “assuming” extra spending of $7,470 and adds to its Prebate by $1,718.

The problem is that there IS NO “Marriage Penalty” in the underlying HHS Guidelines – they were developed as impervious to the age of the person. They provide $11,490 in spending for the 1st PERSON in the household and $4,020 for the 2nd PERSON (the 1st PERSON gets more to pay the rent) – it does not matter whether the person is an adult or a child. What the Prebate does is “make believe” that the HHS Guidelines say “Adult” & “Child” – they are trying to give away more money, YOURS.

RESULT: The Prebate overpays the poor by $1,718.

Point 2.  The Prebate’s more generously defined “family”

FT’s more limited (than the HHS guidelines’) definition of “Family” allows for more FT “families” in a single physical household than the underlying HHS Guidelines would allow. A FT “family” includes only lineal ancestors/descendants (plus adopted). Thus, the Wife’s Sister would be treated as a separate family under FT, and thus, as an adult.

RESULT: The Prebate overpays the poor by $1,718.

Point 3.  The Prebate “assumes” that ALL spend AT the poverty limit.

If the family ACTUALLY spends LESS than the maximum amount a family can spend and still be at the HHS Guidelines’ limit, they will be overpaid. This family is “assumed” to spend $42,510.

RESULT: If they ACTUALLY spend $3,000 less than that, the Prebate will OVERPAY them by $690.

Point 4.  The Prebate OVERPAYS for USED goods

If the family buys some goods USED (and can prove the seller paid FT), they will not have to pay FT. Yet, the Prebate “makes believe” that they DID pay FT.

RESULT: If the family bought $5,000 of USED goods, the Prebate would overpay them by $1,150.

Point 5.  The Prebate OVERPAYS for Black Market purchases

If the family buys some goods on the Black Market, they will pay no FT. The FT “makes believe” that all of the money is spent legally so that full FT is paid.

RESULT: If the family spends $5,000 in the Black Market, the Prebate overpays them by $1,150.

Point 6. The Prebate OVERPAYS for In-Kind Welfare

If the family is on Welfare, a substantial portion of their support will be paid IN-KIND (e.g., Medicaid, Housing Assistance). The poor will NOT receive cash for these items and pay FT –  WE DO.  Thus, the FT “makes believe” that the poor actually paid the FT and repays THEM for FT WE paid.

RESULT: If in-kind welfare is $6,000, the Prebate overpays by $1,380.

SUMMARY and TABLE:

  1. Total Spending where FT is ACTUALLY paid in this illustration would be $8,570 and actual amount of FT paid would be $1,971.
  2. The Prebate’s total OVER-assumed spending (where FT would NOT be paid) would be $33,940 and it total OVERPAYMENT of the Prebate would be $7,806.
  3. PLUS, the poor get free SS/Medicare.
Assumed Total Spending/Prebate$42,510$9,777
Point 1. Marriage Penalty    7 ,470   1,718
Point 2. Extra Family     7,470   1,718
Point 3.  Spending Below the Cap     3,000      690
Point 4.  Buying USED     5,000   1,150
Point 5. Black Market Buying     5,000   1,150
Pont 6.  In-Kind Welfare     6,000   1,380
True Amounts spent where FT was Paid/FT ACTUALLY paid  $8,570 $1,971
Over-Assumed Spending where FT NOT PAID/PREBATE OVERPAYS $33,940 $7,806

A $7,806 additional Welfare check, PLUS, FREE SS & Medicare!

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