The Prebate Problem

Maybe I’ll post this over one at of the Neal Boortz boards just to see the fur fly. Like the supporters of any sweeping policy — socialism, neoconservatism or liberalism — Fair Tax supporters can’t admit that anything might be wrong with their ideas. The commenter on this post is smart, polite and makes some good point. But he still can’t resist telling me I’ll get a bigger paycheck or getting more focused on what the Fair Tax does right (“eliminate” the IRS and give you your “full” paycheck”) than what it does wrong.

My biggest problem with the Fair Tax is the prebate. For those of you who don’t know, this is the check the government writes to every family that “prebates” the tax they are being charged for the basic necessities of life. It’s what supposedly makes the Fair Tax fair.

But as far as I can tell, there are several massive problems with this:

  • The prebate puts the lie to the idea that the Fair Tax will eliminate the IRS. Who is going to make sure that people aren’t claiming a bigger househould than they have? If I’m going to claim a prebate for a family of four, I will have to give the IRS the identities of all four family members and they will have to check to make sure none of them are being claimed elsewhere (Imagine the nightmares for divorced parents. Do they each claim a Solomon-esque half a child?). I’m sure that will never go wrong. I’m sure no parent will ever get arrested for claiming a household member with a social security number that an illegal alien is also using.

    Granted, this is a massive improvement on the current situation in which the IRS can arrest you for incorrectly filing out a form based on their instructions. But it doesn’t “eliminate” the IRS; it merely reduces it.

  • If that were the only problem, I’d support the Fair Tax. But the prebate is also massively unfair. It prebates the amount of tax a family will pay on a certaining spending allowance that is set by the government. It is a uniform amount for the entire nation. This is ridiculous. A family of four in NYC might pay $30k for the cost of living but get prebates based on $25k. A family of four in New Braunfels might pay $20 for the cost of living but get a prebate based on . . . $25k. By my reckoning, that means the family in NYC just paid $1150 to the family in New Braunfels.
  • The prebate will become the most massive middle-class subsidy in American history. There will suddenly be 200 million people clamoring for the amounts to be raised. Do you not think the first Presidential campaign after the Fair Tax will have the Dems promising to raise the tax rate, while raising the spending allowance to $50k? After all, that’s just above the median family income.
  • Some Fair Taxers want the spending allowance tied to the poverty rate to prevent just this thing. But that only makes the problem worse. Now instead of poverty advocates clamoring to raise the povery rate, everyone will be — which mean an explosion in anti-poverty spending.
  • Do we really want a generation of Americans growing up who expect a monthly check from their wonderful government? Every April 15, Boortz clamors against those who say, “I didn’t pay any tax today! I got some back!” Well now, 300 million Americans will be saying that every month.
  • Ask the nearest Social Security recipient if they have ever had any problems getting their check. You might hear a colorful answer. Do we really think the federal government, whose computers are older than I am, is going to pass out nearly two billion checks a year without a hitch? That we won’t have some family missing a mortgage payment because they didn’t get their prebate? That they won’t accidently put $2 billion into some old lady’s account? Dream on.
  • There are other criticisms of the Fair Tax, but the prebate is the deal-breaker for me. It has always sounded odd to me and the more I think about it, the dumber the idea seems.

    All right, Fair Tax partisans. Fire away! Just keep in mind:

  • I’d love to “eliminate” the IRS too. The IRS was a constant foe of my grandfather and may have played a key role in my uncle’s fatal heart attack. I’m no fan of the current system at all.
  • I don’t care what, if anything, Scientology had to do with the Fair Tax. Hitler came up with the basic principles of mechanized warfare – ideas that we still use today. Good ideas can come from bad sources.
  • The statement that prices won’t go up but my take-home pay will is not true. And the man who has said so is Neal Boortz.
  • I realize the Fair Tax has advantages over the current system. I love that the Fair Tax people are stirring the debate. I’m on your side. I just think there are better ideas out there. The flat tax. A VAT. I don’t think this is the way to go.