BREAKDOWN OF FAIRTAX RATES INCLUDING PREBATE
1. Working poor person - earns $30,000 a year - works paycheck to paycheck - spends it all on necessities - has 0% to invest tax-free under FairTax.
2. Middle class person - earns $70,000 a year - spends 80 percent on necessities - has 20% to invest tax-free under FairTax.
3. Rich person - earns $10,000,000 a year - spends 5 percent on necessities - has 95% to invest tax-free under FairTax.
(INCOME plus PREBATE X 12 minus NECESSITIES) divided by INCOME mult by 100 equals PERCENT LEFT TAX RATE
1. ($30,000 + 187 x 12 - $30,000) / 30,000 X 100 = 7.5 92.5% working poor
2. ($70,000 + 187 X 12 - $56,000) / 70,000 X 100 = 23 77% middle
3. ($10M + 187 X 12 - $500,000) / 10M X 100 = 95 5% rich
But how can that be? I thought the tax rate was 23% (inclusive) for everyone. This is the little trick that the fair tax writers use to confuse you.
The generic exclusive tax rate is 30% on all consumption (sales tax) under the FairTax. The sales tax is the tax agent - not the income tax rate. The rate of consumption is vastly different among the working poor (100%), middle class (80%), and rich (5%). The FairTax proponents would have you believe that, in the above example, the tax was only 30% of $30,000 consumption ($9000) for the working poor person, and 30% of $500,000 consumption ($150000) and that's perfectly fair in their opinion. Even if you look at it like this the tax rate is 1% of the INCOME for the rich and the max (30%) of the INCOME for the working poor. They try to further blur the situation by subtracting (not adding like they should) prebates for monster sized families. That's why we kept it to one individual and not a large family. Mathematically speaking: The tax on a working poor person is "30 percent of 100 percent of their income." The tax on the rich is "30 percent of just 5 percent of their income." There isn't anything remotely equal or fair about that.
Even if you don't understand the entire concept presented, just take away one simple thing: The working poor spend everything they earn to live so they are taxed on everything they earn under the FairTax (and most would say "everything they earn" means 100 percent). The rich spend only a fraction of their income on consumption so that are taxed on very little of what they earn. In other words, under the FairTax the poor will pay taxes on 100 percent and the rich are taxed on only 5 percent (or less). Interpret that however you wish to.
Like the title of this section says, "Fair is Not Simple." One can clearly see, even with the deception and diversion of a so-called prebate, the tax shift to the working poor and middle class is crystal clear. Even worse, because the FairTax cuts the estate taxes, gift taxes, and capital gains taxes the $700 BILLION that will be lost to the treasury will still have to be made up. This can be done by borrowing, raising taxes, cutting social programs, cutting social security, or cutting the military. Since the amount is so huge, there will probably have to be a tax on top of the FairTax to fix things.
Don't be confused by Fair Tax supporters who use logic like this:
A poor family making $12,000 a year with seven kids VS a "rich" family making $75,000 a year with two kids. They both spend 30 percent on necessities. So in the end, with the prebates, the poor family with a bunch of kids actually pays less taxes. Here's what is wrong with that logic. Now if a family making $12,000 a year spent just 30% on necessities that means they spent just $3600 per year or $300 per month for all necessities. Will $300 per month cover rent + heat + electricity + phone + food + clothes + transportation for any family? Not only NO, but HELL NO. Many examples listed on pro-FairTax web sites completely neglect to tell you that the family of 4 living on $20,000 a year was also getting $15,000 in welfare payments. They arbitrarily set the poverty level too low because they fail to take into account that no person on earth can live at that level and still eat, pay rent, buy clothes, and go to the doctor, and they fail to take into account that the majority of people at the poverty level are on some kind of government assistance.
Here's the above example in real life: A poor family making $12,000 a year with seven kids. The poor person is living on welfare, getting food stamps, heating credits, free diapers and formula, free healthcare for the kids, and paying only $100 per month on rent in a low rent apartment complex. The person spends the entire $12,000 on consumption and pays (12,000 X 30 percent = 3600 in taxes). They receive a prebate for $3600 which the government immediately confiscates to offset the welfare payments. So in effect, they got no tax money back from their $12,000 and paid at the 100% tax level.
TIP: Be suspicious of any example the FairTax people give where the family is unusually poor and the circumstances don't fit with reality. Use an income like $30,000 where a working poor family is not accepting welfare or supplementing their income illegally to show the real effects of the FairTax. Also, $75,000 is not rich by any means. To really illustrate the nature of this horrible tax bill compare a middle class person to a billionaire to see how un-fair it actually is.