Just how big is the prebate program anyway?
This is my first time posting here (thanks for the invite Josh), and I would like to pose a question to the community here:
Just how big IS the prebate program anyway?
The reason why I ask is that I have seen one ‘crowning argument,’ if you will, being used in most of the opposition letters from senators and representatives in response to their constituents when questioned about the FairTax. If they oppose it, many of them use the following language, nearly to the letter:
A cash grant program would provide a monthly monetary grant, a prebate, to all U.S. citizens. This prebate system would require a new entity or the IRS to enforce compliance and administer disbursements on a monthly basis to all American households. These disbursements would cost approximately $600 billion in 2006 which is an amount greater than the expenditures of the Department of Agriculture, Commerce, Education, Energy, Homeland Security, Housing and Urban Development,Interior, Justice, Labor, and State combined.
Now language like that is misleading, since NONE of these Departments are considered large portions of the budget individually. The big spending is in Defense, Social Security payments, Health and Human Services, and Treasury Department interest on debt.
For a quick visual look at what I mean, visit http://www.federalbudget.com/
The rest of these departments are miniscule in comparison, and would certainly not add up to the SSA budget or Health and Human Services budget, but might only catch up a bit to Defense.
But accepting the argument that it IS a lot of money, how much money do we currently refund to taxpayers today?
For the tax year of 2005, the average tax refund was $2,480. Add to that, roughly 60% of taxpayers get refunds at the end of the year. Assuming that there are roughly 120 million tax returns filed each year (my own estimate because I cannot find a 2006 number for this right now), this should add up to 120 million times .60 times $2480 = $178,560,000,000 (that’s 178.56 billion I believe, hope I haven’t missed a zero). So yeah, our prebate idea is big money. But it isn’t like we don’t give back a lot now! And how much time, money and hassle do all of us, the IRS included, have to go through to give us back that money, anyway? LOTS.
Literally billions of man-hours go into tax compliance every year. The Fair Tax book goes into more detail on this.
Just think how little we would be paying to get back money that should have been yours to begin with!! To me, the FairTax is just a better way of doing things.
Great post, James.
What’s interesting about that particular argument against the FairTax is that it hits at the core demographic of FairTax supporters: People who think government is too bloated. Socialists don’t give a damn whether the government grows, but most FairTax supporters (and potential supporters) do care.
This particular argument against the FairTax seems designed to make it appear that the FairTax is the opposite of what it really is. Very sneaky. Unless it’s coming from small government types — in which case it’s just short-sighted.
The $600 billion figure referred to assumes the FairTax includsive rate is something like 37% instead of the 23% called for in the bill. I believe this statement came from the tax reform panel based on the Treasury numbers. As Connie Mack just admitted in the Barrows/Burns race, the tax panel did not score the FairTax, bit a bill of their own design.
AFFT’s cost for the prebate is in the neighborhood of $450 billion. Current expenditures (standard deduction/personal exemption/home mortgage interest deduction, etc) are about $792 billion!
Since they serve the same purpose, the current expenditures could be characterized as the largest entitlement program ever.
The only thing to object to in the prebate is its visibility. With the visibility of the FairTax, the cost of Government as people consume is also purely visible.
The alternative is to use exemptions and then you end up with a large percentage of Americans thinking their goodies are free.
Another point to mention when speaking anout this issue wth representatives is that the FairTax is STILL revenue neutral when taking the prebate into account. Earlier posts from quadrupole make this fact pretty clear.
Check out his site here: http://fairtaxblog.blogspot.com/2005/08/fairtax-estimated-revenue-and-revenue.html
The FairTax should create $1.624 trillion AFTER prebate costs each year, and would automatically increase with inflation since it is directly tied to retail costs. SO all this hullabaloo about the cost of the prebate program is really a red herring.
The Beacon Hill Institute estimated the rebate cost to be $489 billion (assuming 100 percent participation). One thing to point out is that income tax deductions, tax preferences, loopholes, credits, etc. under the current system was estimated at $945 billion by the Joint Committee on Taxation and that the IRS itself sent out $270 billion in refund checks for 2005. This is $456 billion more than the FairTax would spend to enable taxpayers to buy the necessities of life free from government tax. The National Taxpayers Union estimated that the annual cost of mailing monthly rebate checks via the U.S. Post Office would be approximately $225 million. However, the rebate payments can be made in the form of a paper check via U.S. Mail, an electronic funds transfer to a bank account, or a “smartcard” that can be used much like a bank debit card. Most will probably go with the electronic transfer.
Whoa there, folks.
You keep talking about the “cost” of the prebate. Isn’t that a lot like the “cost” to the government of a tax rate cut? Any time you hear a politician talk about the “cost” of a tax cut, you’re hearing a tax-and-spend politician. (Wow! I was even able to write that without using the word ‘liberal’ or any party label.
Another point I’d like to caution you about is somehow relating the prebate and tax refunds. The prebate is on a houeshold basis and is meant to offset taxes paid on the essentials for that household regardless of the number of income earning members of that household. Tax refunds are directly related to income earners and are merely a means of balancing the books at the end of the tax year; refunding overpayments to tax payers who, for whatever reason, had too much income tax withheld during the year. Comparing the prebate and tax refunds is worse than comparing apples and oranges; it’s more like comparing apples and dogs or cats.
Great point, Charles
It really is astounding how the pervasiveness of the attitude of “congress’ money” permiates even our duscussions. The terminology is so common anymore that even we “pillars of fairness” even get cought up in it. The prebate is just an amount that is used to determine what the going rate is for necessities. Sending it back to everyone in the form of a check is just the simplest, fairest way to accomplish it. I wish that there was a fair way to not put it in the governments hands in the first place, but the alternative is merely a foot in the door for congress to give special interest tax breaks based on congress’ need to purchase votes from a particular segment of the population. You know the old saying...”divide and conquer”. That is the way of our government at this point. They pit one group against another to prove how needy they are and congress just sits there and tallies up a vote /dollar ratio. Congress will attempt to enact those very same laws again using children, the blind, the infirmed, the elderly and even underprivileged tax accountants to do it. They will still purchase votes with the tax dollars they have already received, but at least the have to do it with real dollars and not with handing out tax breaks like candy.
Please help pass this tax reform act. I can not afford to pay an accountant and I hardly have any savings.
I certainly hope the retirement age will have enough money over the
next 20 years and our grandchildren will put more money aside to live happier and longer.
If I could live over again, I would wish I were richer and smarter and
an economist.
Thanks for all your help to make me see how low income seniors are better off.