Diary

FairTax: Rebate or Refund?

Some FairTax opponents criticize a specific aspect of the FairTax, the rebate, as a government handout.

I imagine these critics are of the conservative persuasion because one would think that those of the liberal persuasion approve of government handouts.

So, let’s look at the rebate (or prebate, as some refer to it).

Assuming that I live and breathe in the United States, I’m going to be spending money to achieve that. For the purposes of this issue, it really shouldn’t matter where the money I spend comes from. I’m going to be spending some.

Under the FairTax plan, every time I spend my money on services or new goods, I’m going to be taxed on what I spend.

Under the current income tax system, all the money that I earn is taxed. That money is taken from paycheck or investment account (in some cases) as I earn it. It doesn’t matter that I may not actually owe that amount in taxes in the end; my money is taken anyway.

Under the FairTax plan, the authors have decided that I really don’t owe all the taxes that the plan will collect.

Under the current income tax system, the authors (too many to mention) have decided that I also may not owe all the taxes that are collected from my earnings. Under this system, however, the money is taken away in advance, just in case I do owe it. And once a year, I have to settle up and collect all kinds of proof to demonstrate that the system took more money from me than I actually owed. Of course, I have a gun to my head during the whole year in the form of penalties and interest and perhaps even criminal liability if I don’t pay enough as I go along. And if I paid too much, and can prove it, and spend the time to collect my evidence, the system will return my money to me, without interest or penalty, of course, several months later.

Under the FairTax plan, there is a rebate. This rebate occurs monthly in advance in of my spending.

Under the current income tax system, there is a refund. This refund occurs once a year, months after the books for the year are closed.

So, what’s the difference?

Under the FairTax plan, I get a rebate of taxes that I don’t owe in advance of me paying those taxes.

Under the current income tax system, I get a refund well after it was due to me. Or I could risk getting penalized for not overpaying during the entire year.

If the FairTax rebate (prebate) was renamed a refund, it would still be the same money.

It’s still a refund of taxes that I do not owe under the FairTax plan. Under the FairTax I get my refund when it really does me the most good, when I need the money to spend on the things I need to live and breathe in the United States. And the less money I have to spend, the more beneficial the refund is, because I may not have a lot of money in reserve to spend on things that I need.

I never hear these critics saying that the income tax refund is a government handout. And that’s because it isn’t. It’s a refund of taxes collected that you don’t owe.

In the same vein, the FairTax refund is also a refund of taxes that you don’t owe.

Is that so hard to understand?