Saturday, August 20, 2005

Estimated Prebate Costs

The FairTax provides a prebate to each household each month to reimburse the amount that household would pay in tax if it spent up to the poverty level for a household of it's size. When trying to compute the revenue neutral rate for the FairTax, you MUST take into account the cost of providing this prebate.

The Department of Health and Human Services Poverty Guidelines for 2003 defines the poverty line as $8,980 per household, plus $3,140 for each additional dependent in that household. Due to the FairTax's anti-marriage penalty clause however, it is reasonable to expect that the Family Consumption Allowance under the FairTax will effectively be $8,980 for each adult, and $3140 for each child (using 2003 data). This yields an annualized prebate cost of 23%*$8,980 = $2065.4 per adult and 23%*$3140 = $722.2 per child.

According the the US Census Bureau's Population Estimates, in 2003 there were 73,050,146 people in the US under 18 and 217,738,830 adults over the age of 18.

So the total cost for the prebate using 2003 data would be:

$722.2 * 73,050,146 + $2065.4 * 217,738,830 = $52.7 billion + $449.7 billion = $502.4 billion

So the estimated prebate cost using 2003 data is $502.4 billion dollars.

3 Comments:

At 10:19 PM, Blogger Ian said...

Gov. Huckabee's advocacy of the FairTax is the single most important policy position in this election. Research findings explain why:

The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces [BHKPT].

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan [THBP].

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case [THBNP].

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be [ALM].

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system [KR].

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively [JK].

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax [THBPN].

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 [THPDB].

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base [TBJ].

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent [WM].

ALERT: Kotlikoff refutes Bruce Bartlett's shabby critiques of the FairTax.

 
At 4:41 PM, Blogger Milliscent Morgan said...

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At 10:26 PM, Blogger Aruna Rajagiri said...

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