The Fair Tax Act, a proposal introduced by a group of House Republicans, aims to replace certain federal taxes with a national sales tax and decentralize the IRS.
The plan, first introduced in 1999, would eliminate income, payroll, estate, and gift taxes, and replace them with a 23% national sales tax. Additionally, the proposal would slash funding for the IRS and rely on individual states to administer the new tax.
According to Erica York, senior economist and research manager at the Tax Foundation, the Fair Tax Act is not a mainstream or popular tax reform idea and has only been supported by a small group of Republicans. She expresses that the proposal’s administrative aspect appears illogical as it would involve 51 state agencies rather than being handled by the IRS alone.
Despite the reintroduction of the Fair Tax Act, experts say it is unlikely to gain traction in Congress, given that it would not make it through the Democrat-controlled Senate. However, if the plan were to be enacted, it would have significant implications for middle-income earners and the wealthiest Americans.
According to John Buhl, senior communications manager at the Tax Policy Center, middle-income earners would see a “pretty significant tax increase” while the wealthiest Americans would see the biggest cuts.
Furthermore, the plan would make the tax system more regressive, meaning that the burden decreases as income gets higher, despite the built-in monthly rebates for families below a certain income level. Additionally, the 23% rate is “tax-inclusive” and will actually cost consumers about 30%. Experts also say that the sales tax alone would not be enough to make the plan “revenue neutral”, which could be an issue as Republicans fight for tightened spending amid the debt ceiling battle.
In conclusion, while the Fair Tax Act may sound like an attractive proposal, it is important to consider the potential consequences of such a plan and whether it would truly serve the best interests of all Americans. The proposal is unlikely to gain traction in Congress and would likely have negative consequences for middle-income earners and the economy as a whole.