The Fair Tax Act, introduced by Rep. Buddy Carter (R-GA), is an attempt to simplify the tax code and the tax collection system. Similar legislation was first proposed in 1999 by former Rep. John Linder (R-GA); the current iteration of the bill is also sponsored by House Freedom Caucus Chair Scott Perry (R-PA), as well as lawmakers such as Rep. Bob Good (R-VA), Rep. Jeff Duncan (R-SC), Rep. Thomas Massie (R-KY), and Rep. Kat Cammack (R-FL).
“As a former small business owner, I understand the unnecessary burden our failing income tax system has on Americans,” Duncan said in a press release. “The Fair Tax Act eliminates the tax code, replaces the income tax with a sales tax, and abolishes the abusive Internal Revenue Service. If enacted, this will invigorate the American taxpayer and help more Americans achieve the American Dream.”
The 23% national sales tax established by the bill would enter into effect by 2025. The federal income tax, created by the Sixteenth Amendment in 1913, currently accounts for 49% of total federal revenues, according to data from the Treasury Department. Social Security and Medicare taxes constitute 35% of revenues, while corporate taxes provide 10% of revenues.
The Fair Tax Act would attempt to repeal the Sixteenth Amendment and sunset the national sales tax if the repeal is unsuccessful within a seven-year period.
The new legislation comes after President Joe Biden’s Inflation Reduction Act approved $80 billion for the IRS. Treasury Secretary Janet Yellen said that the funding will enable staff to more easily assist individuals and businesses seeking to file their taxes; a report from the Treasury Inspector General for Tax Administration, however, indicated that the agency has not yet decided how the funds will impact audit rates for middle-income taxpayers.
Critics of the national sales tax note the regressive nature of the policy. While the current federal income tax system is progressive, meaning that individuals tend to pay more as their income rises, sales taxes take a larger share of low-income households’ salaries since they utilize a larger portion of their wages for expenses, according to an analysis from the Tax Policy Center.
Biden responded to the proposal by asserting that the national sales tax would increase prices on “everything from groceries and gas to food and medicine.” His post neglected to mention that the bill would also repeal the income, payroll, and estate taxes while offering a number of refunds and rebates to families. Sen. Elizabeth Warren (D-MA) likewise failed to mention the repeal of the current tax regime when she said on social media that “it’s not fair to impose taxes on working people, while giving massive tax breaks to the ultra-rich.”
Republicans have often called for the abolition of the IRS and voted earlier this month to reverse the windfall offered to the agency by the Inflation Reduction Act. “This bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation,” Carter said in the press release. “Armed, unelected bureaucrats should not have more power over your paycheck than you do.”