Is America Ready for a National Sales Tax? Congressman Earl L. “Buddy” Carter (R-Ga.) has introduced the Tax Fairness Act, a bill in Congress that would eliminate most federal taxes and replace them with sales tax on goods and services. The so-called “consumption tax” deserves support because it “simplifies our tax code,” he says Rep. Bob Goode (R-Va.). But Democrats like Senate Majority Leader Chuck Schumer (N.Y.) say Carter’s bill would actually raise taxes on “90 percent of the American people.” What is the case for consumption tax? And is there any chance of it actually becoming a reality? Here’s everything you need to know:
What is the Tax Fairness Act?
The proposal “represents the first serious challenge to the US tax code in recent memory,” Reason reports. Carter’s bill does more than impose a national sales tax, Money reports. It would eliminate the Internal Revenue Service entirely, along with most of the taxes it collects — “including payroll, self-employment, estate, death and corporate taxes.” In their place, it would create the aforementioned sales tax. “This means workers will be able to keep all their wages without having to pay anything to the government.” The hill reports. “But it also means that buying everything from groceries to cars would be much more expensive.” Some exceptions: There would be no sales tax on used goods, and business-to-business transactions would also not be taxed.
How much will sales tax add to my purchases?
This is actually the subject of heated debate. Carter says the bill imposes a 23 percent tax, but critics say the real amount ends up being 30 percent. How do we explain the discrepancy? Carter offers this description in a Myth vs. Fact explanation: “Under the FairTax, if you pay $100 for a good, you pay $77 for the good and include tax of $23.” But while $23 is 23 percent of $100, it’s actually 29, 9 percent of $77—suggesting that Carter is underestimating the actual impact of his proposal on American pocketbooks.
What do proponents like about the sales tax?
The short answer: It’s simpler than the current tax code. More broadly, however, some conservatives have long favored shifting federal government funding from taxing the money Americans earn to taxing the money they spend — a “consumption tax.” That means workers will “get an instant raise” in their wages, say advocates at FairTax.org. This would encourage both work and savings: “You can control your own tax burden. If you’re frugal, you’ll pay lower taxes than someone who isn’t.”
What are the disadvantages?
This is regressive. America’s tax burden will disproportionately affect the poor, critics say. Reason states that 40 percent of households pay no income tax. “Under the FairTax system, these households would see a small increase in their take-home pay, but take it on the chin at the grocery store.” And John Bull of the Tax Policy Center told CBS News that middle-class families who itemize their taxes and take deductions that reduce their income tax bill would also take a “fairly significant” hit. But while rich people spend more money on things, it’s often a smaller percentage of their total income. The result? “The richest of the rich would actually get the biggest tax cuts from this change,” Bull said. As you might expect, Democrats are ready to bash Republicans on the proposal: President Biden sarcastically called it a “great idea” to “raise taxes on the middle class” during an appearance at the White House.
Is there any part of it that liberals like?
almost? Dylan Matthews c Vox points out that Carter’s bill includes a provision to offset the effects of the sales tax on poorer families by sending every household in America a monthly check worth 23 percent of the poverty line for a household of their size — nearly $7,000 a year for four person family . That’s a lot like the universal basic income that progressives have long sought, but Matthews says it’s not enough to offset the overall effect of the Fair Tax Act of placing an even greater tax burden on the poor and easing the burden on the rich .
But conservatives like it, don’t they?
Funny you should ask. One of the fiercest critics of the Fair Taxation Act was Grover Norquist, perhaps the most famous anti-tax activist of his era. He writes in Atlantica that he likes the idea of eliminating the IRS but hates the idea of sending checks to American households — the so-called “prebate” provision. And Americans are likely to scorn the idea of a national sales tax, Norquist wrote. “Democrats are right to be confident that they have a winning message out there.” He’s not the only conservative feeling nervous. The Wall Street Journal published an op-ed against the Tax Fairness Act, and House Speaker Kevin McCarthy (R-Calif.) said he opposed the bill.
What’s next then?
Normally, a House speaker’s opposition to a bill would be the end of the story. But you’ll recall that McCarthy had a tough time winning the speaker’s gavel — and was only able to succeed through a series of concessions to his far-right opponents. That includes a vote on the Fair Taxation Act. A politician reports that the bill’s GOP opponents hope the bill can be “shut down in the Ways and Means Committee, where only a few Republicans support the idea.” Even in the unlikely event the House passes the bill, Democratic opposition in the Senate and White House means it’s likely dead on arrival — for now.
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