House Bill Would Eliminate IRS

A popular game nowadays is “Would You Rather.” The Republican majority House has just surfaced a bill that could pose the question to all Americans: Would you rather pay income tax as usual or pay a 30% federal sales tax? The concept of a federal sales tax has been debated for years, but it may now be closer to reality than ever before. Let’s look at the odds of this “Fair Tax” becoming law and what it would do.

Even with just a 10-seat House majority advantage, Representative Earl L. “Buddy” Carter, Republican from Georgia, has filed a Bill, H.R. 25 with 23 co-sponsors, to replace income tax with a federal sales tax. This would eliminate the IRS and the whole tax service industry. Although the bill faces a hurricane-level headwind of opposition, it brings the issue to legitimate debate and analysis like never before. Almost all Democrats will fight it, and even Speaker Kevin McCarthy would be reluctant to bring it to the floor for vote assuming it would make it out of committee. President Biden is already trashing it and has promised to veto it if it would happen to get to his desk. The concept is certainly controversial, and it would revolutionize how America funds the government. It has caused a lot of fear-mongering, but it could be a tremendous boon to our economy and lifestyle.

The bill would eliminate all income taxes–personal, payroll, and corporate–and do away with the IRS. The government revenue would be replaced by a significant federal sales tax on all goods and services purchased. The Fair Tax assumes a 30% federal sales tax that would replace the loss of income tax. You will see the tax rate proposed as 23%, but that is, as George H. W. Bush called it, “fuzzy math.” The fact is, it’s really a 30% tax. For every $100 you spent, you would pay an extra $30 federal tax in addition to your current state and local taxes. This huge increase in the price of everything seems rather draconian at first blush, and the Democrats are already decrying the Republicans for even thinking about “punishing” consumers with such a financial burden. Of course they will never mention the ultimate added savings for the average American compared to what they would pay in income taxes.

Another hurdle for the bill is the endless accusation by the Democrats that Republicans favor advantages for the rich and burdens on the poor. Granted, the Fair Tax would result in financial gain for the upper class. Those whose income usually exceeds expenditures would pay less tax on less money. Although that is simply free-trade capitalism, it could be subject to amended tax law if too much wealth for some were an overwhelming concern. No doubt the poor, who pay little or no income tax, would be hurt economically by the increased consumer tax unless the bill protected against that inequity. It does, but that protection is a somewhat complicated process. Under Carter’s plan, all taxpayers would receive a monthly sales tax rebate called a “Family Consumption Allowance” based on family size. This rebate would offset the federal sales tax on all purchases up to the federal poverty line (currently $30,000 for a family of four). For example, every family of four would receive a monthly government rebate of $750 ($30,000/12 months = $2,500 per month x 30% tax = $750). A family in the poverty level economically would essentially be reimbursed for all federal sales taxes that might be paid up to $750. Families consuming above the poverty level would only pay unreimbursed sales taxes for spending above that level.

Another big advantage of the Fair Tax is that it eliminates the substantial and unlawful withholding of federal income taxes by earners in the underground economy. That involves cash earned by those who do not report it to the IRS for tax purposes. This includes, for instance, income sources from illicit drug sales, money laundering, and offshore banking schemes as well as individual landscaping, restaurant server tips, and house cleaning. Such illegal, off-the-books activity makes up a huge sector of the U.S. economy. The government estimates the loss of tax revenue from this activity to be 11% of Gross National Product (GNP), or currently $2.8 trillion. That is close to half of the U.S. federal budget! Those who have been evading these income taxes would suddenly be paying them with every purchase along with the rest of us if the Fair Tax Act were in effect.

In my opinion, the advantages of the Fair Tax far outweigh those of the traditional income tax. Why should Americans thriving in a capitalist society that should award productivity have much of their earnings confiscated by the government? Doesn’t it make sense to fund the government at the sales checkout rather than from payroll withholding. Despite the patently obvious argument for the Fair Tax, its likelihood of becoming the law of the land anytime soon is slim. The Democrats vehemently oppose it, because it would relinquish much of the government bureaucratic control of the citizens. They will make higher prices a one-note tune. Many Republicans will not want to support the bill fearing the political hay the Democrats would make of it. Unfortunately, one of the best congressional bills to surface in a long time will probably never see the light of day, squashed by politics. Nevertheless, I will urge my congressman to support the bill and perhaps co-sponsor it. I recommend you do the same. I just hope the attention the proposal is getting, pro and con, will keep the conversation alive and the citizens curious.

Leave a Reply

Powered by

Up ↑

%d bloggers like this: