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There is hardly an area of American life that is discussed so partisanly as tax law. The Democrats want to raise taxes. Republicans want to cut them up. At least that’s how the well-known story goes. But in reality, the debate about the IRS and how many Americans should switch to Uncle Sam can be more complicated.
Not all lawmakers from any given faction agree. Take the FairTax Act of 2023, for example, a new bill that some GOP House members are pushing for, but not all. The idea for the law – a universal sales tax on consumer goods and services – has been around for a long time. Again and again it gains new strength, as it did this year.
Here’s everything you need to know about the proposed bill and how it would work.
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What is the FairTax Act of 2023?
The FairTax Act of 2023, a bill introduced by US Rep. Earl “Buddy” Carter (R-GA) in early January, proposes a national sales tax on the use or consumption of taxable property or services. Sales tax would be levied in lieu of the current income taxes, payroll taxes, and estate or gift taxes listed in subheadings A, B, C and H of the 1986 Internal Revenue Code.
Proposed legislation would repeal these subtitles and instead enact a new Internal Revenue Code: the Internal Revenue Code of 2023.
Although the bill calls for a 23% tax rate, the “gross payment,” or payment for both taxable property and services combined with federal taxes, is actually closer to 30%.
The bill, an idea of a faction in the Republican Party, does not yet have broad GOP support and is unlikely to pass. It would not only have to make it through the House of Representatives, but also through the Senate, which has a Democratic majority. President Joe Biden has already announced that he will veto the bill should it reach his desk against all odds.
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How does FairTax work?
Passing the FairTax Act would usher in a complete overhaul of the tax system.
The sales tax levied would effectively replace both payroll and income taxes. The proposed rate is 23% for 2025 and will be adjusted in subsequent years. It would fall to the states to administer, collect, and remit the sales tax to the Treasury Department.
There are some exceptions to taxable property and services, including:
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used and immaterial property
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Property or services acquired for business, export or investment purposes
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Property or services purchased for state government functions
The tax revenue generated would be allocated to five different categories: general revenue, the old-age and survivors’ insurance trust, the disability insurance trust, the hospital insurance trust, and finally the federal supplemental health insurance trust.
US citizens would receive a monthly sales tax refund – a family consumption allowance – based on specific guidelines set for family size and poverty.
The bill also cuts funding to operate the IRS after fiscal 2027, a potential pain point for Democratic lawmakers who have pushed for increased allocations to support oversight.
The final provision of the bill is an abolition of the national sales tax if the Sixteenth Amendment, which provides for an income tax, is not repealed within seven years of the law’s enactment.
More answers to your questions about the 2022 tax season
This article originally appeared on USA TODAY: What is the FairTax Act of 2023? Behind the proposed national sales tax
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