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GOP bill would abolish IRS, income and payroll taxes, replace them with flat sales tax

The American flag flies in front of the U.S. Capitol dome on Sept. 10, 2021, in Washington, D.C. (Drew Angerer/Getty Images/TNS)
January 25, 2023

Republicans in the House have introduced a new bill that would abolish the Internal Revenue Service and overhaul the U.S. tax system, doing away with income and payroll taxes and implementing a flat national sales tax in its place.

The bill calls for a 23 percent national sales tax that would replace all other forms of federal taxation. The bill would effectively end tax withholding in American’s paychecks and Americans would not have to file their taxes every year. In turn, Americans would pay their federal taxes as a percentage of their every day purchases.

Where the income tax stratifies taxpayers by income, a flat sales tax would stratify them by consumption levels

Rep. Earl “Buddy” Carter (R-GA) introduced the bill, dubbed the “FairTax Act,” on Jan. 9. Carter presented the bill along with 23 Republican cosponsors, including original cosponsors Reps. Andrew Clyde (R-GA), Jeff Duncan (R-SC), Kat Cammack (R-FL), Scott Perry (R-PA), Bob Good (R-VA), Thomas Massie (R-KY), Ralph Norman (R-SC), Bill Posey (R-FL), Gary Palmer (R-AL), Jim Banks (R-IN), and Barry Loudermilk (R-GA).

“Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, 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. Armed, unelected bureaucrats should not have more power over your paycheck than you do,” Carter said.

Carter’s comment about 87,000 new IRS agents is in reference to a provision within the 2022 Inflation Reduction Act, that provided $80,000 to hire around 87,000 IRS agents over the next decade.

“This transforms the U.S. tax code from a mandatory, progressive, and convoluted system to a fully transparent and unbiased system which does away with the IRS as we know it. It is good for our economy because it encourages work, savings, and investment,” Good said.

The idea of a flat national sales tax has been around for decades.

In 2004, a Brookings Institute analysis said that, if households are examined by income, then the a flat national sales tax would raise the overall amount of money paid by the households in the bottom 90 percent of the income distribution, while households in the top 1 percent would receive an average tax cut of over $75,000. But analyzing the flat sales tax concept by consumption levels, the Brookings Institute determined that people in the bottom two thirds of the consumption distribution would see a tax cut, while those in the top third would see a tax increase.

Critics of the proposal say it would put more of the tax burden on low-income Americans. In an analysis for The Hill, writer Tobias Burns argued that lower income earner “tend to spend more of what they make while richer people tend to save more of their incomes, investing in retirement accounts, securities and other types of assets.”

Carter has argued that as opposed to the progressive income tax, the “FairTax is not riddled with shelters and loopholes, meaning wealthy taxpayers cannot minimize what they pay in taxes, regardless of how many lawyers and accountants they hire to advise them.” 

Carter also argued that the current income tax system leads companies to bake the cost of their tax compliance, payroll and income taxes into the costs of good and services. He argued that this baked in cost can be as high as 25 percent of the cost consumers pay at the register. He argued that under a FairTax system, those baked in costs would disappear from the prices consumers pay at the register and the true cost of good and services would be more transparent, with an unchanging 23 percent sales tax.

While Carter and other more conservative members of the Republican party are backing the FairTax legislation, other conservatives are worried that the bill would hurt them.

Anti-tax activist Grover Norquist told Semafor that the legislation would “a political gift to Biden and the Democrats.”

Norquist wrote further, in the Atlantic, that such a plan would also punish retirees.

“Replacing our current tax code with a national sales tax would create a system of double taxation on retirees,” Norquist wrote. “Take, for example, a 65-year-old who has spent a lifetime saving after-tax income and has retired, expecting to draw down that income without paying further taxes. Instead, they would now face a 30 percent sales tax on everything they buy.”

“Representatives seeking reelection may want to remember that people over the age of 65 tend to vote,” Norquist added.