On Jan. 10, 2023, Rep. Buddy Carter (R-Ga.) introduced H.R. 25, the Fair Tax Act, to replace the current tax code with a national consumption tax known as the FAIRtax.
“Each household will receive a monthly prebate based on federal poverty levels and household size that will allow families to purchase necessary goods, such as food, shelter, and medicine, essentially tax-free. This is similar to our current individual exemption and refundable tax credit system,” said Rep. Carter
Reps. Andrew Clyde (R-Ga.), Jeff Duncan (R-S.C.), Kat Cammack (R-Fla.), Scott Perry (R-Pa.), Bob Good (R-Va.), Thomas Massie (R-Ky.), Ralph Norman (R-S.C.), Bill Posey (R-Fla.), Gary Palmer (R-Ala.), Jim Banks (R-In.), and Barry Loudermilk (R-Ga.) joined Rep. Carter as sponsors of the bill.
The beginnings of the Fair Tax originated in the 1990s. In 1995 and 1996, a number of tax reforms attempting to move away from the present income tax were proposed by Republicans.
Steve Forbes promoted the idea of a 17 percent flat tax, and then the first iteration of a fair tax / flat tax bill was introduced in 1999 by Georgia congressman John Linder.
Since then the “FAIRtax” has become the leading tax reform movement in the country. The bill eliminates all personal and corporate income taxes, the death tax, gift taxes, and the payroll tax, and replaces them with a national retail sales tax.
Further, the Fair Tax would eliminate the need for the Internal Revenue Service and the filing of forms and keeping of receipts. Each of taxpayer gets their entire paycheck and the prebate for their family’s size.
Therefore, a taxpayer pays their federal taxes each time there is a purchase of “new” retail goods and retail services.
At the moment, the FAIRtax Act has a good amount of support, but it needs more. Democrats and certain GOP members in Congress are rolling up their sleeves to fight the fight against dismantling our current income tax system. So are special interest groups.
While it’s not surprising that the politicians who oppose the FAIRtax Act may be misguided, or influenced by lobbyists, the irony is that the FAIRtax Act hits tax policy where it matters most, and offers up a worthwhile solution.
If Congress passed the Fair Tax, it would send a signal of accomplishment, progress (the “right” type of progress), and solutions.
Sadly, Washington, D.C., does not like solutions.
At the moment, there is a resistance campaign against the FAIRtax Act. Most pundits and naysayers are focusing on one negative soundbite: that everyone is going to pay a 30 percent sales tax on everything they buy. The critics, however, are forgetting the major point, that under the FAIRtax Act, working Americans will get their entire paycheck, because there is no income tax or payroll tax deduction.
But this is untrue, as Savannah Pointer, from The Epoch Times, reported: “The FairTax Act of 2023 (H.R. 25) states the tax rate would be 23 percent in 2025, with adjustments in subsequent years, and would be in lieu of the current income taxes, payroll taxes, and estate and gift taxes.”
There is also the incorrect rumor that states the poor will suffer while the rich reap the benefits. We’ve all heard this before, and in this instance, it is categorically untrue.
Today, if a family of four earns $3,333 per month ($40,000 annually), the payroll tax rate is 7.65 percent, or $255 per month ($3,060 annually), not factoring in additional income taxes and withholding. If this family filed the earned income tax credit, the family would be eligible to receive $3,274, but this tax credit is not always taken advantage of.
Under the Fair Tax Act, there is no withholding. The family receives the entire $40,000, or $3,333 per month. The family is not taxed on the amount of spending up to the poverty level published by the U.S. Department of Health and Human Services each year (2023 poverty level for a family of four is $39,440 annually). It turns out the actual rate this family ends up paying is 0.0041 percent on their overall income—not 30 percent.
Here is a comparison:
In reality, a national sales tax, an excise tax, is as old as the American revolution. Article 1, Section 8, of the U.S. Constitution provides:
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”
Income taxes were authorized by the Thirteenth Amendment to the Constitution in 1913, but it wasn’t until World War II that withholding federal taxes from our check came into play as a “temporary” measure.
How would the FAIRtax work? Very easily. It would be collected by the states and remitted to the Treasury Department.
As far as state taxes, it depends on which state a taxpayer lives in. I imagine some states would rebel and hike taxes to make a point. At the moment, the only U.S. states without a state income tax are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. However, many more have indicated that they want to either greatly reduce or eliminate their income taxes.
In Georgia, where I live, a bill will be introduced shortly to abolish the state income tax and replace it with a version of the FAIRtax.
I believe if the FAIRtax is passed, it will invigorate America and increase the likelihood of more Americans achieving the American Dream.
In a day and age where many Americans are pushing for systematic change, we might as well start with changing the federal tax code and try a new system that benefits every American.
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