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A group of House Republicans is revisiting the Fair Tax Act, which would replace some federal levies with a national sales tax and decentralize the IRS.
While the plan may not get a floor vote and won’t make it through the Democrat-controlled Senate, policy experts say the plan would make the tax system more regressive, meaning that the burden is reduced when income is high. .
introduced in early januaryThe proposal would eliminate income, payroll, estate and gift taxes to replace them with a 23% national sales tax. The proposal aims to decentralize the IRS by reducing the agency’s funding, relying on individual states to administer the levy.
While the plan was first introduced in 1999, it never passed a floor vote, and was only supported by a small group of Republicans, explained Erica York, senior economist and research manager at the Tax Foundation.
“It’s not a mainstream or popular tax reform idea,” York said, noting the administrative side “doesn’t make much sense” because taxpayers would have to navigate 51 state agencies instead of one IRS.
This is not a mainstream or popular tax reform idea.
Erica York
Senior Economist and Research Manager at the Tax Foundation
Comes amid increased scrutiny of the Fair Tax Act $79.6 billion in IRS funding, enacted through the Inflation Reduction Act in August. money is gone set for priorities Such as enforcement, taxpayer service, technology upgradation and many more.
After months of criticism, House Republicans in January voted to cancel funding, But the plan was largely seen as a political message because neither Senate Democrats nor the White House supported the measure.
A ‘significant’ tax hike for the middle class
While the Fair Tax Act is unlikely to gain traction in Congress, experts say the plan would be a significant change for middle-income earners and the wealthiest Americans.
If enacted, middle-income earners would see “quite significant tax increases” and the wealthiest Americans would see the biggest cuts, according to John Buhl, senior communications manager for the Tax Policy Center.
He said the plan would make the tax system more regressive despite the built-in monthly exemption for households below a certain income level, especially since the 23% rate is “tax-inclusive” and would actually cost consumers about 30%. Have to do
What’s more, both experts say it won’t be enough to make the sales tax plan “revenue neutral,” which could be an issue as Republicans fight for tighter spending amid the debt limit battle.