The Fair Tax Act of 2023
Truly impactful and beneficial reform I can support
If you were watching the news last week, you saw where the incoming Republican members of the House of Representative engaged in a lengthy battle over choosing the Speaker of the House. In actuality, there was never a serious candidate outside of Rep. Kevin McCarthy to gain much steam. To a certain extent, it was a ploy for media attention by some renegade members of the caucus. But, it was also an internal battle within the Republican caucus over rules and committee assignments. To get elected, McCarthy had to make deals with the Republican hold-outs.
According to Fox News, part of the deal he made was to let the Fair Tax Act get to the House floor for a vote. This is an idea that dates back to 1995, when three Houston entrepreneurs formed Americans For Fair Taxation. Representative John Linder of Georgia was the first to propose legislation in the House in 1999. Since then, it has been introduced in every single Congress, only to die in Ways and Means without any action. The bill has never made it to the floor of Congress for a vote. Apparently, that will change this year.
I’m not really optimistic that this bill will pass the House and, even if it does, it is almost assuredly dead on arrival in the Democratic Senate. Regardless, I'm a huge fan of this legislation and am happy to see it get attention. It’s exactly the kind of reform our country needs and there is something in it for both parties to get excited about.
I have been a big fan of the Fair Tax since I read the book written by Neal Boortz and Rep. Linder back in college. It also fueled my support for Gov. Sam Brownback during his 2008 presidential campaign because he made it a central part of his platform.
What is the Fair Tax?
The Fair Tax Act1 would eliminate all income, payroll, estate, and gift taxes; replacing them with a national sales tax of 23%. That means no more tax withholdings on your paycheck and no more taxes on inheritance. It means no more income tax returns or tax refunds. Instead, the entirety of the federal government from national defense to social security would be funded by a single sales tax on all goods and services.
The genius of this system is its simplicity. Are you a billionaire who inherited your fortunes and want to spend your days out on a yacht? Well, you pay 23% sales tax on your yacht. Are you a single mom working two jobs trying to make ends meet? You pay 23% sales tax on your groceries. There is no complex system of credits and deductions for politicians to rig in favor of their favored constituency.
Those who crafted the Fair Tax recognized that those in poverty can’t afford to have the price of their groceries suddenly skyrocket. This bill resolves that issue by creating a monthly "prebate" credit (which would amount to a check you get in the mail at the beginning of the month) that all families (not just those who qualify based on complicated poverty standards) would receive according to family size. The check would be equal to the monthly federal poverty guideline times the tax rate (right now, a family of 4 would receive a check equal to $531.88). Essentially, it is prepaying the amount a family living at the poverty level would pay in sales tax so the net effect of the legislation would impose no tax burden on those living below the poverty level would pay the tax on net.
This bill also eliminates the IRS and cuts out the messy bureaucracy required to enforce the incredibly inefficient income tax, replacing it with a streamlined bureau under the Treasury Department. Also, this bill has a built-in sunset to require repeal of the 16th amendment (allowing a federal income tax) within 7 years to prevent the federal government from coming around later and adding the income tax back on top of the sales tax.
If you would like to learn more about how the Fair Tax works, the Americans for Fair Taxation has a great FAQ on their web site.
Why is the Fair Tax a good idea?
There are so many reasons why I love the Fair Tax. Here are the bullet notes:
Creates transparency. The Fair Tax pulls the veil away from the complex world of federal tax revenues and puts taxes out in the open. Instead of hiding the cost of our federal government, it ensures everybody sees it every time they go to the grocery store. If we are ever going to get a handle on our national debt/deficit, American voters have to tangibly be able to see the cost of the programs politicians put in place.
Treats people fairly. The Fair Tax treats everybody the same. Politicians could no longer play games with the tax code, creating tax credits and deductions for their favored constituency or using it to punish the “other guys” or the “rich.” Those games have led to an explosion of statutes, regulations, and case law that now compose our tangled jungle of a tax system. In 2012, the statutes and regulations governing our federal tax system include more than 4 million words and 9,000 pages.2 When you add the case law necessary to interpret and apply those statutes and regulations, it grows to more than 70,000 pages.3 It is also constantly changing. All of this creates a system that is rigged for those who are able to afford personal accountants and tax attorneys.
Stabilizes government revenue. The income tax is actually a very volatile source of revenue for the federal government.4 During economic downturns, taxable income goes down to a far greater extent than do purchases of goods and services because most people are able to replace at least some portion of their income with savings. Having a more stable revenue stream makes it easier to plan and forecast revenues which is essential for budgeting purposes.
Promotes efficiency. The Fair Tax does not require anybody to file an annual tax return and relies on businesses (who are largely already collecting sales taxes for their state governments) to handle the collections process. It eliminates the need for a massive bureaucracy of agents and auditors to enforce the tax code.
How can you support the Fair Tax?
There are a few ways you can help:
Contact your Congressman and ask him or her to support HR 25 and vote for the Fair Tax.