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A group of House Republicans is reviewing the Fair Tax Act, which would replace some federal levies with a national sales tax and decentralize the IRS.
Although the plan may not get a floor vote and would not pass through the Democratic-controlled Senate, policy experts say the plan would make the tax system more regressive, meaning the burden decreases as income increases.
Introduced in early January, the proposal would eliminate taxes on income, wages, estates and gifts, to be replaced by a national sales tax of 23%. The proposal also seeks to decentralize the IRS by reducing agency funding, relying on individual states to administer the levy.
Although the plan was first introduced in 1999, it was never put to a floor vote and was only backed by a small group of Republicans, said Erica York, senior economist and director of research at the Tax Foundation.
“This is not a common or popular tax reform idea,” York said, noting that the administrative side “doesn’t make much sense” because it would involve 51 state agencies rather than a single IRS.
This is not a common or popular tax reform idea.
Erica York
Senior Economist and Research Fellow at the Tax Foundation
The reintroduction of the Fair Tax Act is part of increased monitoring of the $79.6 billion in IRS funding, enacted by the Inflation Reduction Act in August. The money has been reserved for priorities such as law enforcement, taxpayer service, technology upgrades and more.
After months of criticism, House Republicans in January voted to cancel funding. But the plan was widely seen as a political message since neither Senate Democrats nor the White House backed the measure.
A “quite significant” tax hike for the middle class
Although the Fair Tax Act is unlikely to gain traction in Congress, experts say the plan would be a significant change for middle-income and wealthier Americans.
If enacted, middle-income people would see a “pretty big tax increase” and the wealthiest Americans would see the biggest cuts, according to John Buhl, senior communications officer at the Tax Policy Center.
He said the plan would make the tax system more regressive, despite built-in monthly refunds for families below a certain income level, especially since the 23% rate is “tax included” and will actually cost about 30% to consumers.
Additionally, the two experts say the sales tax wouldn’t be enough to make the plan “revenue neutral,” which could be a problem as Republicans fight for tighter spending as part of the battle. of the debt ceiling.