House Republicans Want a Vote On the FairTax. Is It Worth Supporting?
When Rep. Kevin McCarthy (R–Calif.) finally secured the votes necessary to become the next House speaker, it required concessions to dissenters within his party. Members of the House Freedom Caucus demanded, among other things, a vote on the Fair Tax Act, which has been introduced in the current session.
The Fair Tax Act, while likely doomed by a Democratic Senate and White House, represents the first serious challenge to the American tax code in recent memory. Versions of the act have been proposed since at least 1999. While it has never been voted on in the House, it has been endorsed by multiple Republican presidential candidates and Libertarian presidential candidate Gary Johnson.
The bill would overhaul the nation’s entire tax code, scrapping all federal taxes in favor of the FairTax, a 23 percent national retail sales tax. Proponents argue that the 23 percent number is comparable to a 15 percent income tax plus the 7.65 percent payroll tax rate employers pay. In return, taxpayers would keep every cent of their paychecks and only pay taxes on the money they spend.
That shift would have major and immediate consequences. Annual tax returns and W-2s would cease to exist. People who make their money on the black market would be taxed at the same rate as anyone else. The enormous compliance costs currently associated with filing one’s annual taxes would be cut significantly. With only one tax and no deductions, the entire process of funding the government would be more precise and transparent.
There are also tradeoffs. For one, around 40 percent of American households currently pay no federal income taxes, most of whom are in the bottom two-fifths of income earners. Under a FairTax system, those households would marginally increase their take-home pay but take it on the chin at the grocery store.
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