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The 'Fair Tax' is anything but, and even too out there for most of the GOP [1]
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Date: 2023-01-19
This obviously hits lower- and middle-income people the hardest, the ones who don’t have savings and investments and all those financial cushions against monthly bills. It would provide for “prebates,” monthly cash allowances to be distributed by the Social Security Administration (SSA), for the lowest-income people. Sure, make the chronically underfunded and struggling SSA pick up that monthly burden. That makes sense.
Those cash payments, by they way, would create a bigger welfare system than has ever existed before, and might help the lowest-income people. But that would mean that the sales tax would have to be increased on middle-income people to pay for it, and the wealthiest get off really lightly. Some estimates from a few decades ago suggest that the tax would have to be as high as 60% to cover all the revenue lost when every other federal tax is eliminated.
In 2004, ITEP estimated that “if the Fair Tax was enacted and the national sales tax rate was set at 45 percent, the poorest 80 percent of Americans would face net tax hikes from the proposal while most of those among the richest 20 percent would enjoy net tax cuts.” They’re in the process of reevaluating that in 2023 terms now. The Tax Policy Center analysis in 2011 determined that a consumption tax like this would “reduce the tax burden for the top 1 percent (who make an average of $1.6 million per year) by a stunning 40 percent.”
What Sen. Elizabeth Warren says:
Hold on: House Republicans want a national 30% sales tax on everything from groceries to gasoline? They want to raise taxes on working-class & middle-class families while slashing them for millionaires & billionaires? Are they TRYING to show exactly how out of touch they are?
But let’s get back to there being no IRS. Another bureaucracy would have to figure out how to send out those “prebates,” and there also has to be some means of collecting all that sales tax and sending it on to the federal government. The proposal puts the onus on the states to collect the tax and send it on to the federal government. For that work, they would get about one-quarter of 1% of what they collect and send on to the federal government. That will certainly be popular with states, especially the Republican ones that love to bitch about unfunded federal mandates. Barely funded federal mandates won’t be much more popular.
One minor wrinkle there is that five states don’t have sales taxes and don’t have systems for collecting them. Every state that has a sales tax sets the rate and determines what goods and services it applies to, and this would upend those systems. Or pile on top of them, which would be really unpopular. States that have sales taxes rely on that revenue for any number of programs, they need that money.
This is a bad enough idea that even Rep. Chip Roy, who helped extract all those Freedom Caucus wins from McCarthy, is not on board. “I’ve got concerns,” he told Semafor, referring to the amendment authorizing income taxes. “I will not support creating a new tax without repealing the 16th amendment.” Okay, so he’s coming to his opposition via Crazytown, because it says this: “the bill terminates the national sales tax if the Sixteenth Amendment to the Constitution (authorizing an income tax) is not repealed within seven years after the enactment of this bill.”
He wants the income tax constitutional amendment repealed before the sales tax. That provision, by the way, envisions there being zero revenue in 2030. It would have already eliminated the IRS, so you come to 2030 and the 16th Amendment hasn’t been repealed (because of course it hasn’t) and, what, poof! The IRS is back to start collecting money again? It’s almost enough to make you think these guys haven’t really put a lot of thought or work into this proposal.
The one thing that McCarthy seemed to not make any promises about is when a vote on this harebrained bill would happen. Given that none of the Ways and Means GOP members are co-sponsors, and Grover “drown the government in the bathtub” Norquist calls McCarthy greenlighting the bill “a political gift to Biden and the Democrats,” it might be an easy promise to break.
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