FairTax was first introduced to Congress in 1999 and has been a favorite bill by many conservative Republicans. Prominent figures such as Herman Cain, Buddy Carter, Mike Huckabee, John McCain, and Rick Perry have pushed the ideas over the years.
Unsurprisingly, liberal groups are against it and deem the proposal as regressive. But several conservative figures and groups are also against it, including Grover Norquist and Wall Street Journal editorial board.
Ramesh Ponnuru of The National Review said any Republican backing this bill would be accused of voting for raising the price of everything by a huge amount. It would shift the tax burden to the middle class, create a new wealth tax on senior citizens, increase federal spending by a massive amount, and potentially create large black markets.
Recently, newly elected House Speaker Kevin McCarthy has been voicing out his support and calling to hold a vote regarding this radical bill.
So, what is FairTax, and why are there many polarizing opinions regarding this bill?
What is FairTax?
FairTax is simply removing almost every federal tax – including the dismantling of the Internal Service Revenue, eliminating the filing of annual income tax returns to the federal government – and replacing them with a 30% sales tax on everything.
Additionally, the government would provide a monthly check to every American to cover the cost of paying the tax on essentials.
Republican Illinoisans gather to show their support for FairTax. (Photo: Community Renewal Society)
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What Does it Imply?
Dylan Matthews of Vox said a FairTax could be beneficial in the sense that it could be used to fund progressive programs like in the Nordic countries. It also offset some negative impacts on low-income people by including a tax “prebate.”
Republicans proposed a “prebate” which provides each household with a monthly check of 23% of the poverty threshold for household size. For instance, based on 2023 poverty threshold data, a single adult would receive a monthly check of $279.45 and an extra $98.52 per month for each additional person in the house. If a household consists of four members, the amount would reach up to $6,900 in payments yearly.
However, the “prebate” is only offered to anyone with a Social Security number, which means only legal residents would be eligible to receive the payments.
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Is it a bad thing?
Basically, FairTax would be the first permanent, unconditional cash program for all eligible Americans. However, it would also remove the estate and personal and corporate income taxes, the three most progressive taxes in the federal code. These taxes have provided benefits to low-income people, including the earned income tax credit and the child tax credit. Removing these three taxes would also eliminate the benefits for poor people.
The FairTax would greatly impact the middle class. Based on a study during the Bush administration, as cited in Vox, using the tax to replace the income tax alone would sharply raise taxes on the middle class.
The bill would also not affect wealthy people. Rich people usually pay 40.8% on their wages and 23.8% on their income from investment. Removing federal taxes and replacing them with a sales tax would make them pay a 30% tax on everything they buy. It means that rich people would be able to save more of their income than non-wealthy people do.
As The Center for American Progress explained, the FairTax would increase the taxes for working families while reducing the taxes on the wealthy. This bill is a radical strategy to restructure the nation’s tax system that would favour the wealthy.
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