A Republican-backed plan, called the Fair Tax Act, would eliminate certain taxes and impose a large national sales tax of 23%. Optima Tax Relief reviews the Fair Tax Act.
The plan would replace federal income and payroll taxes, including personal, gift, capital gains, alternative minimum, estate, Social Security and Medicare, self-employment, and corporate taxes. It would repeal the 16th Amendment, which states that Congress should have the power to impose a federal income tax. In short, the plan aims to decentralize the IRS by taking away funding and relying on individual states to monitor and levy taxes.
This means that Americans would retain 100 percent of their entire paychecks, except for any state income taxes. There is also the assumption that the plan could end corporate taxes and eliminate compliance expenses that are hidden in the cost of goods and services. Currently, goods and services cost an additional 20% because corporate taxes and compliance fees are hidden in the prices. Supporters of the act believe this plan could fully fund the federal government.
To address the concern over lower earners being hit hard by a high national sales tax, lawmakers claim the Fair Tax Plan will provide a monthly rebate for every registered household to cover the tax on necessities up to the federal poverty level.
The plan proposes no tax on used goods, meaning if an individual purchases an item used, whether it’s a car or an appliance, tax is not owed. Additionally, business owners and farmers will not owe consumption tax if their purchase is strictly for business use only.
The Fair Tax Act is not a new concept as the plan was originally introduced in 1999. It has never been given a vote because of its controversial nature and administrative burdens. Republicans have tried to resurface the idea since the announcement of the Inflation Reduction Act, in which the IRS would receive $80 billion in funding for enforcement, technology upgrades, and more.