As House Speaker Kevin McCarthy, R-Calif., wowed a live audience with coverage of the historically large votes for his new title, it was no secret that he was making concessions to win votes from a small group. of skeptical Republicans. This is what it would take to replace Rep. Nancy Pelosi, D-Calif., and McCarthy was up to the task.
The group of representatives, known as the House Freedom Caucus, are mostly right-wing activists who are temperamentally opposed to compromise. They demanded promises from McCarthy, extracting deals that fit his agenda while forcing a staggering 15 separate House votes before finally electing McCarthy’s president in the early morning hours of January 7.
Among the concessions was support for the aspiration of longtime conservative mascots to implement a plan known as the Fair Tax Act.
The law, which is generally expected to be struck down by the Democratic Senate and the White House, was introduced in the House of Representatives on January 10.
However, it is worth taking a look at the provisions of the bill.
Most surprisingly, the Fair Tax Act, introduced by Rep. Buddy Carter, R-Ge., would seek to abolish the IRS. In doing so, it would replace the federal income tax with a national excise tax.
“Instead of adding 87,000 new agents to arm the IRS against small business owners and average Americans, this bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation,” Carter said in a news release.
The effects of the legislation are ripe for debate
A look at the details of the proposed legislation reveals stark divisions in perceptions of its potential effect on taxpayers.
The bill would eliminate all federal taxes and institute a 23 percent national retail sales tax. Supporters of the measure say it is similar to a 15 percent income tax plus the 7.65 percent payroll tax rate paid by employers.
Not so fast, opponents say. According to the Institute for Tax and Economic Policy (ITEP), this calculation is based on some complicated math. If something costs $100, one would pay $30 in taxes, the institute calculates. For most people, that works out to be a 30% tax. But it’s called a 23% tax because $30 is 23% of the gross payment of $130.
“Proponents claim that this calculation method is more comparable to how we think about income tax, but its main result is widespread confusion.” ITEP says.
Proponents argue that taxpayers would keep their paychecks full and only pay taxes on what they spend. And since states already collect sales tax, it would simply be a matter of raising the rate.
“Such a change would have important and immediate consequences,” the libertarian publication writes. Reason. “Annual tax returns and W-2 forms would cease to exist. People who make money on the black market would pay the same taxes as anyone else. The huge compliance costs currently associated with filing annual taxes would be significantly reduced With just one tax and no deductions, the entire government funding process would be more accurate and transparent.”
Fiscal complexities would remain plentiful
Opponents of the legislation aren’t convinced it’s that simple.
First, there are five states that do not impose a sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Second, all states exempt some purchases that a national sales tax would not allow. Many times, for example, groceries are not subject to tax, while prepared foods and alcoholic beverages are.
Third, somewhat ironically, the bill would give the treasury department authority to institute the national sales tax in states that do not agree to administer it.
“This would suggest that some sort of federal apparatus is required for tax collection, which, if you think about it too hard, sounds like it would involve something like the IRS.” ITEP says.
The tax structure is obviously regressive, as flat tax rates on goods and services add up to a higher percentage of income for a less advantaged family, since it earns less money than a wealthy family.
In response to this reality, the new tax program would contemplate a “prebate”, understood as a monthly stipend for those who live below the federal poverty line. To administer such a policy, it would be necessary to create a new agency; again, something that looks a lot like the IRS, which, in theory, would have been abolished.
“While the Fair Tax provides families with refunds that could equal several thousand dollars a year, this is not enough to offset the financial impact most Americans would face from the new national sales tax,” he writes. ITEP.
The proposed tax plan is also likely to have unintended consequences for the wealthy, a constituency his conservative supporters tend to coddle.
That is, under the current income tax system, many wealthy people find loopholes to avoid paying the amount of tax, as a percentage of income, like others. A tax on the consumption of luxury items, for example, would be inescapable.
