THE FAIR TAX ACT INTRODUCED IN CONGRESS

THE FAIR TAX ACT INTRODUCED IN CONGRESS

H.R. 25 Would Replace the Income Tax

In late January, the Fair Tax Act, H.R. 25, was introduced in Congress yet again. This time the bill’s chief author is Rep. Earl L. “Buddy” Carter (R-GA). The Fair Tax Act is a bill to replace the current Internal Revenue Code with a national retail sales tax, known as the Fair Tax. I say it was introduced “yet again” because it was first introduced in about 1999 by then-Rep. John Linder. Linder later co-authored The Fair Tax Book: Saying Goodbye to the Income Tax and the IRS (Harper Collins 2005), with Neal Boortz. Carter also introduced the bill in 2023.

The original idea to abolish the federal income tax along with the IRS, and move to a national retail sales tax to raise the nation’s revenue, was proffered by me in my 1993 book, How to Fire the IRS: A Plan to Eliminate the Income Tax and the IRS. That book started the national debate on whether to abandon the income tax and adopt a broad-based sales tax to fund the federal government.

The Fair Tax proposal was subsequently introduced in just about every congressional session after 1999, but support dwindled as the years went on. Support for the idea has been rekindled given President Trump’s apparent interest in rethinking the nation’s tax system.

The Fair Tax would repeal the Internal Revenue Code as presently constituted. The axe would fall on the personal and corporate income tax, the estate tax and gift tax, and employment (payroll) taxes. These taxes would be replaced with a single national sales tax on a very broad base of consumption goods and services.

I discuss the assessment and collection procedures of the Fair Tax more fully below.

The Fair Tax Philosophy

The preamble to H.R. 25 sets forth the theories that drive the Fair Tax push. The philosophy is directed at the demerits of the current income tax system in general, and espouses the merits of a broad-based national retail sales tax in particular.

As to the current income tax, the preamble declares that the tax:

• Retards economic growth and reduces the standard of living,
• Impedes the international competitiveness of our industries,
• Reduces savings and investment,
• Slows capital formation thus impeding wage-growth,
• Lowers productivity,
• Imposes unacceptable and unnecessary administrative and compliance costs on all taxpayers,
• Is unfair and inequitable,
• Intrudes on the privacy and civil rights of all citizens,
• Hides the true cost of government by embedding taxes in the costs of everything we buy,
• Is not being complied with at satisfactory levels, and
• Impedes upward social mobility.

Similar indictments are leveled on employment taxes and estate and gift taxes.

The merits of a broad-based sales tax are likewise set forth in the bill’s preamble. Drawing from my May 1997 treatise, published in PTT, How the IRS Tries to Make You Die Poor, (pg 39) the bill restates ten of my twenty-seven reasons why a sales tax is a better idea than an income tax. As stated in the bill, a national sales tax:

• Is similar to the sales and use taxes in place in 45 of the 50 states,
• Will promote savings and investment,
• Will promote fairness
• Will promote economic growth,
• Will raise the standard of living,
• Will increase investment,
• Will enhance productivity and international competitiveness,
• Will reduce administrative burdens on taxpayers,
• Will improve upward social mobility, and
• Will respect the privacy interests and civil rights of taxpayers.

What is the Rate of Tax?

Nearly everybody is on board with the idea of abolishing the IRS. But before getting on board with the idea of adopting a sales tax as a replacement, people want to know what the rate of tax would be. Under the fair tax proposal, the rate would be 23 percent of all consumption goods and services at retail by the end-use consumer. The intent is that the new tax would be revenue neutral; merely replacing existing revenue sources with a single consumption tax.

Of the revenue collected, 64.83 percent would be allocated to general revenue and would be used to pay the normal operating expenses of the federal government, including defense spending and interest on the national debt, etc. The sum of 27.43 percent would be dedicated to the Social Security trust account and used to pay current Social Security benefits, along with survivors insurance and disability benefits. The remaining 7.74 percent would fund federal Medicare and Medicaid programs.

Rest of this article includes:

Protection for Low-income Citizens
How the Tax Will be Administered
Double-taxation and Cascading
Fee for Services
The 16^th Amendment and the modern Income Tax
 Conclusion: While the Fair Tax is not a perfect proposal, it is a far cry better than the current income tax system that’s strangling American productivity.

Want to read the entire article?

Subscribers of Pilla Talks Taxes get the rest of this article and articles in this issue including:

THE FAIR TAX ACT INTRODUCED IN CONGRESS (full article)
H.R. 25 Would Replace the Income Tax

IRS EXPANDS DIRECT FILE
Free Filing System Now Covers 25 States

 THE TAXPAYER ASSISTANCE AND SERVICE ACT
Taxpayers’ Rights Legislation in the Senate

THE HIERARCHY OF LEGAL AUTHORITY
Federal Statutes Always Trump the Internal Revenue Manual

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