what you need to know concerning the republican plan
John Miller | iStock | Getty Images
A group of House Republicans is considering the Fair Tax Act, which would replace certain federal taxes with a national sales tax and decentralize the IRS.
While the plan may not get approval and wouldn’t make it through the Democrat-controlled Senate, policy experts say the plan would make the tax system more regressive, meaning the burden decreases as income rises.
The proposal, introduced in early January, would eliminate income, payroll, inheritance and gift taxes and replace them with a 23% national sales tax. The proposal also seeks to decentralize the IRS by cutting agency funding and relying on individual states to administer the levy.
More from Smart Tax Planning:
Here’s a look at more tax planning news.
Although the plan was first unveiled in 1999, it never received a vote and only received support from a small group of Republicans, said Erica York, senior economist and research manager at the Tax Foundation.
“It’s not a mainstream or popular tax reform idea,” York said, noting that the administrative side “doesn’t make a lot of sense” because taxpayers would have to navigate 51 state agencies rather than a single IRS.
It’s not a mainstream or popular tax reform idea.
Senior Economist and Research Manager at the Tax Foundation
The Fair Tax Act comes amid increased scrutiny of the $79.6 billion in IRS funding enacted through the Inflation Reduction Act in August. The money was earmarked for priorities like enforcement, taxpayer service, technology upgrades and more.
After months of criticism, House Republicans voted to roll back funding in January. However, the plan was largely seen as a political message, as neither Senate Democrats nor the White House supported the measure.
A “fairly significant” tax hike for the middle class
While the Fair Tax Act is unlikely to get a foothold in Congress, experts say the plan would represent a significant change for middle earners and the wealthiest Americans.
According to John Buhl, senior communications manager at the Tax Policy Center, middle earners would see a “pretty significant tax hike,” and the wealthiest Americans would see the biggest cuts if it went into effect.
He said the plan would make the tax system more regressive, despite built-in monthly rebates for families below a certain income level, given that the 23% rate is “tax inclusive” and will actually cost consumers about 30%.
Additionally, both experts say the sales tax won’t be enough to make the plan “revenue neutral,” which could be a problem as Republicans fight to tighten spending in the debt ceiling battle.
Comments are closed.