House Republicans are voting on a bill that would abolish the Internal Revenue Service (IRS). The Fair Tax Act would also eliminate all federal taxes in favor of "FairTax"-- a 23% national retail sales tax (though, in reality, it's closer to a 30% sales tax).

What's the story?

• The motion to abolish the IRS was part of the concessions that Rep. Kevin McCarthy (R-CA) made with the House Freedom Caucus in order to get their votes for the speakership.
• The Fair Tax Act was reintroduced by Rep. Buddy Carter (R-GA) and currently has eleven co-signers. Versions of the bill have been introduced in almost every Congress since 1999.
• Carter said:

"Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, this bill will eliminate the need for the department entirely by simplifying the tax code.”

• Critics point out that the burden would disproportionately fall on lower-income Americans, who will be spending a larger percentage of their income on sales taxes, and will ultimately only benefit corporations and high-earners and shift taxes from the rich to the poor.
• Roughly 40% of American households currently pay no federal income taxes due to low income. Under the new sales tax, they would be faced with the burden of higher taxes.

What’s in the Bill?

Abolishment of personal and corporate income taxes 

• These taxes will be replaced by a national simplified consumption (sales) tax, rather than being contingent on a worker’s income. The bill would allow the Treasury to administer the sales tax in all states, even those that currently have no sales tax.

Shutters the IRS

• Because states already collect sales tax, proponents of the bill argue that the IRS could be abolished as states could simply collect additional sales tax for the federal government and send the funds to the U.S. Treasury.

Abolishes death, gift, and payroll taxes

• All of these taxes would be eliminated and replaced by one sales tax.

A 23% federal sales FairTax

• Supporters of the bill say that 23% is comparable to a 15% income tax plus the 7.65% payroll tax that employers currently pay.
• Calculated a different way, the tax actually comes out to 30%--under the Fair Tax Act, if you buy something that costs $100 pre-tax, you would pay $30 of national sales tax.

Provides a prebate

• The act would provide a monthly stipend to offset the tax liability for essential goods and services. The stipend would be available to every American, regardless of income. 

Do you support or oppose the Fair Tax Bill? 

—Emma Kansiz