A small minority of House Republicans can force a vote on introducing a national sales tax. This will needlessly give the Democrats a political cudgel in exchange for a flawed law with no hope of success.
The Fair Tax Act has been passed by a handful of Republicans in every Congress since 1999. The bill proposes to abolish the Internal Revenue Service and abolish the federal income tax. So far, so good. Unfortunately, the bill would replace the income tax with a 30 percent national sales tax on all goods and services and create a massive new entitlement program. Issue.
Several even. Replacing our current tax code with a national sales tax would create a system of double taxation for retirees. Take, for example, a 65-year-old who has spent his entire life saving from after-tax income and has retired, expecting to withdraw that income without paying further taxes. Instead, they would now have to pay 30 percent sales tax on everything they buy. Representatives seeking re-election may want to remember that those over 65 tend to vote.
The Fair Tax Act would also remove all work requirements from the tax code – an approach that runs counter to conservative principles. Under the bill’s plan, all households would receive a monthly check from the federal government, regardless of income earned. Americans are still living with the negative effects that pandemic stimulus had on the labor market and supply chains; this plan would make that kind of payment a permanent feature. In effect, the Fair Tax’s “prebate” system would create a universal basic income, one of the favored policies of the left.
Fair tax advocates typically view the prebate as a replacement for the current standard deduction allowed under federal income tax law, as well as an advance on sales tax that will be paid. But this argument carries little weight since these payments would be separate from the taxpayer’s actual consumer spending. At first glance, it’s hard to see how the prebate system doesn’t simply amount to a massive new entitlement program.
Nor would the Fair Tax Act do anything to reduce the size of government. The bill would transfer the job of processing payments to the Social Security Administration. Shuffling responsibilities and personnel from the IRS to the SSA doesn’t diminish the wasteful bureaucracy, let alone make it small enough to drown in a bathtub.
Fair Tax proponents make two good points. They understand the need to end the double taxation of savings and investments in the current system, and they want to depoliticize the IRS staff, whose union makes 95 percent of its political contributions to national Democratic candidates. But both issues are already being addressed by other legislation that has broad support from members of the Republican House.
The first vote of the new Republican House majority was to strip the IRS of most of the $80 billion promised by Joe Biden; Republicans have also called for an investigation into politicization at the IRS. And a pre-existing conservative policy goal would allow individual retirement accounts to offer tax-free savings for all purposes, not just retirement, and solves most double taxation problems.
Despite all these shortcomings, the main sponsor of the Fair Tax Act, Representative Buddy Carter of Georgia, recently said reporters that as part of a deal to drop their opposition to Kevin McCarthy’s bid to secure the speakership, remaining House members had privately pledged a yes or no vote on the bill. But thankfully, the Fair Tax Act has no hope of getting through the House.
In the 24 years that the Fair Tax proposal has been around, House Republicans have refused to hold a single hearing or formatting session on the committee, let alone a vote on the floor. The number of lawmakers sponsoring the bill has dwindled with each Congress, from a peak of 76 House Republicans in 2015 to 24 today. The Fair Tax effort is not gaining momentum, it is losing it.
The bill probably won’t even get a vote in committee: Republican opposition is reportedly so strong that Carter is likely to soften the bill to avoid the embarrassing spectacle of Republican committee members unanimously rejecting it. But should the bill somehow make it to the House, it’s safe to assume that about 90 percent of Republicans will vote against it. In addition, the bill would not stand a chance in the Senate, and the president has said he would veto it.
None of this has stopped Democrats from seizing the opportunity to argue that Republicans now want to tax the poor and middle class. President Biden bludgeoned Republicans from the presidential podium a week after it was reported that the bill would be voted on. “National sales tax, that’s a great idea,” he said sarcastically. “It would raise taxes on the middle class by taxing thousands of everyday items, from groceries to gas, while lowering taxes on the wealthiest Americans.”
Later, Biden’s chief of staff openly mocked Carter Twitter for his statement that if consumers don’t want to pay 30 percent sales tax on a particular item, then don’t buy it. It’s as simple as that.” Democrats are right to be confident that they have the winning message there.
In fact, the Fair Tax Act has a long track record of being politically toxic. Back in 2010, The Wall Street Journal‘s editorial board noted that Democrats had used the issue effectively against Republican proponents of the Fair Tax: “These Democratic attacks are unfair and fail to mention the tax cut side of the proposal, but the attacks appear to be working … voters rightly suspect that any new sales tax regulation will only be stacked on top of the current code.
This past election cycle showed how the Democrats still manage to tag mainstream GOP candidates with unrepresentative minority views on tax policy. Before the midterm elections, Florida Senator Rick Scott released a list of policy ideas, noting that all Americans “should have their skin in the game” when it comes to federal income taxes. (Currently, only about half of U.S. households pay federal income taxes in any given year.)
Although Scott ultimately dropped the point, his status as chairman of the Senate Republican Campaign Committee provided Democrats with what one Democratic operative called a “God send”, enabling attack ads that portrayed all Republicans as conspirators to tax retirees and low and middle class. income Americans. Republican candidates were forced to spend time and money distancing themselves from a proposal they did not support.
Such episodes risk undoing the Republicans’ painstaking work over three decades of creating a stark contrast to the Democrats on taxes: Republicans won’t raise your taxes; Democrats will.
Keep in mind that eight states already have no income tax, nine states have a flat-rate income tax, and 10 states have a Republican leadership committed to phasing out the income tax, first to a flat-rate tax and then to none. These states pay for these policies through long-term efforts to keep spending below levels that can be sustainably financed by economic growth and sales and property tax revenues. The success model of the last 10 years is North Carolina. More income tax-free states will eventually raise the question for voters across the country: Why do we need a federal income tax?
All of this progress could be undermined if Fair Tax advocates have their day. Imagine what the Democrats will be able to do if they get a chance to actually vote in the House on a federal sales tax. The Democratic Congressional campaign committee has already targeted House Republicans in competitive seats in the recent election with negative advertising aimed at fair taxation.
To mitigate the political damage already done, Republicans need to kill the bill. Explain it. In public. Loud. This may seem harsh, but it is no less than the Fair Tax deserves.
