Why (some) Republicans want a national sales tax [View all]

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What is the Fair Tax Act?

The proposal "represents the first serious challenge to the American tax code in recent memory," Reason reports. Carter's bill does more than impose a national sales tax, Money reports. It would completely abolish the Internal Revenue Service, along with most of the taxes it collects — "including payroll, self-employment, estate, death, and corporate taxes." In their place, it would create the aforementioned sales tax. "That means workers would get to keep the entirety of their paychecks without having to pay out anything to the government," The Hill reports. "But it also means that buying everything from groceries to automobiles would be hugely more expensive." Some exceptions: There would be no sales tax on used goods, and "business-to-business" transactions would also go untaxed.

How much would the sales tax add to my purchases?

That is actually the topic of some fierce debate. Carter says the bill imposes a 23 percent tax, but critics say the real amount ends up being 30 percent. How to explain the disparity? Carter offers this description in a "Myth v. Fact" explainer: "Under the FairTax, if you pay $100 for a good, you pay $77 for the good and an inclusive $23 tax." But while $23 is 23 percent of $100, it's actually 29.9 percent of $77 — which suggests that Carter is underselling the actual impact of his proposal on American pocketbooks.

What do supporters like about the sales tax?

The short answer: It's simpler than the current tax code. More broadly, though, some conservatives have long favored shifting federal government funding from taxing the money Americans earn and to taxing the money they spend — a "consumption tax." That means workers would "get an instant raise" in their paychecks, say the advocates at FairTax.org. That would encourage both work and savings: "You alone can control your tax burden. If you're thrifty, you'll pay lower taxes than somebody who is not."

What are the drawbacks?

It's regressive. America's tax burden would disproportionately affect the poor, critics say. Reason points out that 40 percent of households pay no income tax. "Under a FairTax system, those households would marginally increase their take-home pay but take it on the chin at the grocery store." And John Buhl at the Tax Policy Center tells CBS News that middle-class families that itemize their taxes and take deductions that reduce their income tax bill would also take a "quite sizable" hit. But while wealthy people spend more money on stuff, it's often a smaller percentage of their overall income. The result? "The wealthiest of the wealthy would actually see the biggest tax cuts from this switch," Buhl said. As you might expect, Democrats are ready to hammer Republicans over the proposal: President Biden sarcastically called it a "great idea" to "raise taxes on the middle class" during a White House appearance.

https://www.yahoo.com/news/why-republicans-want-national-sales-100710738.html