If you thought the GOP’s dedication to cutting taxes for rich people at any cost couldn’t get any more extreme, you might want to think again. The latest proposal out of the House takes their radicalism to a whole new level.
Earlier this month, a group of House Republicans – including Earl “Buddy” Carter, Scott Perry, Matt Gaetz, and Marjorie Taylor Greene – re-introduced legislation called the FairTax Act. The bill was first introduced in 1999, but because of its extreme contents it has never been given a floor vote. That may be about to change after Kevin McCarthy promised a vote on the bill in exchange for some far-right Republicans supporting his bid for Speaker.
The FairTax Act would eliminate income, payroll, estate, and gift taxes and replace them with a 30% national sales tax on everything – clothes, food, cars, healthcare, rent, etc. To help cover the cost of paying tax on essentials, the Act would introduce a “prebate” program in which every American would receive a monthly check from the government worth 23% of the poverty threshold for a household of their size. Lastly, the Act would also decentralize the IRS and eliminate its funding by 2027 and delegate the responsibility for raising funds for federal programs entirely to the states, which would administer the new sales tax on their own.
The “FairTax Act” is the shallowest reading of the word “fair” possible. It’s based on the idea that if everyone paid taxes on the things that they bought, everyone would be paying something into the common tax pool. The rich would be paying more on luxury items like vacation homes, cars, yachts, and more, and the poor would be reimbursed for the taxes that they paid on essentials.
But if you scratch just a touch below the surface, you’ll find that, in reality, the FairTax Act is one of the worst tax proposals ever composed. It wouldn’t just change how we pay our taxes: it would change who pays taxes, giving a massive tax cut to the rich and a significant tax hike to the poor and middle class.
It’s true that rich people like us spend more in absolute dollars on various luxury goods, but the fact of the matter is that, as a proportion of our enormous incomes, rich people spend less and save more compared to low- and middle-income workers. One study found that, in the 2010s, the top 1% saved 8.5% of their income while the bottom 90% actually had a negative savings rate of -2.8% (which means that they spent more than they earned).
Back in 2004, the Institute on Taxation and Economic Policy estimated that, if the FairTax Act was passed with a 30% national sales tax, the poorest 80% of Americans would face an average $3,200 tax hike while the richest 1% would receive an average $225,000 tax cut. We don’t have official estimates as of yet for the distributional impacts of the current version of the FairTax Act, but considering that inequality has only gotten worse since 2004, it’s safe to assume the benefits haven’t become more balanced. In short, the FairTax Act would do more to hurt, not help, the poor, while being another giveaway to the very rich.
This makes sense – we’ve known for a long time that personal income taxes are some of the most progressive taxes in the federal tax code. Their graduated rate structures, with higher rates for higher incomes, ensure that the wealthiest individuals pay more in tax – as they should. And when we shrink or eliminate income taxes and replace them with sales taxes, like many conservative states have done or are planning to do, one of two things happens to make up for lost revenue: poor people end up paying more in sales taxes, fees, and fines or vital social programs are cut.
Luckily, this bill has little hope with a Democratic Senate and President Biden’s veto power in the way, but the fact that House Republicans are even ready to put it on the floor says something bad about where the GOP is heading on taxes. House Speaker McCarthy has made his personal opposition to the bill apparent, but the fact that he’s letting it get to the floor is damaging in and of itself.
Ideas have power, and exposure to radical ideas over time can normalize them. It’s deeply concerning that even in the midst of an incredible surge of momentum for the “Tax the Rich” movement, the FairTax Act has gained national prominence. What was once considered too crazy of an idea to even consider in the early 2000s just served as a central piece of the negotiations around who became Speaker of the House.
If we want to kill the momentum that rich and powerful interests are building, a failed vote on the FairTax Act has to be the death knell for future iterations of this legislation. This is where it has to end.
It’s important to get the truth out about this disastrous bill sooner rather than later so it doesn’t gain any more momentum than it already has.
Don’t be fooled by the name: the FairTax Act would give millionaires and billionaires a massive tax cut, and make poor and middle-class American families pay thousands more in taxes every year. This bill is beyond the pale, and every Republican in the House and Senate needs to be shown with absolute certainty that passing the FairTax Act or anything like it would be political suicide for even the most radical anti-tax legislators.