“House Speaker Kevin McCarthy (R-Calif.) on Tuesday told reporters he opposes legislation to abolish the IRS and replace federal taxes with a 30% sales tax… The move effectively kills the legislation, which was part of a deal McCarthy made with hardliners in his conference to secure the speakership this month… Top Republicans told Axios that McCarthy's agreement only guaranteed the bill would get a hearing in committee — but that doesn't guarantee a floor vote.” Axios
Many on both sides criticize the proposal:
“The most recent estimates we have of what the FairTax specifically would do come from Brookings Institution economist William Gale, who ran the numbers in 2005. Assuming a reasonable amount of tax evasion (20 percent) — and the question of evasion is important, as you’ll see — he found that the FairTax would increase the deficit by about $10.6 trillion over 10 years. In order to avoid increasing the deficit 10 years later, the FairTax would have to be set at 64.4 percent…
“And in fact, that’s probably too low. Gale is assuming there that, as the FairTax proponents suggest, the tax would apply to purchases by the government, which would effectively force state and local governments to cough up hundreds of billions of extra dollars to the federal government every year. If government purchases were exempted, as is normal for sales taxes, the revenue-neutral rate would be 81.6 percent. The point is that at a 30 percent rate, it’s reasonable to expect the FairTax to increase the federal budget deficit by trillions of dollars a year.”
Dylan Matthews, Vox
“[Like earlier proposals, Rep. Buddy] Carter would rebate his consumption tax to low-income people, but Carter’s plan is appallingly stingy; the rebate brings families only up to the federal poverty threshold, which is currently $30,000 for a family of four. For comparison’s sake, a family of four is today eligible for the Earned Income Tax Credit up to an income of $53,057 (single parent) or $55,529 (married, filing jointly). So essentially the ‘fair tax’ increases the tax burden on low-income families above the poverty line and on middle-class taxpayers in order to provide huge tax cuts to the rich, for whom consumption is a much smaller proportion of their income.”
Timothy Noah, New Republic
“Replacing our current tax code with a national sales tax would create a system of double taxation on retirees. Take, for example, a 65-year-old who has spent a lifetime saving after-tax income and has retired, expecting to draw down that income without paying further taxes. Instead, they would now face a 30 percent sales tax on everything they buy. Representatives seeking reelection may want to remember that people over the age of 65 tend to vote…
“Nor would the Fair Tax Act do anything to reduce the size of government. The bill would hand the job of processing payments to the Social Security Administration. Shuffling responsibilities and personnel from the IRS to the SSA does nothing to shrink wasteful bureaucracy, let alone make it small enough to drown in a bathtub.”
Grover Norquist, The Atlantic
“Rule No. 1 in the legislative handbook is to make your opponent take the tough votes, but House Republicans may be reading it backwards. They’re set to vote on a national sales tax that won’t become law but will give Democrats a potent campaign issue… A consumption tax might make sense if Congress were writing the tax code from scratch. But it isn’t, and we could end up with both a national income and sales tax…
“The Fair Tax has hurt GOP candidates before. When tea party Republicans ran on the idea in 2010, Democratic groups ran ads that blasted the sales tax but ignored the other tax cuts. Few voters listen to a second sentence after they hear about a 30% tax on everything they buy. The tax issue is a rare GOP advantage these days, and Republicans would be crazy to squander it with a Fair Tax vote.”
Editorial Board, Wall Street Journal
Other opinions below.
“Part of the issue with the current tax structure is its reliance on income taxes. Most of the wealthiest Americans either get cash from capital gains, or even more so these days, from taking continuing loans from their assets that cost them nothing at all but keep them cash-liquid to their heart’s context… By shifting from income to consumption, you force taxation on the use of that wealth and end the income dodges, which might also have another salutary effect in incentivizing more useful investment from that wealth…
“Furthermore, such a tax policy could easily exempt staple items such as groceries and clothing below a threshold amount; some states do that now with their own sales taxes. Republicans would need to get out front of this and explain the policy. But when you’re explaining, you’re losing… Since any vote in this Congress is demonstrative rather than substantive, using a flat tax proposal for a vote this session makes better short-term political sense.”
Ed Morrissey, Hot Air
“At first blush, most would wonder how, if the Freedom Caucus would abolish the IRS while also standing up a huge new tax, the government is going to collect it. The answer is that first they would ask state governments to collect it for them, but in case states don’t want to (as several states don’t currently have a sales tax) and can’t be forced to do so under the Constitution, the law would set up two new federal tax agencies, an Excise Tax Bureau and a Sales Tax Bureau. So right out of the gate, we’re ‘abolishing the IRS’ only to replace it with IRS 2.0 under a different name. Administrative problems don’t stop there…
“Then there is the problem that a sales tax is easy to cheat. Because it is imposed only at the point of sale to the final customer, only two parties would have to agree to evade it—and it would be a big temptation given how enormous the tax is. Scofflaw businesses would be able to offer their customers a giant discount for paying cash under the table. ”
Ryan Cooper, American Prospect