Republicans in the House of Representatives finally have a speaker to lead their majority, and they’re ready to hit the ground running. Rep. Buddy Carter (R-GA) reintroduced Tuesday, Jan. 10, the Fair Tax Act, a bill to repeal the national income tax and rein in – if not cut entirely – the IRS. Unlike previous versions of this bill, the 2023 package will see a vote, and the GOP majority already passed another measure cutting $72 billion in IRS funding. Could this be the end of progressive taxation, or is the gesture merely symbolic?
IRS on the Chopping Block?
Last year’s Democrat trifecta passed the Inflation Reduction Act along party lines, 220 to 207 in the House and 50 to 50 in the Senate with Vice President Kamala Harris breaking the tie. Without a drop of GOP support, the bill became law – including nearly $80 billion in new funding for the IRS, which would have paid for expanding the agency by about 87,000 agents.
The very first order of business for the new GOP majority after electing a speaker and passing a rules package was, as promised, to cut that funding. Republicans passed H.R. 23, the Family and Small Business Taxpayer Protection Act along party lines, 221-210, with one Republican and two Democrats not voting. The bill is barely longer than a page, and directs any “unobligated balances of amounts appropriated or otherwise made available” to the IRS from the Inflation Reduction Act to be rescinded. That translates to a cut of about $72 billion from the new funding.
But just salvaging the status quo isn’t enough for the new majority – the next aggressive step at reducing the government is the Fair Tax Act. Introduced Tuesday by Rep. Buddy Carter, this bill would go far beyond just gutting the most recent socialist spending spree. It rewrites the tax code and effectively puts the entire IRS on the chopping block.
Consumption or Income Tax – Uncle Sam Still Gets His Cut
The Fair Tax Act would replace federal income tax with a 23% tax on goods and services. It also removes any death, gift, or payroll taxes. “The Fair Tax Act eliminates the tax code, replaces the income tax with a sales tax, and abolishes the abusive Internal Revenue Service,” explained Rep. Jeff Duncan (R-SC), one of the co-sponsors, in a statement. “Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America,” Rep. Carter said, “this bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation.”
The idea behind the bill is simple: Rather than an ever-increasing levy on wages, American workers should be taxed a flat, fair rate on consumption. Supports say it would encourage business growth and personal savings by not penalizing people for earning more. Opponents say it will drive up the deficit by cutting the government’s income. As Liberty Nation Economics Editor Andrew Moran put it, “How the heck would the US government pay for $6 trillion in spending?!” The point, ostensibly, is that it wouldn’t. Spending would have to be cut – but that’s on the docket as well for House Republicans, regardless of how the tax code fares.
For one thing, the IRS – which a recent study of 2022 tax audit data found was five times as likely to audit taxpayers in the lowest tax bracket than millionaires – cost Americans a whopping $13.7 billion to operate in 2021, according to the Tax Foundation. Cutting the IRS won’t balance the budget – but it makes a good start!
Make no mistake, however: Uncle Sam will still get his cut, and Americans will still feel it. While net numbers on paychecks will go up, so will the cost of living. We’re used to accounting for a state sales tax in our purchases, but that usually isn’t a lot. The national average is 5.09%, though only 18 states fall below that amount. So on a $4 gallon of milk, perhaps you have to allow for an additional 20 to 40 cents, depending on location.
The federal sales tax would mean adding almost another dollar on top of that state tax. So a “$4” gallon of milk really costs just over $5. That might not sound like a very big jump in today’s world of out-of-control inflation – but apply that same increase to the entire year’s grocery bill – or a new car – and you’ll really feel the sting.
Fair Tax Déjà Vu
Small government Republicans have been proposing some version of this every year since at least the ‘90s. Usually, it goes nowhere – and certainly it has never become the law. But things are a little different, this time. Speaker of the House Kevin McCarthy (R-CA) is bringing this to vote as part of the deal that got him elected. Letting the simple majority decide does technically satisfy McCarthy’s obligation to the Freedom Caucus on this matter – and that same simple majority did elect to gut President Biden’s Inflation Reduction Act funding for the IRS.
That said, however, gutting a last-minute socialist spending bill that barely passed while the previous Congress had one foot out the door already and completely overhauling the tax code are two very different things. And, of course, neither proposal is likely to see any action in the Democrat-led Senate. Certainly Biden wouldn’t sign either into law even if they made it to him. The passage of the Family and Small Business Taxpayer Protection Act and consideration of the Fair Tax Act are largely symbolic at this point. But it suggests the new Congress will focus on shrinking the bloated beast that is the federal government – and that’s something Republicans have promised voters for years.
