Fact Check Team: House Republicans introduce bill to abolish IRS, institute flat tax
WASHINGTON (TND) — A group of House Republicans has introduced a bill that would abolish the Internal Revenue Service and replace income and other federal taxes with a flat national sales tax.
Right now, the federal government uses a progressive system, which means the tax rate typically increases as income increases. This is the most common tax system used in developed countries like China, Japan, France, Italy and the United Kingdom.
A flat tax, on the other hand, is a consistent rate applied to all tax brackets and it’s usually imposed on wages only, meaning there’s no tax on capital gains or investments. There are currently 20 U.S. states that have a flat income tax rate.
Thirteen states — Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, New Hampshire, North Carolina, Pennsylvania, Utah and Washington — have a flat rate. Seven states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming — have a zero income tax rate.
Russia was the largest nation in the world to use a flat tax but in 2021 moved to a progressive tax to boost revenue. Other countries that have used a flat tax system include Estonia, Latvia and Lithuania — although both Latvia and Lithuania have now changed to progressive.
The bill, dubbed the FairTax Act of 2023, would change the current system. It was introduced in early January by Rep. Earl “Buddy” Carter, R-Ga., and it proposes a national sales tax on taxable property or services to replace income taxes, payroll taxes and estate or gift taxes.
It would repeal subtitles A, B, C and H of the Internal Revenue Code of 1986 and instead enact a new code. The proposed rate is 23% for 2025 and would be adjusted in the years to follow and it would be up to the states to administer, collect and remit the sales tax to the Treasury. It also cuts off funding for the IRS after fiscal year 2027.
Something interesting to note is that the bill includes a provision that would sunset the sales tax if the 16th Amendment — which gives the government the power to collect taxes — isn’t repealed within seven years of the law being enacted.
However, it doesn’t appear likely that it will pass because it doesn’t have broad GOP support and would need to not only make it through the House but also the Senate, which has a Democratic majority. Additionally, President Joe Biden has already said he will veto it if it comes across his desk.
“What they’ve introduced, it also would totally eliminate the IRS,” Biden said. “Is this how House Republicans are starting the new term: cutting taxes for billionaires, raising taxes for working families, and making inflation worse? Well, let me be clear, if any of those bills make it to my desk, I will veto them. I will flat veto them.”
An analysis from the Brookings Institute shows the FairTax Act of 2023 would add trillions to the deficit over the next decade — anywhere from around $10 trillion to nearly $30 trillion.
The analysis says the legislation is “essentially unworkable.” They say it could be susceptible to tax evasion and avoidance and abolishing the IRS will not help with enforcement or discourage tax cheats either. It also says if the FairTax base is reduced by exempting state and local governments, money could be lost that way as well.
Although it’s almost evenly split, a slim majority of voters are against the proposal.
A new poll from Morning Consult shows that 51% of registered voters oppose replacing the income tax system with a national sales tax on goods and services.
Things are a little different when it comes to eliminating the IRS. Forty-one percent prefer to keep things the same or make minor changes while 36% are in favor of a system without the IRS.
Although the FairTax Act of 2023 is not the most popular idea, some states do have flat taxes and have shown that there are some benefits to it. An analysis from thebalancemoney.com and it shows some of the pros of a flat tax are that it avoids double taxation and simplifies the tax code. The cons, however, are that lost revenue like we have been discussing and shifting the tax burden to lower and middle classes.
