The Fair Taxes plan would abolish the IRS and shift federal taxes from the wealthy to the rest of us – ITEP

Modern journalism Report He points out that to garner enough support from his party to become Speaker of the House, Kevin McCarthy agreed to hold a vote during this Congress on the “Fair Tax,” a plan the Church of Scientology devised years ago to abolish the IRS and the entire federal tax system and replace it with a national, state-run sales tax. The bill would impose a 30 percent federal sales tax on everything we buy — groceries, cars, homes, health care, and school education — and lead to a massive tax shift from the wealthy to everyone else.

Here’s what you need to know about the fair tax.

Fair tax assets

Bruce Bartlett, a tax expert who worked in the Ronald Reagan White House and worked for other Republicans, explained Years ago how the proposal was marketed today as a “fair tax” was initially introduced by an organization set up by the Church of Scientology during its dispute with the IRS over whether it constituted a church and was therefore tax exempt. (The tax credit for churches created by Congress puts the IRS, an agency focused on collecting revenue, in the unenviable position of defining what is a church and what is, well, a cult.)

The Church of Scientology’s only goal in the matter was to eliminate the agency that was causing it trouble, and it lost interest once the IRS threw in the towel and allowed it to pass itself off as a church.

But by then, several politicians had taken up the idea and introduced it as legislation, which has been re-introduced in every Congress since then as fair tax.

The strange strategy of collecting federal revenue by the states

The idea behind the proposal appears to be that it would make it easier to eliminate the IRS since states already collect sales taxes and would be appropriate to collect additional sales tax for the federal government and transfer the money to the US Treasury.

But this strategy has problems. Five states do Not Impose a sales tax Each state exempts a range of purchases that would apparently be subject to a national sales tax. The bill would allow the Treasury to administer a national sales tax in states that it does not agree to administer. This would indicate that some sort of federal tax-collecting apparatus is required, which if you think about it, looks like it would involve something like the IRS.

Perhaps the biggest problem is that states will have little incentive to take over the collection of nearly all revenues for the federal government. The bill provides states with a small fee of one-quarter of one percent of the revenue they remit to the federal government, which doesn’t sound particularly enticing.

The bill also allows states to impose a sales tax that matches the federal tax, but states may decline to impose additional sales taxes after knowing how much their residents would be forced to pay in federal sales tax.

It’s described as a 23 percent sales tax, and it’s really 30 percent, and it’s actually higher than that

Under the bill, if you buy something that costs $100 before tax, you pay $30 in national sales tax. Most of us call that a 30 percent sales tax. However, proponents call it a 23 percent tax, because $30 is 23 percent of your “total payment” of $130, including your sales tax payment. Proponents claim that this method of calculation is more comparable to how we think about income tax but that its main consequence is widespread confusion.

If the tax is enacted, the tax will almost certainly be adjusted to be at a higher rate. In 2004, William Gill of the Center for Tax Policy estimated that simply replacing taxes that were eliminated under the plan would require the national sales tax to be at a rate of 60 percent.

A “fair tax” would lower taxes for the rich and raise them for everyone else

While a fair tax provides families with rebates that may be worth several thousand dollars a year, that’s not enough to offset the financial damage most Americans would face from the new national sales tax.

In 2004, ITEP estimated that if a fair tax were enacted and the national sales tax rate was set at 45 percent, the poorest 80 percent of Americans would face net tax increases from the proposal while most of those among the richest 20 percent would enjoy it. net tax cuts. ITEP’s plans Reassessment The proposal is because a lot has changed since 2004.

For example, eliminating the personal income tax would mean eliminating the child tax credit, which is an even bigger blow now that Trump’s tax code has doubled that credit. It could also mean that families who get tax credits to help pay health insurance premiums under the Affordable Care Act will lose those tax credits and instead pay a new national sales tax on their premiums. The costs of the so-called fair tax may be greater now for average Americans than when ITEP warned the public about the plan years ago.

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