On Jan. 10, U.S. Rep. Buddy Carter (R-Ga.) introduced a bill, called the FairTax Act, that proposed major changes to the U.S. federal tax system.
But people on social media say the bill’s proposed 30% national sales tax, also referred to as a “consumption tax,” would be detrimental to the middle class and would abolish the IRS. Google Trends data shows people were searching for what the consumption tax would do.
VERIFY viewer Michael emailed us asking whether a national sales tax bill has really been proposed.
Did House Republicans introduce a bill to create a national sales tax and eliminate the need for the IRS?
Yes, House Republicans introduced a bill to create a national sales tax that they think would eliminate the need for the IRS
WHAT WE FOUND
The FairTax Act of 2023 was introduced in the House on Jan. 9 by Rep. Buddy Carter (R-Ga.). If passed, it would repeal all federal taxes, including the federal income tax, abolish the Internal Revenue Service and enact a national sales tax.
The bill says federal income taxes, payroll taxes, as well as estate and gift taxes would be repealed. It would also eliminate taxes on corporate income and capital gains. In place of those taxes, a 23% national sales tax would be collected.
Also, though the bill says the tax would be 23%, the Institute of Taxation and Economic Policy (ITEP), says it’s actually 30%. This is because of how sales tax is calculated when you make a purchase.
“Under the bill, if you buy something that costs $100 before tax, you pay $30 of national sales tax. Most of us would call that a 30 percent sales tax. Proponents, however, call it a 23 percent tax, because that $30 is 23 percent of your ‘gross payment’ of $130, your payment including the sales tax. Proponents claim this method of calculation is more comparable to how we think about the income tax but its main result is widespread confusion,” ITEP says.
A national sales tax means everyone in the U.S. would pay extra on any goods or services purchased. In order to help with this increase in cost, the bill says eligible households could receive a “prebate,” a monthly cash allowance for households that fall within the federal poverty level.
The IRS wouldn’t be the agency responsible for collection or management of any sales tax funds collected, the bill says. The Department of Treasury would manage the money.
Within the Department of Treasury, an Excise Tax Bureau and Sales Tax Bureau would be created, the bill says, to manage any taxes that are collected at the state and federal levels. This would render the IRS obsolete, because management and enforcement would fall under the Treasury Department.
When he introduced the legislation, Rep. Buddy Carter issued a statement saying the bill would simplify the tax codes, is “pro-growth and allows Americans to keep every cent of their hard-earned money.”
Carter also cited unfounded claims about IRS funding saying, “Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, this bill will eliminate the need for the department entirely.”
In this fact check, VERIFY confirmed claims the IRS was increasing audits on the middle class by hiring 87,000 new agents were false.
The bill has been referred to the House Ways and Means committee for review. Even if it passes in the House - and the Senate passes the bill - President Joe Biden said he wouldn’t sign it
During Jan. 12 remarks on the economy, he said a national sales tax would only make things more expensive for working class families, and he would veto the bill.