On Jan. 9, some Republicans in the House introduced the Fair Tax Act of 2023. The bill would eliminate income, payroll, estates, and gift taxes. Instead, it'd replace them with a 23% sales tax that would be closer to 30% after other taxes are included.
The bill is unlikely to pass. Not all Republicans are on board, Democrats control the Senate, and President Biden has said he would veto it should it defy the odds and reach his desk.
“It’s technically possible to [eliminate the income tax],” said Eric Toder, a fellow at the Urban Brookings Tax Policy Center, a non-partisan think tank based in Washington D.C. “There’s a question of whether it’s desirable and whether the consequences would be good and that’s a whole other question.”
This is not the first time lawmakers have talked about overhauling the nation's tax system.
In 2017, President Trump’s administration issued the biggest overhaul of taxes in decades, which slashed the corporate income tax from 35% to 21% and the top marginal rate from 39.5% to 37%.
Before that, the largest change in the tax code came in 1986, when the top income tax rate was cut from 50% to 28% as it raised the bottom rate from 11% to 15%.
But it still revolves around the idea of an income tax, a uniquely American approach to taxes globally when considering how much of our tax base it makes up.
“Most countries in the world rely more heavily on consumption taxes than the United States does,” said Toder. “Almost every country has what’s called a value-added tax, which is really a form of retail sales tax, but it’s collected at different stages of production.”
The recently proposed Fair Tax Act is similar to a consumption tax, which taxes consumers. A value-added tax is paid for by production companies who then pass on the price of the tax to the consumer through higher prices on their goods.
In the United States, income taxes make up around 50% of our tax base, while payroll taxes make up 35%. Alternatives like value-added taxes or sales taxes are ideas to change who and where that money comes from.
“If you look at public opinion surveys for years and years and years, and you ask people whether they think the tax system is fair or not to them, surprisingly perhaps, most people say they think it is. They think they’re paying pretty much the correct amount of tax. What bothers them is that they feel that rich people and corporations are not paying enough tax,” said Howard Gleckman, a fellow at the Urban Brookings Tax Policy Center.
Independent analyses from groups like the Tax Policy Center show sales taxes are more of a burden on lower-income families since they spend more of the money they make than wealthier families.