The FairTax Act of 2023 Would Eliminate Income Tax in Lieu of National Sales Tax

Apr 1, 2023 | Blog

If you asked any tax attorney in San Jose, they would probably agree that partisan debate about the United States’ tax code is frequently in the headlines. However, despite the classic narratives concerning how taxes are approached by political parties, arguments over how much the Internal Revenue Service should actually get are a bit more complicated.

Not all legislators align with their party’s tax philosophies, and some ideas have been around a long time, but simply don’t gain traction. Recently in the spotlight is the FairTax Act of 2023. This bill is relatively new, and some Republican House members have declared their approval, while others have not.

The Idea Behind the Legislation

This new bill hinges on a consumer goods and services sales tax that would be universally applied. This option has been discussed numerous times in the past and then discarded, but every so often, it garners new attention.

The FairTax Act of 2023 is not something the average person would need an IRS tax lawyer to understand, at least initially. Introduced in January by Representative Earl Carter (R-GA), the relatively simple bill would replace real estate, payroll, income, and gift taxes with a national sales tax. The latter would be applied to the use or consumption of taxable services and products.

Subtitles applying to payroll, real estate, and other taxes would be repealed from the tax code if the proposed legislation was successful. The new code would simply be called “The Internal Revenue Code of 2023.”

Although the bill proposes a 23 percent “gross payment” tax rate for taxable services and property alike, critics say that the true number would be closer to 30 percent when combined with federal taxes.

The 23 percent sales tax levied would replace both income and payroll taxes. It would start in 2025, and subsequently be adjusted throughout future years. The sales tax would be remitted to the Treasury by the individual states, which would be responsible for administering and collecting it. Some proponents of the bill claimed that it would eliminate problems with those individuals who are frequently in need of a back-taxes attorney or those who attempt tax evasion.

Exceptions to Taxable Property and Services 

There are exceptions to taxable services and property, such as intangible or used property. In addition, services or property acquired for investment, business, or export purposes may be exempt from the new law. For these “fine print” scenarios, citizens may decide the law is not so simple after all and find themselves googling “tax attorney near me.”

Five Categories of Tax Revenue

Under the new law, tax revenue would fall into one of five categories:

  • General Revenue
  • Federal Supplemental Medical Insurance Trust Fund
  • Old Age and Survivors’ Insurance Trust Fund
  • Hospital Insurance Trust Fund
  • Disability Insurance Trust Fund

Skeptics Say Bill Unlikely to Tax Pass

Although a faction of the Republican Party has created and is promoting this bill, broad support among GOP lawmakers has not been achieved. If the bill did pass the House against certain odds, it would still need the Democrat controlled Senate’s stamp of approval. However, even if both scenarios turned out favorably for the bill, President Joe Biden has already said he would veto it when it reached his desk. Anyone with tax concerns or those who are unclear about any new IRS laws should contact a tax attorney in San Jose for expert advice.