GOP Sales Tax Plan Could Leave 80% of Americans Paying More

A national sales tax proposed by Republicans could see 80 percent of Americans paying more, though that cost would be offset by monthly rebates from the federal government.

The Fair Tax Act, which has been introduced by Representative Earl "Buddy" Carter and is supported by 30 other GOP members of the House, would abolish income, payroll, estate and gift taxes.

Instead, the legislation proposes a 23 percent national sales tax, but the effective rate would be 30 percent, according to the Institute of Taxation and Economic Policy (ITEP).

The plan has little chance of passing the House as three Republican members have already said they will vote against it and Speaker Kevin McCarthy indicated on Tuesday that he was also opposed.

Comp Image, Food Shopping Prices
A women checks her food shopping bill and (inset) a clip of U.S. dollars. A proposed national sales tax could see many Americans paying more. iStock / Getty Images

Nonetheless, Democrats are making hay with the bill and using the proposal to attack Republicans. President Joe Biden has mocked the idea and is expected to take aim at it again in a speech about the economy on Thursday.

One aspect of the legislation that may come in for criticism is the fact that studies of similar proposals have suggested that a majority of Americans would pay more before proposed monthly rebates are taken into account.

A 2006 study by the House Small Business Committee, cited by The Hill on Tuesday, found that a similar plan would see the tax burden fall for people earning over $200,000 a year and those making less than $15,000.

However, the tax burden would increase for those earning more than $15,000 and less than $200,000 per year, while the largest fall in overall tax liability would affect the top 20 percent of earners.

Their share of the tax burden would fall from 84.2 percent to 65.1 percent, based on the 2006 study.

Annual per capita income between 2017 and 2021 (in 2021 dollars) was $37,638, according to the U.S. Census Bureau, while the median household income was $69,021.

Analysis from the Tax Policy Center last updated in May, 2020, assessed a remarkably similar proposal to the current GOP plan that involved a 22 percent national sales tax.

"The President's Advisory Panel (2005) concluded that replacing the income tax system with a national retail sales tax would heavily favor high-income households," the Tax Policy Center noted.

"A sales tax rate of 22 percent (the rate necessary to replace the revenue from the federal income tax at that time) would increase tax burdens on the lower 80 percent of the income distribution by approximately $250 billion a year (in 2006 dollars), if the sales tax were not modified to return some revenue to lower-income households," the article said.

"Put another way, the lower 80 percent of the income distribution would go from paying 15.8 percent of federal income taxes to paying 34.9 percent of federal retail sales taxes," the center said.

The Fair Tax Act contains a rebate mechanism, which has been described as a "prebate," that would see Americans receive a monthly check equivalent to 23 percent of the cost of living at the federal poverty line.

That provision is designed to offset costs for Americans when it comes to basic necessities and to help those on the lowest incomes. According to the U.S. Census Bureau, 11.6 percent of Americans lived in poverty in 2022.

Conservative anti-tax advocate Grover Norquist has criticized the Fair Tax Act, calling it a "gift" to Democrats and saying the rebate "creates a universal basic income, and luckily the left has not figured this out yet."

"The ads you can run are that so-and-so wants to add a 30 percent sales tax on top of [prices], which will be devastating to middle-income people. That's a pretty rough ad," Norquist told The Hill.

The Fair Tax Act appears to be doomed and may not even make it out of committee after top Republicans told Axios this week that it wasn't guaranteed a floor vote.

Nonetheless, Democrats will continue to focus on a Republican proposal that would see higher taxes for most Americans.

Newsweek has asked Kevin McCarthy's office for comment.