Could a national sales tax supercharge the economy and raise your income by 10% — but hurt the middle class? Experts break down how the Republican bid to scrap the IRS and income tax could impact you
- Sacking tax collectors and scrapping the IRS sounds like a vote winner
- Getting rid of income tax — and those lengthy forms — sounds even better
- At its best, the Republican tax plan will grease the economy for all
- But somebody will have to administer those new taxes on sales
- Also, consumption taxes are regressive and hurt the poorest the most
- Polling shows voters want to ‘crack down on wealthy tax cheats’
Many wage-earners like the sound of scrapping the IRS and streamlining America’s Byzantine tax system.
Having an extra 10 percent in the bank at the end of each month sounds even better.
Finance experts told DailyMail.com that those were two big gains in a tax plan advanced in the Republican-led House this week.
Chris Edwards, a tax expert at CATO Institute, a libertarian think tank, in part favors the Republican plan.
‘If you ripped out the income tax and replaced it with a consumption tax, incomes would rise by about 10 percent in the long run,’ Edwards said, based on estimates of previous versions of the plan.
A customer leaving a store with his new sound system. Under new tax proposals, consumers could expect to pay an extra 30 percent on purchases
Filing taxes in the US is more costly and time-consuming than in other rich nations – Americans spend 2.6 billion hours and $209 billion per year doing so
‘You would need a much less intrusive tax agency collecting sales taxes than the current income tax collection system, which gives the government and the IRS way too much power to dig into your personal affairs.’
Republicans this week introduced plans to nix the IRS entirely by simplifying the tax code and replacing the national corporate and personal income tax and other taxes with a single consumption tax.
The bill also gets rid of the death, gift and payroll taxes, and repeals Congress’s power to tax incomes.
A separate bill aims to claw back $72 billion of some $80 billion in extra funding Democrats gave the IRS last Congress, much of which is slated to hire 87,000 new IRS agents.
Advocates of a consumption tax argue that the system allows Americans to choose how much they pay in taxes by choosing how much they spend — thus incentivizing savings and investment.
‘New investment is the crucial seed corn of the economy,’ said Edwards. A sales tax could free up funds to build new factories and infrastructure and create new jobs that trickle down gains to all Americans.
Georgia Republican Rep. Buddy Carter this week introduced the Fair Tax Act that he says would remove the need for an IRS entirely by simplifying the tax code
The dreaded tax season begins on January 23, when the IRS starts accepting and processing individual 2022 tax returns
John Buhl, an analyst at the Urban-Brookings Tax Policy Center, however, says the consumption tax could well leave everyday Americans worse off — salaries may be tax-free, but the new sales tax could see checkout prices jump by a third.
Even with the tax plan’s ‘prebate’ — a monthly allowance to buy staples — the GOP’s plan is still ‘more regressive than the current tax system’ and would hurt millions of working families.
The prebate would protect the poorest households from poverty, but middle-income families would suffer a net tax increase while ‘wealthy taxpayers would see a pretty substantial tax cut,’ Buhl told DailyMail.com.
Garrett Watson, an expert at the conservative Tax Foundation praised a ‘step in the right direction for a pro-growth and simpler tax code’ but stressed the downside that it’s ‘much less progressive than under current law’.
Retirees and students would suffer, he said, benefiting little from the scrapping of income taxes while getting hit hard by a sales tax in the region of 30 percent.
Recent polls from Navigator Research show the public supports last year’s Inflation Reduction Act — the Democrats’ law that funded the IRS expansion
Scrapping the IRS for a national sales tax would be ‘costly and tricky’, he added. Instead of one lead tax authority in Washington DC, the plan involved ‘devolving administration down to 51 different entities.’
Some also worry that Republicans haven’t balanced the books. The Congressional Budget Office estimated the bill would add around $114 billion to the deficit.
While the public may be keen on sacking tax collectors, recent polls from Navigator Research show they also support last year’s Inflation Reduction Act — the Democrats’ law that funded the IRS expansion.
Support for the extra $80 billion IRS funding grew to 61 percent when pollsters indicated the cash would help ‘crack down on wealthy tax cheats.’
Still, a simpler system would doubtless win votes.
Filing taxes is more costly and time-consuming than in other rich nations — Americans spend 2.6 billion hours and $209 billion per year doing so, according to an estimate from the American Action Forum.
Buhl called the bill a ‘messaging exercise’ for Republicans to tout a decades-old plan that has little chance of passing. It will struggle in the Senate, where Democrats lead with a 51-48 majority.