RALEIGH, N.C. (WNCN) — With another tax season underway, some Republicans in Congress want to fundamentally change the way you pay Uncle Sam.
They want to get rid of your 1040 and W2 forms and replace them with a national sales tax.
Supporters of the Fair Tax Act of 2023 say it would streamline and simplify a complicated process for taxpayers. Opponents say it would place an undue portion of the tax burden on lower earners.
But what would it really do?
“It would remove federal taxation as we know it,” said tax expert Nathan Goldman, an associate professor at North Carolina State’s Poole College of Management.
The act was introduced last month by U.S. Rep. Earl “Buddy” Carter, R-Georgia, and 25 House Republicans have cosponsored it. Only one is from North Carolina — Rep. Virginia Foxx.
A spokesman for Foxx did not respond to a question from CBS 17 asking him why Foxx supports the legislation. A news story from 2015 posted on Foxx’s Congressional website includes her support for a similar tax plan from then-presidential candidate Mike Huckabee.
The bill would remove current income taxes, payroll taxes and estate or gift taxes, and replace them with a national sales tax of between 23 percent and 30 percent on the use or consumption of taxable property or services.
But Goldman says it would have another effect.
“Saying, ‘OK, what’s the point if we’re just replacing one tax with another?’ is that it would remove the necessity of having the Internal Revenue Service,” Goldman said. “What happens is, the states themselves would just collect the federal sales tax, just like they’re collecting their state sales tax.”
And it’s unclear exactly what getting rid of the IRS would do. It’s possible that could “mean some net savings for the American taxpayer,” Goldman said, though he added that’s not a certainty — especially if the states have to take over those duties.
“If we have to pay the money to the states instead, it’s literally going to break even,” he said.
The main positive, of course, is simplicity for the typical taxpayer.
“There would be no need to really file a complicated federal income tax return,” Goldman said.
But the list of drawbacks is considerably longer.
Goldman cites analysts who predict such a bill would work out best for high-earners at the expense of lower- and middle-income taxpayers.
The existing tax system — in which different amounts of a person’s income are taxed at different rates — is considered progressive because higher earners pay a higher percentage. A flat sales tax is regressive, meaning it puts more of a burden on lower earners.
“Even though the bill is supposed to have some rebates built in for lower-income taxpayers, it’s unlikely to make up these differences in tax burdens that they’re going to be facing,” Goldman said.
He also says it actually will make things more complex for businesses who will have to collect the national sales tax — especially the handful of states that have no state sales tax.
And it’s unclear if a 23 percent tax will be enough to keep those collections the same, with Goldman citing some analysts who say that rate might have to be increased to 40 percent.
It will make purchases feel more expensive.
“If we think about a $5 gallon of milk, we’re now talking about it costing $7,” he said. “And this is going to really hamper what these individual taxpayers are going to have to pay on their basic bills.”
The bottom line, though, is that it’s unlikely to become law anytime soon: There have been no indications that it would pass the Senate.
But that raises another question. Why even bring it up in the first place?
“Some would have argued that they’re just trying to create some noise. They’re trying to show that the IRS is not this invincible structure that is always going to be there, and that there could be some changes,” Goldman said. “This is their attempt to say, ‘Hey, look, I tried,’ even if there was no real teeth to whether it gets passed or not.”
The proposal has something very important in common with another debunked claim that won’t die — the false assertion that the IRS is hiring an army of 87,000 IRS agents to audit you.
“I think it’s the idea of tax collections,” Goldman said. “The idea of paying more in income taxes is a huge thing for certain politicians to be attacking right now.
“When it comes down to it, there is nothing that’s really that sinister about the IRS,” he added. “We’ll never have a perfect utopian tax system, but as it currently stands, it’s very efficient and this additional $80 billion in funding that there doing is going to be used to help. That’s the exact opposite of what these politicians are talking about.”