Democratic Congressional Leaders Pour Cold Water on Enacting ‘Fair Tax’

January 25, 2023

Democratic leaders in Congress declared on January 25th that Congress would not pass legislation that would repeal income, payroll, estate and gift taxes, and impose a national sales tax.  

“The Fair Tax Act is unfair, unconscionable and un-American,” said House Minority Leader Hakeem Jefferies (D-NY).

The House is expected to vote on legislation that would impose a national sales tax on the use or consumption of taxable property or services in the U.S. The levy would replace the current tax system.

House Republican leaders have yet to announce when a vote will occur on the legislation. If a vote occurs, it is not clear if the bill will pass the chamber unless House Speaker Kevin McCarthy (R-Calif.) pushes his caucus to support it.

The Senate, on the other hand, is not expected to pass the legislation. It might not even vote on it, according to Senate Majority Leader Chuck Schumer (D-NY).

“As long as I am Majority Leader this devastating, unfair, nasty and almost crazy plan is not going to pass. It’s not going to happen in the Senate,” Schumer said.

The Democratic leaders said they oppose the tax because, if enacted, it would be a tax increase for lower and middle-class taxpayers as well as senior citizens.

Passage in the Senate would likely require the support from 60 Senators. That level of support is unlikely given that there are 51 Senate Democrats and all of them are likely opposed to passing the Fair Tax.

Without approval from both chambers of Congress, legislation cannot advance to the White House and be signed into law.  

Background on Bill:

House Republicans on January 9th introduced legislation (H.R. 25, the “Fair Tax Act”) that would replace how things are currently taxed with an 23% national sales tax starting in 2025. The rate would be adjusted in following years.

There are exemptions to the tax, according to the official website that post legislation,

There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions.

The bill also offers rebates for the tax. Recipients must be a legal U.S. resident, have a Social Security number and register with the "sales tax administering authority.”

The rebate is called the “Family Consumption Allowance.” How it’s calculated is below, according to Forbes magazine ($).

The allowance is based on the Health and Human Services Poverty Guidelines. Currently in the lower 48, it is $12,880 for a family of 1 and then goes up by $4,540 for each additional person. For purposes of the allowance, there is a "marriage penalty elimination amount". So, a household that consisted of just a married couple would be at $25,760. The family consumption allowance is the relevant income level times the tax rate. The Social Security Administration will send out a monthly check. For a family of four, I make that to be $667.76 per month, but feel free to check my math and mock me if I am wrong. The idea is that the family of four spending $34,840 per year on taxable stuff on net is paying no tax.

Lastly, the national sales tax created by this bill would be terminated if Congress does not repeal the Sixteenth Amendment (which authorized the income tax) within seven years of enacting the Fair Tax Act. Repeal of the Fair Tax would likely keep future federal governments from enforcing income tax laws while also imposing a national sales tax. But again, this bill is not expected to become law. 

President Joe Biden is expected to lambaste the Fair Tax Act during his speech tomorrow in Virginia.

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