I don’t know if you’ve heard about the latest Republican “economic proposal” to abolish the IRS but the details are simply stunning. It’s going to get bottled up in committee most likely because even some of the loons are nervous about it.
If you want to see the caliber of “policy” coming from these loons, check this out from the American Prospect:
During the negotiations for the recent election of Rep. Kevin McCarthy (R-CA) as Speaker of the House, one of the demands of the extremist Freedom Caucus was for a vote on the so-called Fair Tax proposal. This would abolish the IRS along with all existing federal taxes, and replace them with a 30 percent national sales tax.
The bill is a political dead letter. Not only could it never possibly pass the Senate, let alone be signed by President Biden—Axios reports that he will deliver a big speech Thursday lambasting the idea—but McCarthy himself recently came out against the plan. It might not even make it out of committee in the House.
Nevertheless, it’s still worth digging into the “Fair Tax” plan as an example of the bug-eyed lunacy that passes for policymaking in right-wing circles. People’s Policy Project founder Matt Bruenig has the full details in a video analysis, but in brief, such a sales tax would be an administrative disaster, lead to gigantic tax evasion, and most importantly be monstrously unfair.
At first blush, most would wonder how, if the Freedom Caucus would abolish the IRS while also standing up a huge new tax, the government is going to collect it. The answer is that first they would ask state governments to collect it for them, but in case states don’t want to (as several states don’t currently have a sales tax) and can’t be forced to do so under the Constitution, the law would set up two new federal tax agencies, an Excise Tax Bureau and a Sales Tax Bureau. So right out of the gate, we’re “abolishing the IRS” only to replace it with IRS 2.0 under a different name.
Administrative problems don’t stop there. This single tax is supposed to replace all the vast revenues from income and payroll taxes, but according to a rough analysis from the Brookings Institution some years ago, it would actually require a rate of about 60 percent to raise that much money. Moreover, the Fair Tax bill says that the 30 percent rate will only hold for the first year, after which the Social Security Administration is supposed to figure out how much money they would have collected from the existing payroll tax, and the sales tax rate would be adjusted to compensate. Yet it’s hard to see how the SSA could possibly do this without the income data produced by existing tax filings.
Then there is the problem that a sales tax is easy to cheat. Because it is imposed only at the point of sale to the final customer, only two parties would have to agree to evade it—and it would be a big temptation given how enormous the tax is. Scofflaw businesses would be able to offer their customers a giant discount for paying cash under the table. This is why European countries with consumption taxes have long since ditched the old-fashioned sales tax for a value-added tax, which is collected at each point in the supply chain based on the difference between what someone paid for a good and what they sold it for. That way there is de facto mutual surveillance between all parties in the supply chain, instead of just having to trust the final retailer.
But the most important aspect of this sales tax is how mind-blowingly regressive it would be. The income tax is quite progressive (at least in terms of rate structure), the Medicare payroll tax has an extra 0.9 percent rate on income over $200,000, and insofar as estate taxes and capital gains taxes are paid at all, they affect the rich almost exclusively. Bruenig collects expenditure data broken down by income quintile to roughly calculate what would happen if we replaced the status quo with a 30 percent sales tax. The result is that the poorest fifth of the American people would pay something like 70 percent of their income, the second-poorest would pay about 38 percent—but the richest fifth would pay just 17 percent. Now, probably those figures would change somewhat if this actually happened, because people would change their behavior, but this basic breakdown is certainly correct. It is an obvious and well-demonstrated fact that the more money people make, the more they save, and so the less they would pay in sales tax.
Calling this turkey a “Fair Tax” is a bad joke. Passing it would be by far the greatest upward redistribution of income in American history.
Finally, it’s worth noting that the Fair Tax idea originally comes from—wait for it—Scientology. Years ago, that group was in a dispute with the IRS over the agency not allowing it to be categorized as a religion, which would have granted it numerous tax benefits. So in characteristic fashion, Scientology operatives proposed the Fair Tax idea essentially as an attack on the IRS. Later, it did obtain religion status, but its idea made it into the conservative policy mind palace, where it remains.
That’s how looney this idea is.
Needless to say, even if it were to get a floor vote it won’t pass the Senate or get Biden’s signature.
Don’t tell the House MAGA fools who think that if they vote for something it immediately becomes law.