McCarthy Fallout: 2023 Fair Tax Vote

As part of the set of concessions he made to his own party in order to become speaker, McCarthy pledged to hold a vote on a 2023 Fair tax proposal.

The proposal has been around for decades, but in short it replaces the federal tax system with a national sales tax between 20 and 30 percent. It would entirely abolish the IRS, and the sales tax would be removed if the 16th amendment isn't repealed (thereby dropping federal tax revenue to effectively 0).

There are some obvious pitfalls with the high level proposal as well as the numbers within the current draft including:

1) The proposal is regressive, significantly raising taxes on the middle class while significantly lowering taxes on the wealthy.

2) As written, the proposed rate of 23 percent is insufficient to replace current revenue streams. The necessary amount is estimated to be 30 percent prior to dynamic scoring.

Here's the link for those interested.

Is anyone interested in seeing this pass?

This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. 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.

Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.

The states have the responsibility for administering, collecting, and remitting the sales tax to the Treasury.

Tax revenues are to be allocated among (1) the general revenue, (2) the old-age and survivors insurance trust fund, (3) the disability insurance trust fund, (4) the hospital insurance trust fund, and (5) the federal supplementary medical insurance trust fund.

No funding is authorized for the operations of the Internal Revenue Service after FY2027.

Finally, the bill terminates the national sales tax if the Sixteenth Amendment to the Constitution (authorizing an income tax) is not repealed within seven years after the enactment of this bill.

No. The GOP is a clown show that only cares about their own self interest and not what's best for Americans.

GOP can't be trusted with anything at this point.

This is bullshit libertarian nonsense, the same "income tax is illegal" line we've been hearing for decades.

I'd rather see them fix the system we have, add what needs to be added to get the wealthy paying their share, and removing things that overburden the low-income folks.

I'd also like to see some sort of cap (ideally structured in a "executive salary can't exceed X% of average employee salary" to incentivize paying the workers more while limiting the ceiling of executive pay) put on CEO/officer positions.

I totally want to see this passed and enacted.

Watching the US commit economic suicide would be hilariously entertaining.

No. The wealthy should be paying all the taxes. The middle class should be paying nothing.

Fair enough, just remember that it would probably sink the world economy if that happened.

Another Republican measure falling under their reverse Robin Hood fantasy of fucking the poor to help the rich.

That pretty sums up decades of policy perfectly.

@LJS9502_basic: "The GOP is a clown show"

Saw an interesting Tweet and I never heard this saying, "when you elect clowns, expect a circus", but it's soooo true

Who will help Texas next time there is a warm/normal summer or a cold winter?

Wait, does no one here like this proposal?

It turns out that this is identical, both in ideal and in figures, to what was proposed in 2004 and some of the technicals threw me off. To start with, it's really a 30 percent sales tax:

Described as a 23 Percent Sales Tax, Really 30 Percent, Really Even Higher than That

Under the bill, if you buy something that costs $100 before tax, you pay $30 of national sales tax. Most of us would call that a 30 percent sales tax. Proponents, however, call it a 23 percent tax, because that $30 is 23 percent of your “gross payment” of $130, your payment including the sales tax. Proponents claim this method of calculation is more comparable to how we think about the income tax but its main result is widespread confusion.

And just like in 2004, that amount would drastically increase the deficit:

If enacted, the tax would almost surely be amended to have an even higher rate. Back in 2004 William Gale at the Tax Policy Center estimated that simply replacing the taxes eliminated under the plan would require that the national sales tax have arate of 60 percent.

Note that the 60 percent cited above is the tax exclusive rate. The 23 percent equivalent of 60 percent is 37.8 percent. In laymen's terms, that means if you bought something for $100 today you'd pay $160 for it under this proposal assuming it is high enough to be revenue neutral.

Link

It's amazing to me that we have a Republican party who actually cares what billionaires pay in taxes. You could literally tax them 90% and they'd still be so fantastically wealthy that it would not affect any of them.

This wouldn't hurt private consumption at all naturally.

@horgen: Estimated 20 percent deterrent in 2004.

Nothing cures 7% inflation for the impoverished quite like 30% inflation.

The Democrats pass massive spending bills that do nothing. Then a few days after they are out of power suddenly show concern because the debt ceiling is not being raised so they can spend more money. There is the real clown show. They have never cared about the American people every thing they do is smoking mirrors.

Get out of here with that garbage. For the last few decades REPUBLICANS have outspend Democrats.

@JimB: You do, of course, realize that Trump presided over the largest deficit in history.... Right?

MAGAs won't rest until the US is in the gutter.

What a joke. Even if the Circus Caucus passes it (which they won’t) people will blame it on Biden and Hunters laptop.

I had expected more.

20 percent is A LOT. Economists freak out with a 3 percent drop in consumption.

There's a limit to how far it can drop because a lot of consumption is needs - food, clothing, gas, home maintenance, utilities, etc.

Moneywise it would remain the same, right?

@horgen: I don't understand that last comment. Can you rephrase?

Money spent would be about the same, however since state/federal gets a large portion of it, it would equal to 20% drop compared to before. ?

Hmm think about gas. You always spend 100$ but get less due to increased price.

not if the poor just stop buying food.

duh.

@horgen: It's more dynamic than that, but the principle is right. It will.probably result in more total money being spent after including taxes, but it will result in fewer goods and services purchased in total. Them that feeds into production causing layoffs, further reducing spending in a cycle until we reach some level of equilibrium.

Edit: Also keep in mind that this will either roughly halve government spending or increase the deficit by that amount. If it halves government spending, it will decrease gdp by that much more.

No, I don't believe he does.

Something Republicans will refuse to believe even when it happens.

It's really unclear why to me anyone would want to decrease the GDP. What would be the benefit of that for anyone living in the country?

Fortunately, I am effectively immune to changes in the world economy. Bring it on so I can laugh while I roast marshmallows over a fire stoked with $100 bills.

Besides I would be one of the big winners if we did the same in my country. Hmm...maybe I should move to the US if this happens....?

It's probably easier to just communicate that consumer spending drives 2/3rds of US GDP. That makes the whole economy utterly dependent upon consumers. Introduce this change and a huge % of consumers would be forced to stop all discretionary spending in the short to medium term. That cutback would immediately lead to depression, not just recession, and it would likely last more than a decade.

Fantasy of transition to a new long term state is just that: fantasy.

But I would still like you to do it so I can roast my marshmallows while you burn. The upside for many of you is all those handguns and rifles you have would be put to good use.

But is it too late for us in Canada to saturate the 49th with nuclear mines before you go insane?

This is why:

Sud is being tongue in cheek here, but for people who truly don't care about other people AND who are wealthy this is fantastic for them if their primary goal is increasing their net worth as highly as possible.

Taking a theoretical example of Aaron Rodgers who makes over 50 million per year in base and spends 1 million per year, under this proposal he would have a tax rate of 30 percent of 1 million, or 0.6 percent of his income. It pushes the tax burden on to the theoretical everyman who makes 50k a year and spends 45k. That man's effective tax rate would be 27 percent.

If you're wealthy enough and callous enough, you're insulated from the downsides and get to see your "score" go higher!

Correct, the mention of reaching equilibrium was simply to close the loop on theory were it taken to it's conclusion. We'd never reach it, and even if we did that equilibrium would be SIGNIFICANTLY poorer than the one we now find ourselves in. The resulting depression would be catastrophic to the point that we'd reach our "eat the rich" moment.

Damn dude, that is a great (and really terrifying!) explanation of it, I didn't even think about the fact that people's spending (as % of total income) tends to go down the wealthier they are.

So yeah they're out there going "Oh but it's 30% for everyone so it's fair" but meanwhile I'm spending more of my income than rich folks are by a huuuge margin.

@mrbojangles25: Yeah, this has been the Republican pie-in-the-sky dream for decades because it's extremely regressive but they can sell it as fair if they don't give people a chance to really think about it (or obfuscate it in propaganda). It, almost literally, zeroes out the tax rates of their donors!

But their donors won't earn much money if it is implemented.