Last week, a dozen GOP lawmakers introduced the Fair Tax Act of 2025. The bill proposes to abolish the IRS and repeal all personal and corporate income taxes, the death tax, gift tax, and payroll tax. This is not the first time the Fair Tax Act has been heard of in Congress, but it has never moved far. This time it may get more traction.
The idea was originally shared by Americans for Fair Taxation, a Houston-based group in the mid-1990s. Former Rep. John Linder (R-GA) first introduced the Fair Tax in Congress in 1999, and it has been reintroduced during each new administration since.
Support for the legislation has lost some steam over the past years. Two years ago, the bill garnered 26 co-sponsors; in 2025, that number has trickled down to just 11.
This proposal comes as the IRS faces a lot of challenges this year, such as including losing another $20 billion in crucial enforcement funds, potential new IRS leadership, and seemingly at odds with the second Trump administration. With the Tax Cut and Jobs Act (TCJA) coming to a end this year and Trump proposing changes such as ending taxes on tipped workers, as well as abolishing income tax on Social Security benefits and imposing steep tariffs on all imported goods and services under the guise that it will drive revenue for childcare and other critical services - everything is on the table.
Here’s what you should know about the Fair Tax Act:
The Fair Tax Act of 2025 would replace key federal government revenue sources with a national sales tax and rebate. These include personal and corporate income tax, death tax, gift tax, and payroll tax.
According to its advocates, the consumption tax would eliminate the need for the IRS.
If enacted, the national consumption tax rate would be a tax-inclusive rate of 23% as of the 2027 tax year. Realistically, economists say that rate would increase to about 30%. According to the Tax Foundation, for every $1 spent, taxpayers would pay the federal government about 30 cents in sales taxes.
Of this fair tax, 64.83% of total revenue would be directed to general revenue, 27.43% would go to the old-age and survivors insurance and disability trust funds (social security), while 7.74% would be allocated to the hospital insurance and federal supplementary medical insurance trust funds (Medicare).
After 2027, the fair tax rate would vary based on government spending. The combined federal tax rate would be determined like this:
- A 14.91% sales tax to cover general fund spending, plus,
- Two variable sales tax rates to cover trust fund spending as determined by the Social Security Administration
Economists in the past have cited that the Fair Tax proposal is “essentially unworkable.” The Brookings Institution argues that the proposed rates would be insufficient to replace income, payroll, estate, and gift taxes, to name a few.
I say that if the government needs more than 30% of what everyone makes, then we need a garage sale and get rid of a lot of the government.
So How Would a Consumption Tax Work?
A consumption tax would shift the collection of taxes from your earnings to spending. Under current law, the U.S. collects revenue from taxing your individual income and capital gains tax, among a lot of other taxes.
Most states also levy a consumption tax as sales taxes and excise taxes.
The Tax Foundation indicates that while a consumption tax may theoretically promote savings and investment for some, the tax is ultimately “regressive” because lower-income households would spend more of their incomes than they can save. Under the current tax laws, over 50% of taxpayers do not pay ANY federal tax and the top 30% of wage earners pay most of it.
(Regressive generally means a tax takes a disproportionate amount from lower-income households.)
The Center for American Progress has previously characterized the proposal as “radical,” warning that it would widen the nation’s already sizable wealth gap.
It's really have to say who is right in this argument. There are many countries around the world that base their tax structure on a consumption model and they seem to be surviving fine. And it is truly a 'everyone should pay their fair share' type of system rather than half the country paying no federal taxes.
Maybe the cost of running a business would dramatically go down with the loss of all the current reporting requirements so that prices for things we buy would also go down to compensate for it. I don't know. What I would say though is that it is time we had a serious conversation in this country about how government is funded and the huge amount of waste inherent in it.