The Fair Tax Act proposes replacing nearly all federal income, corporate, payroll, and estate taxes in the United States with a single, national retail sales tax. First-year enactment (like the proposed 2023/2025 legislation) targets an inclusive tax rate of 23% on all new goods and services. [1]
Core Mechanisms of the Fair Tax Act
- Abolishes the IRS: Eliminates individual and corporate income taxes, payroll (Social Security/Medicare) taxes, and the estate and gift tax, theoretically doing away with the need for the Internal Revenue Service.
- National Retail Sales Tax: Shifts the tax burden from earning to spending. Consumers would pay a federal consumption tax only when purchasing new goods or services. Used items and previously taxed properties are generally exempt.
- Prebate System: To prevent the sales tax from disproportionately hurting lower-income households, the act includes a monthly "prebate" (a flat advance payment) for every registered household to cover the tax on basic necessities up to the federal poverty level.
