Some GOP Lawmakers Want to Overhaul the Tax System. Voters Are Mostly Against Their Plan

As House Republicans reinvigorate calls to pass the “FairTax Act,” a proposal that would completely reimagine the U.S. federal tax system and dissolve the Internal Revenue Service, a new Morning Consult survey finds voters are likely skeptical of the GOP plan to implement tax reforms. 

The latest iteration of the bill, introduced by Rep. Buddy Carter (R-Ga.), would abolish all income, payroll and capital gains taxes and replace the federal government’s revenue stream with a national sales tax on services and new goods. It would also eliminate the IRS and the need for taxpayers to file annual tax returns. 

There is little voter appetite for the national sales tax element of Carter’s plan: A slim majority (51%), including 56% of Democrats and 47% of Republicans, oppose the elimination of federal income, Medicare and Social Security taxes in exchange for a federal sales tax on goods and services that taxpayers buy.

Erica York, senior economist and research manager with the nonpartisan Tax Foundation’s Center for Federal Tax Policy, said it’s no surprise that voters have an aversion to such a dramatic overhaul to the U.S. tax system. The bill, she said, is by no means a “mainstream” idea.

But the legislation, which has virtually no chance of passage in Congress, is one that some quarters of the Republican party are intent on pursuing — and one that Democrats are eager to highlight as a radical GOP-backed measure.

Republicans face uphill climb selling plan to voters, survey indicates

In an email to Morning Consult, Carter noted that President Joe Biden said during his State of the Union address last week that the current U.S. tax system is unfair. 

“Under my proposal, the wealthy will pay their fair share while a family of four can spend $30,000 completely tax free, with no penalties for saving or IRS agents monitoring their Venmo transactions,” Carter said, adding that Republicans “need to do more work educating the public” about the legislation. 

GOP lawmakers do have their work cut out for them on the awareness and persuasion fronts, per the survey: 64% of voters said they had heard little or nothing at all about the proposal. 

And when it comes to ways to overhaul the U.S. tax system, voters were most likely to support keeping the federal tax system the same: 52% said they support a progressive tax with the taxation rate based on income level, and 20% favored a flat tax. Another 26% said they’d prefer paying federal taxes via a levy on goods and services rather than income, the method proposed in the FairTax Act. 

While the bill cites the sales tax rate at 23%, in practice, some estimate that consumers would pay an effective 30% rate at the time of purchase. The bill has been referred to the House Ways and Means Committee, but is unlikely to pass in either the House or the Democratic-majority Senate, and Biden has promised to veto the bill were it to be passed. The White House did not respond to requests for comment.

Elsewhere in Washington, supporters of the bill are miles apart ideologically from Democrats and even some Republicans. Rep. Joaquin Castro (D-Texas) said in an email that “under the latest Republican tax plan, America’s working families and seniors would pay more every time they go to the grocery counter or order something online. A 30% sales tax would erase all the progress we’ve made against inflation and crush folks who are already struggling to make ends meet.”

Steven L. Hayes, president of Americans for Fair Taxation, a group that has campaigned for the FairTax Act since it was first proposed by then-Rep. John Linder (R-Ga.) in 1999, noted that there is confusion among consumers about how the plan would work in practice. When it comes to consumers’ “sticker shock” at the cash register, he pointed to the bill’s inclusion of a “prebate” that would deposit funds into taxpayers’ accounts each month up to a certain level to cover the cost of the tax. 

Morris Pearl doesn’t buy that justification. A former managing director at BlackRock Inc., Pearl now chairs the Patriotic Millionaires, a group of high-net-income Americans that aims to tackle economic inequality by, among other things, addressing loopholes in the tax system that allow the wealthy to pay lower rates of taxes.  

Pearl said less-wealthy Americans would pay more in taxes as a share of their overall income under the plan, especially given that many live paycheck to paycheck and spend everything they make each month. “So for those people, all of their money would be subject to a tax,” he said.

Tax reform advocates agree on the need for change, but have fundamentally different beliefs on what constitutes “fair” 

Most of the 38 Organization for Economic Cooperation and Development member countries have a national consumption tax, York noted. But while a shift toward consumption taxes could be workable, she said, the logistics of the FairTax plan are not. 

York said one of the logistical issues of a national sales tax, as imagined in the FairTax Act, would be moving tax collection to the state treasuries, essentially installing 40 or more “mini-IRS” agencies. 

According to the Morning Consult survey, a plurality of voters would prefer to keep the tax system as is or make changes that still require the IRS. About a third of voters, meanwhile, would like changes made to the system that would make the IRS unnecessary.

Referring to the “prebate” strategy in the bill, Pearl said he likes the idea of everyone getting a check every month, but that “still wouldn't make the FairTax progressive. It would still have people with high incomes paying less of their income in taxes than people with low incomes,” he said, adding that “it still would be a regressive tax.” 

“Our basic difference with the people who wrote that is they think that rich people should not pay taxes,” Pearl said of the bill. “And we think the opposite.”

Hayes agreed that the bill has no chance of Senate passage, but pushed back against more incremental reforms, such as the implementation of consumption taxes while keeping income taxes. He said supporters of a complete system overhaul under the FairTax proposal are afraid that having both types of taxes leaves the door open for Congress to slowly raise income tax rates again in a few years. “And 10 years later, we'll have a 30% sales tax and income tax,” he said.

Hayes believes that for the bill to stand a chance of passage, it needs backing from a presidential candidate who believes in the proposal. He noted that former Arkansas Gov. Mike Huckabee (R) campaigned on the ideas during his run for president, and Arkansas Gov. Sarah Huckabee Sanders (R), who may have an eye toward a White House post, also supports the plan. 

Tax Foundation’s York, meanwhile, believes it’s a good thing for lawmakers to discuss potential ways to improve the tax system, “especially by considering a shift away from income taxes and toward consumption taxes.” 

“But when the rubber hits the road, the FairTax Act isn’t the way to go, unfortunately,” she added. “And it would be better if lawmakers considered other avenues to adopt consumption taxes rather than something that's unworkable.”