FairTax - Legislative Overview and History

Legislative Overview and History

The Fair Tax Act is designed to replace all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a national retail sales tax on new goods and services. The legislation would remove the Internal Revenue Service (after three years), and establish an Excise Tax Bureau and a Sales Tax Bureau in the Department of the Treasury. The states are granted the primary authority for the collection of sales tax revenues and the remittance of such revenues to the Treasury. The plan was created by Americans For Fair Taxation, an advocacy group formed to change the tax system. The group states that, together with economists, it developed the plan and the name "Fair Tax", based on interviews, polls, and focus groups of the general public. Since the term "fair" is subjective, the name of the plan has been criticized as deceptive marketing by some, while being touted as true to its name by others. The FairTax legislation has been introduced in the House by Georgia Republicans John Linder (1999–2010) and Rob Woodall (2011), while being introduced in the Senate by Georgia Republican Saxby Chambliss.

Linder first introduced the Fair Tax Act (H.R. 2525) on July 14, 1999 to the 106th United States Congress and has reintroduced a substantially similar bill in each subsequent session of Congress. The bill attracted a total of 56 House and Senate cosponsors in the 108th Congress (H.R. 25/S. 1493), 61 in the 109th Congress (H.R. 25/S. 25), 76 in the 110th Congress (H.R. 25/S. 1025), 69 in the 111th United States Congress (H.R. 25/S. 296), and 75 in the 112th United States Congress (H.R. 25)/S. 13). Former Speaker of the House Dennis Hastert (Republican) has cosponsored the bill but it has not received support from the Democratic leadership, which still controls the Senate. Democratic Representative Collin Peterson of Minnesota and Democratic Senator Zell Miller of Georgia cosponsored and introduced the bill in the 108th Congress, but Peterson is no longer cosponsoring the bill and Miller has left the Senate. In the 109th–111th Congress, Representative Dan Boren has been the only Democrat to cosponsor the bill. A number of congressional committees have heard testimony on the FairTax, but it has not moved from committee since its introduction in 1999. The legislation was also discussed with President George W. Bush and his Secretary of the Treasury Henry M. Paulson.

To become law, the bill will need to be included in a final version of tax legislation from the U.S. House Committee on Ways and Means, pass both the House and the Senate, and finally be signed by the President. In 2005, President Bush established an advisory panel on tax reform that examined several national sales tax variants including aspects of the FairTax and noted several concerns. These included uncertainties as to the revenue that would be generated, and difficulties of enforcement and administration, which made this type of tax undesirable to recommend in their final report. The panel did not examine the Fairtax as proposed in the legislation. The FairTax received visibility in the 2008 presidential election on the issue of taxes and the IRS, with several candidates supporting the bill. A poll in 2009 by Rasmussen Reports found that 43% of Americans would support a national sales tax replacement, with 38% opposed to the idea; the sales tax was viewed as fairer by 52% of Republicans, 44% of Democrats, and 49% of unaffiliateds. President Barack Obama does not support the bill, arguing for more progressive changes to the income and payroll tax systems.