The FairTax Act of 2025 repeals income, payroll, estate, and gift taxes, replacing them with a national sales tax, and adjusts Social Security benefits to account for the new tax, with a sunset provision if the Sixteenth Amendment isn't repealed within seven years.
Earl "Buddy" Carter
Representative
GA-1
The FairTax Act of 2025 repeals federal income, payroll, estate, and gift taxes and replaces them with a national sales tax. This would impose a 23% federal sales tax on most goods and services starting in 2027, while providing a monthly sales tax rebate for qualified families. States can administer the federal sales tax if they have a conforming sales tax and agree with the Treasury Department. The Act includes a sunset provision that eliminates the sales tax if the Sixteenth Amendment, which allows Congress to levy an income tax, is not repealed within seven years.
FairTax Act of 2025: Income Tax Out, 23% National Sales Tax In
The FairTax Act of 2025 proposes a massive shift in how the U.S. government collects taxes. It aims to completely scrap the current federal income tax system (including individual income taxes, payroll taxes, and estate/gift taxes) and replace it with a 23% national sales tax on all new goods and services. This would apply, for example, whether you are buying groceries, getting a haircut, hiring a contractor, or buying parts for your small business.
Tax System Overhaul: What's Changing?
The core idea is to eliminate the complex web of income tax filings and payroll deductions. Instead, you'd pay a flat 23% sales tax at the point of purchase on virtually everything, starting January 1, 2027 (Section 201). Think of it like a vastly expanded state sales tax, but on a national level. For example, if you buy a new tool for $100, you'd pay $23 in sales tax, bringing the total to $123. Businesses would collect this tax and remit it to the government. The bill does include a 'prebate' (officially, the "family consumption allowance"), a monthly payment to families based on their size and poverty guidelines, designed to offset the sales tax burden for lower-income households (Section 201). However, you must register with the Social Security Administration to receive this rebate, providing Social Security numbers and proof of legal residency for all family members.
Real-World Rollout: Challenges and Changes
One major change is the shift in administrative responsibility. States that already have sales taxes can choose to administer the federal sales tax as well, collecting a small fee (0.25% of the collected tax) for their trouble (Section 201). This means your state's tax agency might be handling both state and federal sales taxes. If a state doesn't want to, or if they mess up, the federal government (through a new Sales Tax Bureau within the Treasury Department) will step in (Section 302). The bill also contains a ticking clock: if the 16th Amendment (which authorizes the federal income tax) isn't repealed within seven years, the entire sales tax system created by this bill disappears (Section 401). This sets up a potential constitutional showdown.
The bill also makes adjustments to how Social Security benefits are calculated. Currently, cost-of-living adjustments (COLAs) are tied to the Consumer Price Index (CPI). The FairTax Act changes this, adding a "national sales tax factor" to the calculation if the CPI doesn't already include the impact of the sales tax. This is meant to ensure benefits keep pace with the increased cost of goods and services under a sales tax regime (Section 303). There are also numerous provisions for handling business expenses, bad debts, and other situations. For example, if a business buys something for resale or to use in producing other goods, it can get a credit for the sales tax it paid (Section 201, intermediate and export sales credit). This is intended to prevent double taxation.
Businesses that collect $100,000 or more of sales tax in any of the previous 12 months are considered 'large sellers' and have to deposit sales tax collected into a separate segregated account within 3 business days of the end of the week, and remit the entire balance on the first business day following the end of the calendar week (Section 501). They also have to provide security equal to the greater of $100,000 or one and one-half times their average monthly tax liability during the previous 6 calendar months. Failure to maintain such an account or deposit collected taxes carries penalties (Section 504).
One area of potential concern is the potential for abuse. The bill includes penalties for things like failing to register as a seller, filing false rebate claims, or failing to collect or remit taxes (Section 504). However, the system relies heavily on self-reporting and compliance, and the "family consumption allowance" system could be vulnerable to fraud. The bill also introduces a complex set of rules for determining the "destination" of a sale, which could lead to disputes between states (Section 201).