The only reason they wanted sales taxes was to abolish the income tax

Sometime during the next two years — we don’t yet know when — the House of Representatives will be hosting a public orgy. House Speaker Kevin McCarthy, R-Calif., has promised to hold a floor vote on the FairTax Act of 2023 (H.R. 25).

The promise was one of multiple concessions McCarthy made to the Freedom Caucus to become speaker. As we shall see, the FairTax is nothing if not an exuberant orgy of nontaxation.

Now, you may find yourself tempted by this fiscal seduction. There’s a visceral titillation at the thought of not paying income tax and never again dealing with the bureaucracy of the IRS. But caution is well advised. On close inspection, the FairTax is one apple that you don’t want to bite into.

In case you missed it, the main feature of the FairTax is that it would eliminate all federal income taxes, for both individuals and corporations. They’d be replaced with a 23 percent national sales tax, which would apply broadly to goods and services. The FairTax would also dissolve the IRS.

The proposal would eliminate all federal payroll taxes, as well — which are technically separate from income taxes, although they’re imposed on your wage earnings. That includes the payroll taxes that fund Social Security and Medicare. The proposal would also eliminate withholding taxes, estimated taxes, self-employment taxes, the estate and gift tax, and the alternative minimum tax. That’s a mother lode of repealing things.

The congressional debate over the FairTax will center on whether we want our federal government to be funded primarily by revenue mechanisms based on a person’s ability to pay. The salient point about an income tax is that it allows for a progressive rate structure, in which those of us with higher annual incomes pay more than folks with lower annual incomes. And by “more” I mean both in gross terms and proportionally. That’s what it means for a tax framework to be based on the ability to pay.

By contrast, a consumption tax is conceptually divorced from a person’s ability to pay. These taxes are inherently blind to the consumer’s economic status or income level. The amount of sales tax a billionaire pays when buying a six-pack of Coca-Cola is identical to the sales tax a homeless person pays on the same purchase. You might regard that outcome as fair, or you might regard it as a perversion of economic justice. Either way, that’s how all sales taxes operate.