Rep. Earl L. “Buddy” Carter (R-GA) introduced H.R. 25, the Fair Tax Act, to replace the current tax code with a national consumption tax known as the Fair Tax.

This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions.

Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.

The states have the responsibility for administering, collecting, and remitting the sales tax to the Treasury.

Tax revenues are to be allocated among (1) the general revenue, (2) the old-age and survivors insurance trust fund, (3) the disability insurance trust fund, (4) the hospital insurance trust fund, and (5) the federal supplementary medical insurance trust fund.

No funding is authorized for the operations of the Internal Revenue Service after FY2027.

Finally, the bill terminates the national sales tax if the Sixteenth Amendment to the Constitution (authorizing an income tax) is not repealed within seven years after the enactment of this bill.

For the Fair Tax Act:

“Cosponsoring this Georgia-made legislation was my first act as a Member of Congress and is, fittingly, the first bill I am introducing in the 118th Congress,” said Rep. Buddy Carter. “Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, this bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation. Armed, unelected bureaucrats should not have more power over your paycheck than you do.”

“As a former small business owner, I understand the unnecessary burden our failing income tax system has on Americans. The Fair Tax Act eliminates the tax code, replaces the income tax with a sales tax, and abolishes the abusive Internal Revenue Service. If enacted, this will invigorate the American taxpayer and help more Americans achieve the American Dream,” said Rep. Jeff Duncan.

Former Asst. Sec. Economic Policy - Bruce Bartlett “Under the [FairTax], the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax and send it to the Treasury Department. The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher. Similarly, state and local governments would have to pay the FairTax on most of their purchases.

State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly. Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house. (Mr. Bartlett served as a domestic policy adviser to President Ronald Reagan and as a Treasury official under President George H. Bush.)”