House Republicans introduced the FairTax Act of 2023 in January, and if it passes, a national consumption tax would replace the current tax system. Keep reading to find out how it would work and what you need to know.
“The national consumption tax is a proposed tax imposed on consumers at the federal level,” Dana Ronald, president of the Tax Crisis Institute, says.
“It's a tax on the goods and services people purchase or consume, as opposed to an income tax, which sometimes taxes earnings. In other words, it taxes what you spend rather than what you earn,” he adds.
If you were to purchase clothing, for example, you’d pay the consumption tax to the seller at the point of sale – similar to how sales tax works. The seller would then remit the tax payment to their state government, which would send it to the federal government.
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Here are the main takeaways from the FairTax Act:
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