HR 25119th CongressIn Committee

FairTax Act of 2025

Introduced: Jan 3, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The FairTax Act of 2025 would fundamentally reshape U.S. taxation by repealing the federal income tax, payroll taxes (including Social Security and Medicare taxes), and estate and gift taxes, and replacing them with a national sales tax on goods and services. The tax would be administered primarily by the States, with a framework for federal-state cooperation and specific rules for collection, administration, and credits. A key feature is a monthly Family Consumption Allowance (a rebate) intended to offset the sales tax for qualified families, funded in part by the proposed revenue system and administered by the Social Security Administration. The bill also includes numerous credits (e.g., for business use, bad debts, insurance proceeds) and special rules to manage exemptions, exports, and transitional issues. Notably, the act contemplates a sunset provision: if the Sixteenth Amendment is not repealed, the new sales tax would be eliminated. The bill is introduced in the 119th Congress and carries initial co-sponsorship from several House members. In short, the bill would shift the U.S. from an income-based tax system to a broad consumption tax, with a built-in rebate program to protect (at least partially) lower-income or eligible families, and a heavy emphasis on state administration of the new tax.

Key Points

1Repeal of major federal taxes and move to a national sales tax
2- Repeals: federal income taxes, payroll taxes (including Social Security and Medicare withholding), and estate and gift taxes.
3- Replaces them with a national sales tax on goods and services, to be administered primarily by the States.
4- Effective date targets: amendments take effect January 1, 2027, with ongoing administration coordinated between federal and state authorities.
5Tax rate structure and administration
6- Initial rate: 23% of gross payments for taxable property or services in 2027.
7- Post-2027 rate: the tax rate equals the combined Federal tax rate (general revenue rate plus Social Security and Medicare components).
8- General revenue rate is specified at 14.91%; the remaining portions fund OASI/DI and HI (Social Security and Medicare) through the new framework.
9- Administration largely handled by states, with a federal role for coordination, exemptions, and refunds; credits and refunds are defined in detail to support taxpayers and limit compliance burdens.
10Family Consumption Allowance (rebates)
11- Qualified families receive a monthly rebate equal to the tax rate times a defined monthly poverty level.
12- “Qualified family” has a detailed definition (household composition, residency, verifications, and annual registrations).
13- Rebates are administered through the Social Security Administration and can be issued via checks, smart cards, or direct deposit; eligibility and payment are tied to annual or revised family registrations.
14- Registration is voluntary but with consequences if not completed (temporary suspension of rebates after a set grace period).
15Credits, refunds, and transitional provisions
16- Various credits to offset tax liability, including business-use conversion credits, intermediary/export credits, administration credits, bad debt credits, and insurance proceeds credits.
17- Special rules for refunds to registered sellers and other taxpayers; interest provisions and refund timelines are specified.
18- Provisions address bartering, conversion of property from business to personal use, and other administration details.
19Sunset and constitutional considerations
20- The bill explicitly finds that the Sixteenth Amendment should be repealed.
21- If the Sixteenth Amendment is not repealed, the act provides for elimination of the sales tax (sunset) rather than its continuation.
22- This creates a potential constitutional condition for the tax system’s survival.
23Other structural changes
24- Codification and renumbering of the Internal Revenue Code (1986) to reflect the new tax system and to redesignate various subtitle blocks.
25- Several conforming amendments and cross-references to ensure coherence with the new sales tax regime and the revised code.
26- Provisions for administration, privacy protections, and intergovernmental cooperation are embedded in the tax design.

Impact Areas

Primary group/area affected- All consumers and buyers of goods and services in the United States, via the new national sales tax. The Family Consumption Allowance is designed to offset the tax burden for eligible households, particularly those meeting the defined poverty-related criteria.- Taxpayers who previously paid income, payroll, or estate/gift taxes, including workers and retirees reliant on Social Security, would be materially affected by the shift to a consumption-based system.Secondary group/area affected- State and local governments, which would play the primary role in administering the sales tax and enforcing compliance, with a federal coordinating role and possible administration fees.- Businesses, including retailers and service providers, that would become primary collectors of the new sales tax and would be affected by the new reporting, remittance, and credit mechanisms.Additional impacts- Revenue/price implications: A 23% initial rate (2027) and a later rate tied to a combined federal rate could influence prices, consumption patterns, savings, and investment, though the rebate program is intended to mitigate impacts on lower-income households.- Administrative and compliance effects: The bill emphasizes simplification and state administration to reduce federal overhead and privacy concerns, while introducing a substantial set of credits, refunds, and compliance rules that could be complex in practice.- Economic neutrality and growth: Proponents argue a single-stage consumption tax reduces cascaded taxation and compliance costs; critics may point to potential regressivity, administrative complexity at the state level, and transition risks.- Constitutional dynamics: The plan hinges on repealing the Sixteenth Amendment; without such repeal, the sales tax provision would sunset, making the act dependent on constitutional change for longevity.

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