Among the many concessions Kevin McCarthy agreed to in order to become speaker of the House is one that would give the so-called Fair Tax Act a full hearing on Capitol Hill. To describe the bill as radical would be an understatement. Not only would it abolish the Internal Revenue Service, but it would also replace all existing federal taxes with a flat, nationwide 30% sales tax. That would be on top of existing state and local rates. Sure, the bill probably doesn’t have much chance of passing, but it has some merit and is a good starting point for a discussion about tax reform.
The bill’s handful of supporters — led by Rep. Buddy Carter, a Georgia Republican — hope to spark a more general conversation about tax reform. Politically, most everyone outside the group of supporters calls it foolhardy. Legendary low-tax activist Grover Norquist described it as a gift to the Joe Biden administration. In policy terms, though, the underlying idea — a flat tax on consumption — is not as crazy as it sounds.
The fiscal challenges the U.S. faces over the next decade are stark. Both Democrats and mainstream Republicans should come to recognize that incorporating a flat tax on consumption into the federal tax system is one of the least painful — both in terms of the burden on working families and the economy as a whole — ways of meeting those challenges. The Center for a Responsible Federal Budget projects that the annual budget deficit could expand to as much as 10% of gross domestic product by 2032. In that scenario, which assumes the Fed remains committed to keeping interest rates high to fight inflation, interest payments alone would account for almost half the deficit.
