The Republican-controlled U.S. House of Representatives and Senate could spell disaster for the future of the IRS.
A week before Inauguration Day, a dozen GOP lawmakers introduced the Fair Tax Act of 2025. The bill seeks to abolish the IRS and repeal all personal and corporate income taxes and the death tax, gift tax, and payroll tax.
The proposal, spearheaded by Rep. Earl L. “Buddy” Carter (R-GA), would dismantle the current federal tax code and replace it with a single national sales tax. That "consumption tax" would be paid by everyone in the country, including illegal immigrants.
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It’s not the first time the Fair Tax Act has been heard of in Congress, but it has never moved far.
However, the proposal comes as the IRS faces a myriad of challenges this year, including losing another $20 billion in crucial enforcement funds, potential new IRS leadership, and appearing starkly at odds with the incoming Trump administration.
Here’s what you should know about the Fair Tax Act and how it could potentially shake up the IRS as we know it.
Fair Tax Act 2025
The Fair Tax Act of 2025 would replace key federal government revenue sources with a national sales tax and rebate. These include personal and corporate income tax, death tax, gift tax, and payroll tax.
According to its advocates, the consumption tax would eliminate the need for the IRS.
If enacted, the national consumption tax rate would be a tax-inclusive rate of 23% as of the 2027 tax year. Realistically, economists say that rate would increase to about 30%. According to the Tax Foundation, for every $1 spent, taxpayers would pay the federal government about 30 cents in sales taxes.
Of that share, 64.83% of total revenue would be directed to general revenue. Additionally, 27.43% would go to the old-age and survivors insurance and disability trust funds, and 7.74% would be allocated to the hospital insurance and federal supplementary medical insurance trust funds.
After 2027, the consumption tax rate would vary based on government spending. The combined federal tax rate would be determined as follows:
- A 14.91% sales tax to cover general fund spending, plus,
- Two variable sales tax rates to cover trust fund spending as determined by the Social Security Administration
In the past, economists have cited that the Fair Tax proposal is “essentially unworkable.” The Brookings Institution argues that the proposed rates would be insufficient to replace income, payroll, estate, and gift taxes, to name a few.
What is a consumption tax?
A consumption tax would shift the collection of taxes from your earnings to spending. Under current law, the U.S. collects revenue from taxing your individual income and capital gains tax, among other taxes.
Some states also levy a consumption tax as sales taxes and excise taxes.
The Tax Foundation indicates that while a consumption tax may theoretically promote savings and investment for some, the tax is ultimately “regressive” because lower-income households would spend more of their incomes than they can save.
Note: Regressive generally means a tax takes a disproportionate amount from lower-income households.
The Center for American Progress has previously characterized the proposal as “radical,” warning that it would widen the nation’s already sizable wealth gap.
The Fair Tax is not a new proposal
As mentioned, this isn’t the first time the Fair Tax proposal has been introduced. The idea was originally shared by Americans for Fair Taxation, a Houston-based group in the mid-1990s. Former Rep. John Linder (R-GA) first introduced the Fair Tax in Congress in 1999, and it has been reintroduced during each new administration since.
Support for the legislation has lost some steam over the past years. Two years ago, the bill garnered 26 co-sponsors; in 2025, that number has trickled down to just 11.
What can the IRS expect in 2025?
The IRS and federal tax code can expect a shakeup as the U.S. presidency changes hands.
President-elect Donald Trump’s tax agenda will be busy this year, starting with tackling the looming tax cliff tied to the Tax Cut and Jobs Act (TCJA). Trump has also proposed ending taxes on tipped workers, as well as abolishing income tax on Social Security benefits.
Another major project would involve imposing steep tariffs on all imported goods and services under the guise that it will drive revenue for childcare and other critical services.
Trump has also appointed former Missouri Congressman Billy Long to lead the IRS, a move which would prematurely oust IRS Commissioner Danny Werfel. As reported by Kiplinger, if confirmed, Long would be the first politician appointed to the position in more than 80 years.
Aside from the reintroduced Fair Tax Act, The IRS is facing other challenges to its stability, including:
- GOP lawmakers aiming to block IRS Direct File
- Elon Musk pointing to an IRS workforce restructure
- Recently losing another $20 billion in crucial enforcement funding
All of these looming changes impacting the IRS may affect you as a taxpayer, from something as minimal as a tax return delay to your access to free tax filing services. So stay informed on how the incoming presidential administration prioritizes your tax experience.
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