Is the FairTax added on top of the income tax?
No. H.R. 25 is written as a replacement. It repeals federal individual and corporate income taxes, payroll taxes, and estate and gift taxes.
The bill also terminates the national sales tax if the Sixteenth Amendment is not repealed within seven years after enactment.
Would groceries and medicine be taxed?
New retail goods and services are generally included. Instead of exempting selected products, eligible households receive the monthly prebate to offset tax on spending through the poverty level.
Are used goods taxed?
No. Used homes, vehicles, equipment, furniture, and other previously taxed goods are not taxed again.
What happens to the IRS?
The current bill authorizes no funding for IRS operations after fiscal year 2027. Retailers collect the tax, and states administer and remit it to the Treasury.
What about Social Security and Medicare?
The FairTax repeals federal payroll taxes. National sales tax revenue is allocated in part to the federal trust funds supporting Social Security and Medicare.
Benefits are not taxed as income under the FairTax.
Is the rate 23% or 30%?
Both figures describe the same rate using different conventions. A $23 tax included in a $100 total price is 23% tax-inclusive. Compared only with the $77 pre-tax price, it is approximately 30% tax-exclusive.
Would prices rise by 30%?
The retail tax becomes part of the price, but the proposal also removes federal income and payroll taxes and their embedded compliance costs. How much pre-tax prices adjust would depend on competition, industry costs, and market conditions.
Claims that every price will simply rise by the full tax rate ignore those changes. Claims that every price will fall enough to erase the tax are also too certain. Actual pricing would be determined in the market.
Do businesses pay the FairTax?
Businesses do not pay the tax on qualified purchases used for business, export, or investment purposes. Businesses selling taxable goods or services to consumers collect the tax at retail.
Does this replace Maine taxes?
No. The FairTax is federal legislation. Maine’s income tax, sales tax, property taxes, and local taxes are separate matters under state and local law.
Is the FairTax law today?
No. H.R. 25 was introduced on January 3, 2025, and referred to the House Committee on Ways and Means. As of today, it has not passed Congress.