Can We Eliminate the IRS and Replace it with a National Sales Tax?

Here is a summary:

(1) Constitutional and Legal Barriers

• The 16th Amendment explicitly grants Congress the power to levy an income tax. Eliminating it would require a constitutional amendment, a process that requires two-thirds of Congress and ratification by three-fourths of the states—a massive hurdle.
• Even if the federal government stopped collecting income tax, state-level tax agencies would still exist, and some states rely heavily on income tax revenue.

(2) Revenue and Economic Feasibility

• The income tax accounts for ~50% of federal revenue (CBO, 2023). A national sales tax would need to replace over $2 trillion per year in lost revenue.
• Estimates suggest this would require a 30-40% sales tax on all goods and services. This could:
• Increase costs for lower-income households (since they spend a larger share of income on necessities).
• Disrupt consumer spending, slowing economic growth.
• Encourage tax evasion and an underground economy where transactions happen off the books to avoid the tax.

3. The Complexity of State Administration

• States already struggle with tax collection at current sales tax rates (ranging from 2.9% to 7.25%). Asking them to collect an additional 30-40% tax and remit it to the federal government would be a bureaucratic nightmare.
• Not all states have sales tax. Five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not currently have a state sales tax. Would they be forced to implement one?

4. Impact on Businesses

• A high national sales tax would create cross-border shopping issues where consumers travel to lower-tax areas (or shop internationally) to avoid paying.
• Small businesses would bear the burden of higher compliance costs, potentially hurting local economies.

5. The IRS Handles More Than Income Taxes

Even if a national sales tax replaced the income tax, who would oversee:

• Corporate taxes
• Estate and gift taxes
• Excise taxes (gasoline, alcohol, tobacco, etc.)
• Tax credits like the Child Tax Credit & Earned Income Tax Credit

Without the IRS, a new agency would have to handle these tasks, leading to no real reduction in federal oversight—just a different bureaucracy.

6. Previous Attempts Have Failed

The FairTax Act, which proposed a 23-30% national sales tax, has been introduced multiple times in Congress but never gained traction due to practical, economic, and political concerns.

A 2005 tax reform panel under President Bush analyzed a national sales tax and found it highly impractical due to the administrative burden and disproportionate impact on lower-income taxpayers.

Bottom Line:

A national sales tax administered by the states sounds simple on paper but would be incredibly difficult in reality.

It would require a huge tax increase on consumption, disproportionately hurt lower-income households, and create enforcement challenges that states are not equipped to handle.

While tax reform is always worth discussing, eliminating the IRS and replacing it with a state-administered national sales tax is highly unrealistic.

The most practical course of action may be improving and modernizing the existing system, not necessarily dismantling it entirely.

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