National sales tax

A national sales tax is a proposal to replace most federal taxes on income, payroll and estates with a single tax collected at the point of retail sale. The best-known plan is the FairTax, promoted by Americans for Fair Taxation and sponsored in Congress by Representative John Linder and later others, which would apply a tax on new goods and services and give each household a monthly "prebate" to cover spending up to the poverty level.

Supporters argue that it would eliminate the Internal Revenue Service's role in income taxation, tax consumption instead of work and saving, encourage investment and end the need to file returns. Its rate has been the subject of dispute: the stated rate of 23 percent is "tax-inclusive," which is equivalent to about 30 percent on the purchase price, and critics argue that a higher rate would be needed to produce the same revenue.

Opponents raise concerns about enforcement, since it would be a large tax collected in one place, which creates incentives for evasion; about the effect on low-income households absent rebates; and about the political risk that an income tax could return. Many economists see consumption taxes as efficient, and the value-added tax is a common form abroad. See also regressive tax.