Overview

• Bill repeals federal income tax, payroll taxes (Social Security and Medicare), and estate/gift taxes effective January 1, 2011
• Replaces them with a 23% national sales tax on all goods and services purchased for final consumption
• IRS would be phased out by 2013; states would collect the tax and receive 0.25% administration fee
• Internal Revenue Code of 1986 would be renamed Internal Revenue Code of 2009

Who does this affect?

• All consumers: Everyone pays 23% sales tax on purchases of new goods and services
• Families: Receive monthly "prebate" checks equal to sales tax on spending up to poverty level (offsets tax on necessities)
• Businesses: No longer withhold income/payroll taxes; must collect and remit sales tax instead
• States: Can choose to administer federal sales tax collection or let federal government handle it
• Teen impact score: 6/10 (indirect impact via family economics and household purchasing power)

What This Bill Does

• Sets 23% tax rate for 2011; rate adjusts after 2011 to fund Social Security (combined rate: 14.91% general revenue + old-age/disability insurance rate + hospital insurance rate)
• Exempts business-to-business purchases and exports from tax (only final consumer pays)
• Monthly "prebate" amount: poverty level × 23% tax rate (e.g., family of four at $25,000 poverty level gets ~$479/month)
• Businesses purchasing for resale or production get tax credits; must register as sellers and file monthly reports
• Large sellers (collecting $100,000+ monthly) must deposit taxes in separate accounts within 3 days and remit weekly
• Penalties: $500-$1,000 for registration failures; 20-50% penalties plus potential jail time for willful non-collection or non-remittance
• States maintaining sales taxes can become "administering states" through cooperative agreements; must remit federal taxes within 5 days
• Bill sunsets if 16th Amendment (authorizing income tax) isn't repealed within 7 years

Legislative Status

• Introduced in House on January 6, 2009 (111th Congress)
• Referred to House Ways and Means Committee
• No further action taken; remained in committee

In short

• Eliminates all federal income and payroll taxes, replacing them with a 23% national sales tax on purchases
• Families receive monthly rebate checks to offset sales tax on basic necessities up to poverty level
• States would collect the tax instead of the IRS, which would be abolished
• Businesses buying for resale or production wouldn't pay the tax—only final consumers pay
• Bill dies if the 16th Amendment isn't repealed within 7 years

Why should I care?

This represents a fundamental restructuring of how the federal government collects revenue. Instead of taxing what you earn, it would tax what you spend. Supporters argue this encourages savings and investment while making taxes more transparent—you'd see the 23% tax on every receipt. Critics worry it could be regressive, hitting lower-income families harder despite the monthly rebates, since they spend a larger share of income on necessities. The bill would also shift significant administrative responsibility to states and eliminate the IRS entirely. For families, the monthly prebate checks would help offset taxes on basic expenses, but any spending above poverty level would face the full 23% rate. The practical impact would depend heavily on your spending patterns and family size.