FairTax Explained: What a “30% National Sales Tax” Could Mean for Your Household (and Why People Are Freaking Out)

What This Article Covers

Why the “30% national sales tax” is trending (and why the reaction is understandable)

A call we’ve already received sounds something like this:

“I saw something online saying everything is about to cost 30% more. Do I need to change how I’m spending right now?”

That question is honest, and it’s exactly why we’re writing this.

When tax headlines move fast, fear tends to fill the gaps before facts do. Our goal here is not to hype the proposal or dismiss concerns. It’s to slow the conversation down enough so you can understand what’s actually being discussed, what’s still uncertain, and where this could realistically help or hurt different households.

When people hear “30% sales tax,” their brains do the correct human thing: imagine a checkout screen that suddenly looks like a bad jump-scare. The emotion isn’t irrational. A consumption tax is highly visible, and visibility amplifies fear.

But the only useful next step is to translate the headline into mechanics:

• What exactly is being taxed?

• What taxes are being replaced?

• Who pays more, who pays less?

• What parts of the proposal matter most?

That’s what we’ll do here.

What H.R. 25 proposes

H.R. 25 (often called the “FairTax”) would repeal federal income taxes and federal payroll taxes and replace them with a national tax on consumption, paired with a monthly rebate (“prebate”) tied to the poverty level.

The rate confusion: why some say “23%” and others say “30%”

This is the first place misinformation breeds.

• The bill’s rate is 23% inclusive.

• Most people experience sales taxes as exclusive (added on top).

Example:

• If something costs $100 pre-tax and the tax is 30% exclusive, you pay $130.

• If the tax is 23% inclusive, the final $130 includes $30 of tax.

Same transaction, different denominator. That’s why people argue about “it’s 23%” versus “it’s 30%.”

If you’re a household thinking about budgets, the practical question is: How much more will something cost at the register? In that sense, “about 30%” is a fair way to describe the impact.

Two levers most hot takes ignore

1) The monthly “prebate” (Family Consumption Allowance)

The FairTax proposal includes a monthly payment to households intended to offset taxes on basic spending up to the poverty level.

Think of it like this:

• Spending up to poverty-level consumption is effectively taxed at 0%.

• The tax applies primarily to consumption above that baseline.

This is the single biggest factor in whether the tax is regressive in practice.

2) Used goods are not taxed

Used property is generally excluded. That matters because:

• Lower-income households buy more used goods.

• Used markets are a pressure-release valve during inflation.

If you ignore the used-goods exclusion, you will overstate the burden on lower-income households.

The economics: who tends to win and lose

A consumption tax has a different “shape” than an income tax.

• Low-income households typically spend nearly all their income. Without a prebate, a broad consumption tax is regressive. With a poverty-level prebate, the bottom is largely protected.

• Middle-income households often pay meaningful payroll taxes and moderate income taxes. Repealing payroll taxes is a big deal. Many middle-income households can come out ahead depending on how much they consume and whether wages rise over time.

• High-income households tend to save a larger share of income. A consumption tax often taxes a smaller share of their total resources (because savings are not taxed until spent). That’s why critics say it favors higher earners, and supporters say it rewards saving and investment.

• Retirees are the classic pressure point. They may have lower current income but fund spending from savings accumulated under the old system. That creates a transition problem: money taxed when earned, then taxed again when spent.

Four household examples

These examples use rough assumptions to illustrate direction, not produce a precise tax return.

Assumptions used across examples

• FairTax rate: 23% inclusive (roughly 30% at the register)

• Prebate equals tax on poverty-level spending

• Used goods are excluded

• No state/local tax included

(Real outcomes would depend on actual spending patterns, state tax stacking, and how prices/wages adjust.)

1) Low-income household: married, 3 children (5 people)

Typical profile:

• Income around $40,000

• Pays little/no federal income tax today (credits + standard deduction)

• Pays payroll taxes

What changes under FairTax:

• Payroll taxes go away

• Receives a larger prebate due to household size

• Pays tax primarily on consumption above the poverty baseline

Likely outcome: often a net winner, assuming the prebate is implemented and remains intact.

2) Retiree household: 2 people on Social Security + retirement plans

Typical profile:

• No payroll taxes today

• Income taxes depend on withdrawals and Social Security taxation

What changes under FairTax:

• Pays tax when spending from savings

• Receives a smaller (2-person) prebate

Likely outcome: often a net loser. The transition problem hits here.

3) Middle-income household: married, 2 children (4 people)

Typical profile:

• Income around $90,000

• Pays payroll taxes and moderate income taxes

What changes under FairTax:

• Payroll and income taxes disappear

• Receives a 4-person prebate

• Pays tax based on consumption

Likely outcome: often a net winner, sometimes by a meaningful amount.

4) Middle-income household: single, no children

Typical profile:

• Income around $75,000

• Pays payroll taxes and income taxes

What changes under FairTax:

• Gets a smaller 1-person prebate

• Still benefits substantially from payroll tax repeal

Likely outcome: frequently a large net winner relative to today.

The big unresolved questions (the stuff that decides real life)

1) Housing and rent

If rent is fully taxable in practice, renters could feel immediate pressure. If some forms of housing consumption are treated differently, distribution changes dramatically.

For many households, housing is the biggest monthly line item. That’s why this is a make-or-break detail.

2) Will wages rise when payroll taxes vanish?

Economists often argue employer payroll taxes come out of worker compensation over time. If those taxes are repealed, some portion could reappear as higher wages.

But the speed and completeness of that pass-through is uncertain, especially in the short run.

3) Compliance and the “cash economy”

A high visible sales tax increases incentives to under-report sales or shift transactions off the books. Enforcement can work, but administration becomes a major factor in whether a high-rate system holds together.

4) State and local stacking

Many states already have sales taxes. If you stack a large federal consumption tax on top, some areas could end up with very high combined rates. That can influence behavior and cross-border purchasing.

Quick FAQ (the questions we’re hearing most)

“Will everything instantly cost 30% more?”

Not necessarily.

Some prices could adjust downward if embedded payroll-tax and income-tax costs are removed from the production chain. But consumer-facing price adjustment is messy and uneven. Expect uncertainty in the transition.

“Does this mean the IRS disappears?”

No. Enforcement shifts, but administration doesn’t vanish. You trade one complexity for another: fewer individual returns, more business-level collection and auditing.

“Is it fair for retirees?”

Retirees are the group most likely to feel treated unfairly in a transition, because their spending can come from previously taxed savings.

“Is this better for small business?”

It depends on the business model.

• Some businesses benefit from payroll tax repeal.

• Others face greater point-of-sale compliance burdens.

• Consumer behavior changes could help or hurt depending on what you sell and how price-sensitive your market is.

Trustway’s practical guidance: what you should do right now

If you’re seeing panic online, here is the grounded approach:

1. Don’t rebuild your life around a headline. Bills have long paths.

2. Know your household “shape.” Are you a heavy saver? heavy spender? renter? retiree? Those four traits matter more than your political preference.

3. Plan with scenarios. If you are within 5–10 years of retirement, or you run a business with significant payroll, your planning scenarios should include both “current law continues” and “major reform happens.”

If you want help modeling what tax changes could mean for your household or business, Trustway Accounting can run scenario planning so you can make decisions from clarity, not fear.

What to do right now (before changing anything)

If you’re seeing a lot of noise online about the FairTax or a national sales tax, here’s the approach we recommend:

• Do not make sudden spending or saving changes based on headlines. This proposal would require a long legislative process.

• Understand your household profile. Whether you are a saver or spender, renter or homeowner, working or retired matters more than the headline rate.

• If you own a business, review payroll exposure. Payroll-heavy businesses are the most sensitive to reforms like this, often in a positive way.

• If you are nearing retirement, scenario planning matters more than ideology. Transition effects are real and manageable with preparation.

This kind of tax reform is not automatically good or bad. For many working households, especially families and small business owners, it could actually improve cash flow and simplify planning. For others, especially retirees, it raises questions that deserve careful answers.

That’s where thoughtful planning replaces fear.

If you want help modeling different tax scenarios or understanding how proposed changes could affect your household or business, Trustway Accounting is here to help you plan with clarity and confidence.

Educational content only. This is not legal or tax advice for your specific situation.