Republicans have threatened not to extend the federal debt ceiling unless Democrats agree to reduce government spending as the nation works to escape a potentially disastrous default.
However, Social Security and Medicare, which together account for a third of all federal expenditure, are off the menu, according to both President Joe Biden and House Speaker Kevin McCarthy. Republicans also reject cuts to the military and veteran’s programs, which account for another 15%.
There doesn’t seem to be much that Congress could eliminate, at least not shortly, because the Democrats who control the Senate are loath to agree to significant cuts to several social safety programs.
What costs must Congress bear?
Mandatory spending and discretionary spending make up the bulk of the federal budget. The distinction between the two is whether expenditure is predetermined by law or left up to legislators’ discretion during the annual appropriations process.
Because the government has promised to give recipients a defined level of retirement or healthcare benefits, Social Security and Medicare are obligatory expenditure programs. Other expenses, such as debt repayment and federal contracts for things like military supplies and services, must also be covered by the government.
Medicaid, an entitlement program that helps low-income families and some seniors, is one that Republicans have made no pledges to spare.
IRS or EPA Education? Where can Congress make cuts?
Republican leaders have not said where they would make cuts. Republicans have little to work with when the federal government pays its debts, however, according to Marc Goldwein, senior policy director at the nonpartisan Committee for Responsible Federal Budget.
Hundreds of government agencies, like the IRS, the Environmental Protection Agency, and the Education Department, have budgets that lawmakers can cut, but doing so would probably result in thousands of job losses since people account for the majority of the expenditures. Even when Republicans controlled both chambers, Congress has typically refrained from taking such action.
According to Goldwein, even with a tough approach, Congress could only be able to cut $50 billion from discretionary programs from the current fiscal year, or about 1% of total federal spending.
Realistically, Goldwein said, “I don’t think there’s that much you’re going to save in 2023, even if you had an everything on the table approach on the spending side of the budget.” “Implementing policies takes time. The majority of budget reductions can’t be put into place right once, and the ones that can have already begun.”
A long-term agreement that imposes spending limitations and some cuts over the next ten years would be the best for long-term savings.
How about tax increases?
Republicans have made it clear they won’t support such a move, even if increasing money through taxes and other fees would help offset higher spending.
Republicans and Democrats might agree to raise taxes, but only as part of a much larger agreement, according to Goldwein.
Republicans are generally not going to argue that raising taxes is preferable to cutting expenditures because they couldn’t agree on spending cuts, according to Goldwein.
A national sales tax of 30%? Getting rid of the IRS? What the 2023 FairTax Act would do
The tax system is arguably the topic of more contentious controversy than any other aspect of American life. Democrats favor tax increases. Republicans would like to cut them. At least that is how the trite story goes. The discussion over the IRS and how much money Americans should pay to Uncle Sam can be more nuanced.
Not every lawmaker in a given caucus agrees. Consider the FairTax Act of 2023, a new plan supported by certain Republican House members but not all of them. An all-encompassing sales tax on products and services for consumers has long been a notion for legislation. It always grows more energetic, as it has this year.
The proposed bill’s details and its intended implementation are provided below.
The FairTax Act of 2023 is what?
U.S. Representative Earl “Buddy” Carter (R-GA) proposed the “FairTax Act of 2023,” which would impose a national sales tax on the use or consumption of taxable goods or services. Current income taxes, payroll taxes, inheritance or gift taxes, and other taxes covered by Subtitles A, B, C, and H of the Internal Revenue Code of 1986 would be replaced by a sales tax.
The Internal Revenue Code of 2023, which would replace those subtitles, is the result of the proposed legislation.
The “gross payment,” which includes payments for both taxable goods and services and federal taxes, is closer to 30% than the bill’s stated tax rate of 23%.
The bill, which was the idea of one Republican faction, does not currently have support from the majority of the party and is not expected to be passed. In addition to the House, it would also need to pass the Democratic-majority Senate. Should the law defy the odds and make it to the president’s desk, Joe Biden has already declared that he will veto it.
How does FairTax function?
The tax system would undergo a significant revamp if the “FairTax Act” was passed.
Both payroll and income taxes would be effectively replaced by the imposed sales tax. The planned rate is 23% for 2025, with subsequent years’ rates to be changed. States would be responsible for handling, collecting, and sending the sales tax to the Treasury.
The following are some examples of nontaxable goods and services:
both used and intangible assets
Purchasing goods or services for investment, export, or business objectives
Purchasing goods or services for state government purposes
Five separate categories would each get a portion of the tax revenues: general revenue, old-age and survivors insurance trust fund, disability insurance trust fund, hospital insurance trust fund, and federal supplementary medical insurance trust fund.
Based on specific criteria for family size and poverty, US citizens would get a monthly sales tax rebate called a Family Consumption Allowance.
The plan also eliminates financing for the IRS’s operations after the 2027 fiscal year, which might be a sore spot for Democratic legislators who have fought for higher budgetary allotments to aid with monitoring.
The bill’s final clause calls for the termination of the national sales tax if the income tax-authorizing 16th Amendment to the Constitution is not repealed within seven years of the law’s passage.