Do you live in a state that has a high sales tax? A state that imposes no sales tax at all? Consumption tax, the category that includes sales tax, is often a footnote at the end of a receipt, but it can impact your wallet all the same. 

In 2023, a group of House Republicans attempted to raise sales taxes with the FairTax Act, which would have abolished the Internal Revenue Service and replaced income tax and other levies with a national sales tax. The measure never reached a vote in the full House or Senate.

However, President-elect Donald Trump has proposed broad import tariffs, which would impose a tax on goods Americans buy from other countries. In theory, those tariffs could partly replace income taxes as a source of federal revenue.

With tax season upon us, here’s everything you need to know about a national consumption tax.

What is a national consumption tax?

Consumption tax is a tax on goods or services – what you spend, rather than what you earn. In the U.S., consumption tax comes in the form of retail sales tax and excise tax (tax imposed on certain goods or activities, like alcohol or fuel).

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A national consumption tax would create a federal tax on consumer goods, possibly to be emphasized over (or even replace) income and payroll tax, which funds Social Security, Medicare and other government programs.

Does the U.S. have a national consumption tax?

The U.S. does not currently have a national consumption tax. Other countries do, including Japan, which has a 7.8% standard and 6.24% reduced tax rate for items like food, drink and some newspapers. Over 170 countries, including all of Europe, impose a Value-Added Tax, which taxes goods and services at each stage of production. 

Consumption taxes in the U.S. are on a state-by-state basis. Almost every state imposes sales tax except for Alaska, Delaware, Montana, New Hampshire, and Oregon, which instead allows cities to charge a local sales tax. California boasts the country’s highest state sales tax rate at 7.25%. 

In 2023, some House Republicans tried to change this. The FairTax Act would have eliminated most current federal taxes in favor of a 23% federal sales tax. Tax experts warned the act would mostly benefit the wealthy, who would see major tax cuts.

What is the future of the national consumption tax

According to the nonpartisan Tax Policy Center, the Fair Tax was first introduced in Congress in 1999 and has been reintroduced in each Congress since. In other words, you can probably expect more Fair Tax legislation in the future.