Fair Tax vs. Tariffs: What Online Business Owners Need to Know

A couple months ago, I wrote a blog about the Fair Tax Act—a proposed law that would eliminate income tax and replace it with a national sales tax. But that’s not the only major tax shift making headlines.

Right now, we’re already feeling the impact of tariffs—and with recent announcements from both political parties, it’s clear this conversation is far from over.

In this blog, I’ll break down:

• What the Fair Tax Act is (and why it's controversial)
• How tariffs work (and how they’re already affecting us)
• What this all means for your business, especially if you're in eCommerce

The Fair Tax Act: A National Sales Tax

The Fair Tax Act proposes eliminating income taxes—personal, business, payroll, estate, corporate—and replacing them with a flat national sales tax of roughly 23% to 30%.

How It Works:

✅ No more income, payroll, or estate taxes

✅ A flat national sales tax on all new goods and services

✅ Collected at the point of sale by businesses

✅ States would administer the tax using their existing sales tax systems

✅ A monthly “prebate” for all households to cover basic living expenses

The Goal:

To simplify the tax system by shifting taxation from income to consumption—so you’re taxed when you spend, not when you earn. It would also eliminate the need to file income tax returns altogether.

But while this is still just a proposal, there’s already a taxation strategy quietly impacting your business: tariffs.

Tariffs: A Tax on Imports

Tariffs are taxes on imported goods—and while they aren’t new, they’re being used more heavily than ever. But incase you never took economics in high school or college, let’s do a little ‘Tariff 101’

Tariffs are designed to make foreign goods more expensive, thereby encouraging people to buy from domestic producers. But in reality, they often raise prices across the board, especially in industries reliant on global supply chains (hello, eCommerce!).

While former President Trump is now proposing replacing income tax with tariffs, tariffs have been impacting businesses well before that idea hit the headlines.

What’s Already Happening: Tariffs Under Biden & Trump

We’re not just talking about possible future laws—we’re talking about current, active policy that’s affecting prices right now.

Under the Biden Administration (2024):

The administration increased tariffs on several categories of Chinese imports to strengthen U.S. manufacturing:

• Electric Vehicles (EVs): Increased from 25% to 100%
• Solar Panels: Increased from 25% to 50%
• Semiconductors & Critical Minerals: Increased to 25%

📌 These changes are part of a broader push to reduce dependence on Chinese manufacturing—especially for clean energy and tech products.

Sources: NPR, FoleyHoag, Wiley Law

Under the Trump Campaign (Proposals for 2025):

Trump has proposed:

• A universal 10% tariff on all imports

• A 50% tariff on European Union goods

• A 25% tariff on smartphones and other tech

  These proposals are aimed at completely replacing income tax with import-based taxation.

Sources: White House Policy Archive, Reuters, AP News

What This Means for Your Business (Especially in eCommerce)

Whether you're sourcing physical products or digital goods, tariffs affect the whole chain. Here's how:

For eCommerce and Product-Based Businesses:

✅ Higher Product Costs: Even if you're not importing directly, your suppliers likely are—and they’re passing those tariff costs to you.

✅ Squeezed Margins: With rising COGS, you may find it harder to maintain your profit margins without raising prices.

✅ Pricing Challenges: Now is the time to review your pricing strategy. If you haven't raised prices in a while, or if you're guessing your margins, this could hit hard.

✅ More Complicated Forecasting: Sudden changes in tariff policy (which often happen without much warning) make inventory planning more uncertain.

What Should You Do Next?

Here’s how to stay ahead of these shifts:

1. Audit Your Supply Chain: Find out if any of your vendors are affected by new tariffs. If so, how are those costs being passed along? Don’t wait to do this. You know who your suppliers are, so reach out, don’t wait for them to communicate a price increase to you. It may be too late at that point.
2. Review Your Product Pricing: Make sure your profit margins are still healthy. This might mean raising prices or cutting low-margin products. If you need help with this, reach out! It’s kind of our thing!
3. Plan for Volatility: If you rely on imported goods, start building more buffer into your inventory orders and cash flow. Our recommendation is to try to have about 3-months’ of your operating expenses in savings. If you don’t know what your operating expenses are, we can help with that!
4. Talk to Your Bookkeeper or CFO: This is exactly the kind of economic shift you want financial strategy around. Don’t guess—get support.

Fair Tax vs. Tariffs: A Side-by-Side Recap

💬 Now what?

While the Fair Tax Act and tariff proposals both aim to eliminate income tax, only one of them is already affecting your bottom line—tariffs.

Even if you’re not seeing it line-by-line on an invoice, your costs, margins, and pricing strategies are likely already impacted. And if new tariff policies expand further (as proposed), this could reshape how we do business in a global economy.

Now is the time to evaluate your numbers, prep your strategies, and build resilience into your business model.

Want to talk through how these changes could impact your business’s financials? I’ve got your back. Fill out our Interest Form HERE to become a client OR join our DIYBooks Community!