Abolishing the IRS: Is 99% Good Enough?

Townhall.com ^ | May 20, 2015 | Barney Brenner

[Kaslin]

The Republican presidential field is talking tax reform. (Beware the deceitful cries from the left of “tax cuts for the rich.”)

Several candidates favor some kind of flat tax on income and at least one, Mike Huckabee, likes the “Fair Tax,” a proposed levy on consumption, which seeks to do away with most or all other federal taxes.

The former is often portrayed as a system where the poor are disproportionally burdened and the latter as one where a federal monitoring agency, such as the IRS, is no longer needed. Neither portrayal is accurate.

The debate boils down to whether it’s better to tax goods and services or income. But assessing existing conditions is crucial. If we started today from a blank slate, a consumption tax, self-limiting by its nature, might be the preferred option. But as the entrenched federal tax system now stands, transitioning to a consumption tax would be an exercise in chaos.

Consider just some of the complications:

• Despite promises to abolish the IRS, federal monitoring would still be needed as evasion will remain an issue under proposed consumption tax rates. Inventory and sales records would need rigorous, even intrusive auditing. It may become the Inventory Review System, but an IRS would still exist in some oppressive incarnation.

• Forty-three states currently tax income and rely heavily on federal enforcement to ensure compliance. With that enforcement gone, there would be dramatically more state-level audits, or disarray as those states revamp.

• Five states currently have no sales tax. For a national sales tax to piggyback on existing state collection agencies, those states would have to create brand new bureaucracies.

• Existing savers would be acutely impacted. Most savings, pensions and retirement nest eggs would lose substantial buying power. After having been already taxed at least once, that money would be taxed again on purchases.

• The new tax would create an economic boom and bust as purchases would skyrocket prior to inception. As a result, initial collections would be substantially reduced.

• The need to repeal the 16th Amendment, crucial if we're to avoid ending up with both taxes, is a Constitutional issue which can’t simply be tied to legislation.

• Proposed monthly “prebate” refunds from taxes on essentials would make EVERY U.S. household (not just forty-seven percent) a government beneficiary. This is a socialist scenario incompatible with American values.

• Other issues too extensive for a column are detailed in the Hugh Hewitt/Hank Adler book, “The Fair Tax Fantasy.”

Fixes have been suggested for some of these complications. But flattening rates is dramatically easier and has been shown to boost the economy and increase revenue under four presidents: Coolidge, Kennedy, Reagan and George W. Bush.

Taxing sales in a consumption-based society seems a sure way to reduce economic activity. Consider the adage that what you tax more of you get less of. But income is the exception. The natural drive to accumulate wealth will prove equal to any reasonable tax rate. Keeping all your income into the five figures and 80% or more of the rest is a road to prosperity.

And there are other beneficial features of a flatter tax code:

• In all its incarnations, a flat tax uses exemptions to zero out revenue from the poor.

· The elimination of the labyrinthine tax code would save filers untold billions in compliance costs.

· Those wanting a progressive tax structure actually get their wish with a single-rate system. E.g., $9000 exemptions per family member and a 17% single rate has a family of four paying zero on $36,000. At $50 grand, they pay $2380, an effective rate of less than 5%. Only the highest incomes approach the top rate.

· Flattening the rates would reduce the export of jobs and encourage companies to remain on our shores.

· The underground economy would shrink, as much unreported income could be disclosed with little or no tax consequence. Once in the system, established filing patterns and reasonable rates would produce a significant increase in compliance.

· The rate reductions of the ‘80s produced a bonanza of revenue, disproportionately from the pockets of the rich, who paid a higher percentage of the taxes under the lower rates. (If you wonder why we still had deficits, it’s because Congress spent the entire windfall – and then some.)

· 70,000 pages of tax code could be replaced by just a few, actually a 99.99% reduction.

· Lobbyists, lawyers, politicians, special interests and the IRS would lose much of their power and privilege.

So if we want to decimate the IRS, a single-rate system is the most practical solution.

And even the Bible favors a flat tax. The scriptural levy was 10%, regardless of income.

[RedStateRocker]

The author nails my primary objection to it:

“•Existing savers would be acutely impacted. Most savings, pensions and retirement nest eggs would lose substantial buying power. After having been already taxed at least once, that money would be taxed again on purchases.”

Sorry, not going to support it for just that reason, everything in my Roths would be greatly devalued.

[Wolfie]

A flat tax is great. On all income, of course, not just wages.

[hosepipe]

Abolish the IRS is a diversion...

Abolishing the Federal Reserve is what’s needed..

AND the entire Federal Givernment needs to reduced by 2/3rds..
And socialism; OUTLAWED and and made ILLEGAL..

with........... ALL the Constitutional hooks and doo dads..

OH and the charge of Treason made a CRIME.. punishable..
with espionage and sedition as side bars.. by public hanging..

[Principled]

One sided hit piece.

[Principled]

That is the only valid point the article makes and it damn sure is a deal breaker.

In past iterations of the bill similar issues have been repaired so I would support if they amended the bill to give a one time credit to post-tax savings. One of the fundamental pillars of an nrst is to tax things once and only once - so this would make sense.

In the late 90’s they made a one time credit for existing retail inventories and I expect the same fix to come for post tax savings.

[Principled]

Flat is better than graduated.

But flat income tax still has withholding which minimizes the pain of taxes. The nrst does not have witholding.

The flat tax taxes employee wages at 7.65% or so - the nrst takes SS benefit money from retail sales tax revenues.

The flat tax still requires the employer FICA “contribution” [the nrst does not] and that is just a hidden tax on individuals.

The flat tax still taxes business income which is just another hidden tax on individuals.

So the flat tax is indeed better that the graduated income tax just by virtue of it being flat. But all the other evils remain.

The nrst is far superior but must overcome the post-tax savings credit and the 16th repeal issue. But it is a helluva lot better IMO

[DoodleDawg]

At $50 grand, they pay $2380, an effective rate of less than 5%. Only the highest incomes approach the top rate.

Which, given the deductions and credits available to the average family, is about $2380 more than they pay now. Do you expect them to be happy about that?

[DoodleDawg]

· Lobbyists, lawyers, politicians, special interests and the IRS would lose much of their power and privilege.

Which is the prime reason why the reforms will never take place.

[exnavy]

Now your talking my language.

[Amendment10]

Please bear in mind that the idea of fair taxes does not address Congress’s limited power to lay taxes as evidenced by the Supreme Court’s clarification of Congress’s limited power to lay taxes.

“Congress is not empowered to tax for those purposes which are within the exclusive province of the States.” —Justice John Marshall, Gibbons v. Ogden, 1824.

So yes to fair taxes which Congress can justify under its constitutional Article I, Section 8-limited powers.

The real problem with taxes is the 17th Amendment which needs to be repealed.

[Impy]

I’m not a fan of the “Fair Tax” either. For one thing it very easy to negatively portray despite making sense in some ways, I don’t consider it politically tenable. I like the Flat Tax.

As for the IRS, you need someone to collect the tax, The KGB by any other name. What we need to do is reign in the abuse they perpetrate.

[Taxman]

And is PRECISELY the reason it should!

[JimRed]

•In all its incarnations, a flat tax uses exemptions to zero out revenue from the poor.

Who, since they have no skin in the game, will continue to try to vote themselves largesse from the rest.

[conservatism_IS_compassion]

A flat tax is great. On all income, of course, not just wages.

Steve Forbes’ flat tax proposal was the right idea. It would have eliminated the mortgage tax deduction, but would have exempted interest income from taxation. Why is that a good idea? Simple. What that actually would mean is that when you borrowed money you would be selling tax-free bonds (just like municipalities presently do). With the effect that the interest rate would be low, just as the municipal tax-free bond interest rate is low. That reduction in the interest rate would directly offset the “loss” of the interest payment deduction. The only real “loss” would be reduction of paperwork for both the borrower and the lender.

. . . and then there is the fact that a tax on a capital gain from the sale of stock or a business is a tax on profits that have not yet been earned. It is a tax on income the buyer of the stock thinks the business will earn. The capital gains tax is zero unless the owner of the stock or business sells. It even is zero if the owner of the stock passes it on to his heirs - by law, the cost basis the heirs have to report if they sell is the value of the stock as of the date they inherited it.

For these reasons there is, according to the Wall Street Journal, no example of an increase in the capital gains tax rate producing an increase in capital gains tax revenue. And I hope we agree that it is immoral to set a tax rate above the point of diminishing revenue. And I have not spoken of the chronic tendency of inflation to manufacture capital “gains” which, in real terms, are illusory or even negative. Accordingly the capital gains tax rate should be low. Or zero.

[Major Matt Mason]

As for the IRS, you need someone to collect the tax, The KGB by any other name. What we need to do is reign in the abuse they perpetrate.

The GOP has done absolutely nothing about Lois Lerner and her band of IRS nogoodniks despite obvious violations. If the GOP won't do it, no one will (why they won't do it is another subject, I suppose).