In which I explain why getting rid of the IRS is an impossible dream.
The IRS is no longer welcome in this country, since they’ve become a political weapon of the Democrat Party, to be used against conservatives. Many people are again looking at various schemes for tax reform, in order to reduce their hold on the people. I discussed the Fair Tax in two previous posts, and suggested implementing it would eliminate the need for the IRS. I was wrong, for reasons I’ll explain later. The Fair Tax is a well-developed sales tax package, fully worked up into a House bill. I consider it to have some significant flaws, which I have discussed, but these can be fixed.*
The other principal scheme for tax reform is the flat tax. The Heritage Foundation (A conservative think tank) has proposed The New Flat Tax Plan, essentially a much simplified income tax, and they claim all sorts of benefits for it. Here’s a link to their article on it: The New Flat Tax plan. I don’t like it, in comparison to the Fair Tax, link: The Fair Tax.. I’d be happy to have it replace the current system, however. It’s explained as part of a comprehensive fiscal report plan, documented at this link: Saving the American Dream.
Any taxation of income retains the need for the IRS. That means taxpayers still must report income and claim deductions. Organizations will still have to go to the IRS to qualify as non-profit and tax exempt. There will still be audits and enforcement, payroll deductions and estimated taxes. With the Flat Tax plan, the IRS could theoretically get by with many fewer workers. What are the odds they would cut staff?
Back to the Fair Tax: overall, even with its gigantic warts, it would eliminate most IRS functions. How much you make would be nobody’s business, especially not the government’s, unless you were applying for welfare. It is the fairest system ever conceived, since you could earn all you want, put it savings or spend it, entirely as you choose. The source of your income, whether legal or illegal, whether earned by labor, inherited, or through investments, would be meaningless. It will only be taxed when you spend it.
Of course, they’d get you in the end; for the most part, every dollar is eventually spent.
But, I said we can’t get rid of the IRS, even with the Fair Tax. Why? For one thing, Democrats will never allow anything approaching true tax reform. It’s a cushy system of income redistribution for them. But, disregarding that, suppose we did have a sales tax. Then, enforcement would be an even bigger problem than today, because sales taxes are easier to cheat on than income taxes. The logical answer? The IRS would demand enough detail to allow them to check to make certain all taxes due them are paid, and that would have to be detailed information on all sales and purchases by the business. They could then cross-check business A’s sales to business B vs. business B’s list of purchases from business A. As long as A and B weren’t conspiring with each other, neither could cheat the IRS without detection.
Individuals might be required to report their purchases as well. So, the IRS will live on after tax reform.
Of course, the IRS also will play a role with Obamacare: (The Unaffordable Health Care Act of 2010).
I’m skeptical that tax reform will ever happen; it’s too logical. My true belief about the future of the IRS is as follows: the Obama administration will continue to stonewall any attempt to find out who did what in the IRS scandal; Republicans will win back the presidency one day, and then, following the tradition Democrats have created, turnabout will be fair play. The IRS will be used as a political weapon to wipe out Democrats. What goes around, comes around.
* -- the FAIR Tax Plan’s biggest flaws, IMHO: the “prebate” is a stupid idea and would vastly complicate the process; the tax rate is too high as proposed, since every dollar in existence eventually will be taxed; big ticket items requiring titles or deeds should receive a much lower tax; resale of big ticket items should be taxed the same as new sales; business purchases for raw materials should not be taxed, but their other purchases should be.