How to Make Taxes Fairer and Abolish the IRS
How to Make Taxes Fairer and Abolish the IRS

Congressional frustration with efforts to get to the bottom of IRS targeting of conservative groups plainly shows the tax agency is dangerous to civil liberties, irrevocably broken, and corrupting national politicians.

Investigators on Capitol Hill and in the Justice Department may be able to finger a few malefactors but that won’t fix the IRS. The union representing IRS employees is deeply involved in the management of the agency, its leaders have the self-pronounced goal of doing whatever it takes to defeat conservative politicians, it consults regularly with leading Democratic politicians—including President Obama—on electoral strategy, and it has cultivated a culture that encourages employees to exercise discretion in ways harmful to free speech and association.

Simply, the IRS is not a neutral tax-collecting institution but a collection of grass-roots activists, enjoying virtually unchecked sovereign power to destroy the personal reputations and finances of those that oppose liberal ideas, and who inflect terror on ordinary Americans through the arbitrary interpretation of tax rules and onerous audits.

Assistant Senate Majority Leader Dick Durbin has openly admitted to asking the IRS to investigate citizens groups embracing conservative views. There is little hope of curbing such behavior or reforming the agency when the Senate takes no action to censure him, and mainstream media finds nothing much to investigate having learned about this conduct.

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The only alternative is to shut the IRS and replace the revenues from corporate and personal income taxes it administers. The latter are riddled with special interest provisions that offer low taxes to the rich and powerful and impose high rates on the rest of us. Moreover, the present quagmire of incentives and disincentives distorts business investment decisions and consumer choices reducing economic growth and leaving all of us less satisfied with our lives. And dealing with the hassle and cost of annual tax returns and the constant fear of IRS audits makes all of us less free.

In 2013, corporate and personal income taxes will yield to the Treasury about $1.5 trillion and could be replaced by an 11 percent sales tax on all private purchases—be they purchases of computer equipment, college tuition, or a lunch from the corner takeout.

Businesses and institutions would then pay to the Treasury the taxes they collected less sales taxes they paid on purchases of materials and equipment, rent, and the like. This subtraction would avoid the double taxation of materials and equipment businesses purchase and create a value added tax so often proposed by advocates of tax reform.

A VAT (value added tax) would favor no activity over another, and by taxing goods and services at the point of sale, it would end the problem of U.S. firms parking profits abroad to avoid taxes.

Businesses and institutions would file a three-line return, how much tax they collected, how much they paid and the difference. Individuals would file no tax returns at all!

Temptations would abound to exclude or exempt all kinds of activities but that is the kind of thinking that gave us the current mess—and inequities, slow growth, and exceedingly complex tax returns.

If Congress wants to spend more, it could raise the rate. That would make transparent to all the cost of spending more on government activities. If conservatives on Capitol Hill want to cut programs, they could explain to voters how much those cuts would lower the rate.

Elegant, egalitarian, and efficient, such a VAT without exemptions would give Americans the tax reforms they want but privileged rich folks and big businesses spend a fortune forestalling.

The economy would grow more and Americans will live better and in less fear. And, Mr. Durbin, that is what America is supposed to be all about.

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist.

Views expressed in this article are the opinions of the author(s) and do not necessarily reflect the views of Epoch Times.

  • A. J. Monde

    The function of the IRS is to perform as a “collection agency” under supervision of the United States Congress. What we owe each year has not been determined by the IRS but Congress. That is how it is defined in the Constitution. What is not defined in the Constitution is how these collections will be carried out and who will do it.
    The IRS, however, has been deemed to be an entity that creates tax rules and is out to empty the pockets of taxpayers. This should be completely false! But the IRS has become an attack dog who’s leash snapped a long time ago and no one called the dog catcher, or the owner. (I tried in 1981). When I thoroughly read the Constitution of the United States and took courses (2) in business income tax & personal Income tax, I then fully understood “the system”. This current system is very foul and is stumbling on itself.
    What has evolved since 1913 is nothing more than mismanagement of income tax collections and poor presentation of the purpose of the income tax . Fear is the first psychosis that drives the taxpayer into thinking they are going to have everything taken away from them. Some have, but many were self-employed, like myself, and in businesses that they shouldn’t have been in. Granted, the IRS has behaved poorly by exercising harsh methods when dealing with taxpayers. But the solution is not to implement a flat tax or VAT to make up the revenue this government has become addicted to, and addictions are hard to kick. There is a solution which I presented to a member of congress but he didn’t care to respond to it. Nor did anyone else I sent it to. They probably didn’t read it anyway. I guess it will die with me. Maybe there is no solution.

    So, if you get a VAT or flat tax you are going to hate the manner in which it is executed. Watch out when someone pokes around the neighborhood asking your neighbors if you bought that new car, refrigerator or furniture from a certified business, or did you get it from a back alley salesman.

    11% VAT won’t be enough. It will rise to 15 almost immediately. You will have less freedom and more fear to live with. The Black Market will explode and penalties for participating will be stiffer. When I lived in Hong Kong briefly in the1980’s (10% flat tax) I saw people falsify their income so that 10% wouldn’t hurt so bad. And I saw people here cheat regularly as if it was a right. Just wait, the rich will remain that way because they are supposed to. Power is never shared. Wish me luck, because I am wishing all of you the same. Just don’t tell me what America is supposed to be about.

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