We all know that the income tax system in the United States is complex, costly, and inefficient. It imposes a heavy burden on individuals and businesses, discourages saving and investment, and creates opportunities for tax evasion and tax avoidance through loopholes and special treatments. It is prone to be politicized. It requires a large and intrusive bureaucracy, the Internal Revenue Service (IRS), to administer and enforce it. And … it impacts hardest on the middle and lower economic classes.
In a previous commentary, I made the argument that we should eliminate the Internal Revenue Service (IRS) by eliminating the Income Tax and withholding system. It is arguably the most corrupt and abusive of all the government agencies – largely because of the extraordinary and extra-constitutional powers enjoyed by the Agency.
There is nothing but benefits for the millions of American taxpayers in eliminating the income tax and the IRS, as we know it. Unfortunately, as bad as the current system is for the average taxpayer, the system is supported by a powerful public and private sector establishment. Those benefiting from the current system are tens of thousands of bureaucrats currently employed by the IRS.
Tax attorneys are the third most powerful segment of the American ruling class legal profession – behind lawyer-legislators and government prosecutors. And the other two categories are in full support of the IRS for political, personal and professional reasons.
Then you have all those non-lawyer tax accountants and consultants – from the local H & R Block operations, online services such as Turbo Tax, and the HUGE corporate accounting firms.
The elimination of the income tax in favor of a National Sales Tax – often called a “consumption tax” or “Fair Tax” – would mean that millions of Americans would not have money withheld from their incomes. They would not have to file complicated forms each year. There would be no IRS to seize bank accounts and personal property. There would be no special loopholes for the rich and powerful. It would be virtually impossible for crooks to commit tax fraud. Businesses would save billions of dollars by not having to collect and record income tax – a saving that gets passed on to the consumers.
While Congress, as a whole, has not shown interest in seriously considering eliminating the IRS, Georgia Congressman Buddy Carter has introduced the Fair Tax Act. It would establish a 23 percent tax rate on all retail goods and services – with a monthly rebate to low-income families and individuals. It would repeal all federal income taxes, payroll taxes, estate and gift taxes, and abolish the IRS.
The increase in the cost of goods and services would be more than offset by the enormous savings enjoyed by taxpayers. In addition to individual savings from eliminating the income tax, there are enormous savings to the economy. According to the Tax Foundation, Americans spend $409 billion and 9 billion hours annually to comply with IRS requirements.
But alas … despite the benefits for we the people, the Fair Tax Act is not likely to pass. There are too many powerful interests lined up against us. So … are there any reforms that could at least mitigate some of the IRS’ worst practices?
Here are a few I would be fighting for if I was in Congress.
- The first reform on my list would be to make it illegal for the IRS to seize personal property without having the matter adjudicated. Government can take property under the laws of eminent domain (although those are significantly abused), but the property owner has legal rights and can oppose the seizure. Not so with the IRS. They summarily confiscate. I have never understood why that is not unconstitutional.
- My second reform would be placing limits on interest and penalties for late- or non-payment. Very quickly, the interest – and especially the penalties can cause a person’s liability to increase exponentially to many times the original amount claimed by the IRS. I tend to favor the elimination of ALL penalties – and allow the amount owed to increase by a minimum of three percent or the rate of inflation, whichever is greater.
- Primary residence and basic household property cannot be seized. That ban against seizure would not protect valuable collections, such as valuable art, artifacts, jewelry, antiques, etc. Again, they would only be seized by court order – not the whim and will of the IRS.
- I would forbid the IRS from seizing payroll income from any person with an Adjusted Gross income of less than $25,000 per year – and limit income garnishment to no more than 10 percent for folks with an AGI of $25,001 to $150,000, and no more than 33 percent of those with an AGI over $150,000. Social Security, veteran benefits, disability compensation, etc. would be eliminated from IRS seizure.
- The IRS would be required to pay for all legal fees and other costs when they lose their case in a court of law.
- I would change the internal appeal process so that the agents who issued the order to seize property are not the same people to handle the appeal – and even handle the appeal without the taxpayer knowing it. As insane as that may sound, I know of at least one specific case in which that is exactly what happened.
- I would impose severe penalties on IRS officials who abuse their power by wrongfully seizing property for malicious purposes or use the power of the IRS to benefit family, friends or political allies or to maliciously punish people, businesses or groups.
Today, there is virtually no accountability for abusive and even criminal actions by IRS personnel. The list of reforms could go on and on – and I bet readers could offer up a few of their own recommendations.
I also understand that the scope of positive reforms is so large and complex that it will boggle the minds of many. They will dismiss any reform as a “cannot be done” situation. Folks like me, however, are not intimidated by the size or complexity of the challenge. It is better to fight for what is right rather than acquiesce to what is wrong.
America was not founded with an income tax. There is no IRS in the Constitution. In fact, we operated for 124 of our 234 years as a constitutional republic without an income tax … without withholding … without an IRS … and without tax agents with guns. And now the faint hearts and the compromised souls would have us believe we cannot live without income tax and the IRS. Unfortunately, the IRS is such an intimidating force – with such a powerful constituency – that even our elected representatives are afraid even to speak of reform of the IRS – much less elimination.
So, there ‘tis.
