How to eliminate the IRS

(As published in two parts in the Leavenworth Times, June 6 and 11, 2013)

Can you imagine life without the IRS?  No federal income tax, for example.  If you’re one of the shrinking bunch who actually works for a living, you would get to take home all the money you earn (except for state & local taxes; we wouldn’t have the payroll tax — the bite for Medicare & Social Security.)   You wouldn’t have that complicated tax form to file.  You wouldn’t have to worry about deductions.

More benefits: the government would have one less huge weapon to use against its political opponents.   No more tax audits.  There would be no more need to classify organizations as profit or non-profit.  There would be no leftist ranting about how the rich need their taxes raised, or how “unfair” the tax code is.   The government wouldn’t have to know how much you earn, or what deductions you take.

People would be a great deal more honest – no need to cheat.  Even Congress would get more work done, because they wouldn’t have to keep modifying the tens of thousands of pages in the tax code.

Businesses would have much less regulation to worry about.

Of course, every silver cloud has a dark lining: there would be fewer lawyers, accountants, and tax services making a living by charging money to fill out your tax forms.  But I can live with that.

Here’s how: there are various versions, but this is the one which has been most seriously analyzed: (link): The Fair Tax.  It really is fair to tax spending, if necessities aren’t taxed.  Rich people spend much more than the truly poor, so they would pay the bulk of the taxes.  Here’s an intelligent analysis of it from 2008, when Mike Huckabee advocated it (he still does.)

(link):Huckabee’s fair tax plan is brilliant.

If it came into existence, the Fair Tax would seem tough at first, but the economy would adjust.  People would get used to it.

The alternative plan which many favor is the flat tax – which is still an income tax, but is much simpler.  That’s a different discussion.  I’m for that too, if it comes with a VAT tax, because I believe that taxing consumption (commonly known as spending) is the only fair way to tax.

There are cons as well as pros to the Fair Tax plan; here’s a (link):Analysis of the Fair Tax which lays out the pros and cons very well.

I personally don’t like some details of the plan.  I don’t like the idea of paying poor people a “prebate” to cover necessities.  The government should never pay people for anything.  It’s a license to steal.  The plan says, the sales tax would not apply to imports, goods used by businesses to produce other goods, or used goods.  I’m iffy about exempting business.  It should apply to imports, high-ticket used goods, and perhaps businesses should not have to pay it for their purchases.  I’ll discuss my reservations and the changes I’d make in the next post.

The IRS has become a weapon of the Obama administration, and is feared by its political opponents.  But even the left should like to see it eliminated, if nothing else because Republicans may win the White House some day, and what goes around, comes around.  When the Republican IRS goes into action, who knows what rocks they’ll turn over when they investigate the heck out of Democrats?  Let’s make government impartial again, or better yet, eliminate the IRS altogether.

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How I would change the Fair Tax Plan

In my previous post, “How to get rid of the IRS”, I referred to the Fair Tax plan.  The bill,  Link to HR 25, Fair Tax Act of 2013 has about 64 sponsors in the House, is stalled in the House Ways and Means committee, won’t pass.  Possible reason: it has some provisions I consider hokey or scary, and maybe others do as well.  I’d like to offer some changes which I think would simplify the Fair Tax and make it more workable.  Maybe if you read further, you will agree with me.

We need tax reform.  The IRS has become the political arm of the Democrat Party, harassing conservative donors (to Romney, last election) and organizations.  Even if they straighten out and regain impartiality, the tax system has become onerous.  There are several proposals for reform, all involving drastic simplification.  The flat tax, for example, would eliminate most deductions and hit the earner’s income with only one or two rates.  But the simplest tax possible is a tax on consumption rather than earnings.  The Fair Tax Plan is a package based on a tax on sales.

Features of the Fair Tax Plan (HR 25) as proposed:

   1. Sales tax of 23% eliminates all federal taxes on income.  The rate is a combination of the lowest tax rate on income now (15%) and the FICA tax (7.65%).

   2. Everyone receives a prebate, paid to the taxpayer family by the federal government, of the spending allowance times 23%, paid monthly.  Prebate explained.

   3. Imported goods will be taxed.

   4.  Services will be taxed.  The guy who mows your yard will add the Fair Tax to his bill.

   5.  Used goods will not be taxed.

   6.  Businesses may purchase goods and services without paying the tax.  This will lower their cost of goods sold and the price charged to the consumer.

7.  The 16th Amendment to the Constitution would need to be repealed, so that the government could no longer level taxes on income.  We don’t want to end up with both.

These features are thoroughly discussed in the Frequently asked questions (FAQ).

Here are my thoughts on the features:

   1.  Big ticket items, such as homes and cars, would be much more expensive.  I think anything that comes with a deed or title should have a maximum tax of 5  to 10 percent, and I’d prefer 5%.

   2.  I don’t like the prebate idea at all.  I don’t think the government needs to pay anyone anything.  People below the poverty line could just have slightly improved income.  They will still have food stamps, housing support, etc.  The prebate is a really bad idea.

   3.  Don’t charge tax on rent.

4.  Allow the tax on real estate or other big ticket items to be financed with the mortgage.

5.  I believe the 23% rate is too high.  I think it should be a few points lower.  Don’t forget, the advocates of the Fair Tax (rightfully) claim the economy would run much better under Fair Tax.  Many more people would be paying the tax.

6.  I would tax resale of used big ticket items – again, anything with a deed or title – at the 5 to 10% rate I previously advocated.

7.  I would treat businesses a bit differently.  If they manufacture, I wouldn’t tax their raw materials, but everything else they buy should be taxed, in my humble opinion.  There may be good arguments for letting them pay no tax on anything, but that just provides a way to cheat the system.  Everyone would incorporate.  It’s much simpler to let them be tax free on raw materials only.

8.  I think you’d have to have very severe penalties for cheating the tax, particularly on corporations.

I think the results of implementing the Fair Tax would be awesome, particularly if my changes were incorporated.  By awesome, I mean awesomely good, not awesomely bad as in the present system.

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