Curtailing and Limiting the IRS

Bureaucracies thrive on complexity.  For the IRS that means the more complicated the tax code, the bigger the IRS has to become.  With the addition of the responsibility of enforcing the new Obamacare regulations, we can expect the IRS to thrive and grow into a massive bureaucracy with the ability to threaten everyone’s freedom.  The recent scandals involving the IRS illustrate just how intrusive the IRS could become. 

In light of these scandals, many are asking for the curtailment or even the elimination of the IRS.  There are tax proposals in existence that would either curtail the IRS or possibly even eliminate it all together.  Let us take a moment to look at these proposals. 

The Fair Tax is a national sales tax that has a progressive prebate offering relief to lower income individuals and families.  (1) The prebate works by giving every individual a monthly check designed to in part relieve poverty-level Americans.  (2) The check amount is based on the number of adults and children in the household and not ones income.  Granted both the rich and poor will receive the same amount but the check will be more beneficial to those with lower incomes. (3)

The Fair Tax eliminates all federal withholding and payroll taxes, which mean individuals, will get to keep all of the paycheck.  It also eliminates the corporate income tax so companies will be able to lower prices to absorb some of the increase in prices due to the addition of the federal sales tax.  (1)

Since individuals and companies will no longer be required to file an annual tax return, there will be no need for an IRS.  The states will collect the sales taxes through state and local governments systems currently used to collect state sales taxes.  The federal government will reimburse the states for the additional administrative costs. (1)

The Flat Tax is a proposal that has been in existence since 1994.  Even though it failed in the U.S. Congress, more than a dozen countries have adopted a flat tax since 1994.  (4) Opponents of the Flat Tax claim that it unfairly punishes the poor since everyone will pay the same rate.  However, the flat tax also features a generous family-based allowance.  For example, the first $30,000 of income would be tax-free for a family of four.  A family of four making less than $30,000 would pay no income tax.  A family of four making $50,000 would only pay tax on $20,000 ($50,000 - $30,000).  Someone making a million dollars a year would pay tax on $970,000. (4) The flat tax also preserves the Earned Income Tax Credit, which further benefits the poor who have become dependent on these credits.  (5)

The flat tax does not eliminate the IRS but it does greatly simplify the filing of taxes so we could reduce the size of the IRS bureaucracy.  It also takes the guesswork out of predicting tax liability.  Companies would know how much of the profit they make on the sales of their products are for tax, making it easier for them to predict how much money they can use for business expansion and growth.  In other words, the flat tax would encourage economic growth and job creation. 

Finally, we have the “9, 9, 9” plan offered by Presidential candidate Herman Cain during the 2012 Republican Debates.  The plan features a 9 percent flat income tax on individuals, a 9 percent flat corporate tax, and a 9 percent sales tax. (6) The plan never received much attention because the campaign of Herman Cain was short-lived. 

The plan intrigued many, including myself, but after thinking about it, I determined it had many flaws.  First, it introduces a new national sales tax on top of the existing income tax.  Granted, the plan simplifies the income tax to a flat rate for both individuals and businesses but there are no guarantees that the rate will stay at 9 percent.  A liberal congress and administration could raise the rates, placing a heavy tax burden on citizens and businesses. 

The current scandals involving the IRS emphasize the need for the curtailment and eventual elimination of the IRS.  The quick implementation of a flat tax will simplify the tax code and begin curtailing the IRS.  Following this with the repeal of the 16^th amendment and implementation of the Fair Tax will eliminate the IRS.  In my next posting we will look at the obstacles we will likely encounter in our mission to simplify our tax code. 

1. Fairtax.org. The Fair Tax Plan Your Money, Your Decision. www.fairtax.org. [Online] Fairtax.org, 2013. [Cited: June 4, 2013.] http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWorks.

2. Mangan, Holly. What Is the Fair Tax Act Explained – Pros and Cons. www.moneycrashers.com. [Online] Money Crashers. [Cited: June 4, 2013.] http://www.moneycrashers.com/fair-tax-act-explained-pros-cons/.

3. Fairtax.org. Frequently Asked Questions - Answers. www.fairtax.org. [Online] Fairtax.org, 2013. [Cited: June 4, 2013.] http://www.fairtax.org/site/PageServer?pagename=about_faq_answers.

4. Mitchell, Daniel J. The Global Flat Tax Revolution. www.cato.org. [Online] CATO Institute, July/August 2007. [Cited: June 4, 2013.] http://www.cato.org/policy-report/julyaugust-2007/global-flat-tax-revolution.

5. The Heritage Foundation. THE NEW FLAT TAX: Encourages Growth and Job Creation. www.heritage.org. [Online] The Heritage Foundation, Jaunary 19, 2012. [Cited: June 4, 2013.] http://www.heritage.org/research/factsheets/2012/01/the-new-flat-tax-encourages-growth-and-job-creation.

6. Clancy, Dean. Herman Cain's "999 Plan": The Good, the Bad, and the Ugly. www.freedomworks.org. [Online] Freedom Works, October 6, 2011. [Cited: June 4, 2013.] http://www.freedomworks.org/blog/dean-clancy/herman-cains-999-plan-the-good-the-bad-and-the-ugl.