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  • The IRS: End It, Don’t Mend It

    Posted by Lexington Green on May 22nd, 2013 (All posts by )

    America 3.0 will not have Federal income tax. Or so we hope.

    The recent disclosures regarding the despicable malfeasance of the Internal Revenue Service provide support for a specific argument we make in America 3.0.

    In a recent WSJ article entitled A Brief History of IRS Political Targeting, James Bovard provides a damning quote the book A Law Unto Itself: The IRS and the Abuse of Power (1990) “In almost every administration since the IRS’s inception the information and power of the tax agency have been mobilized for explicitly political purposes.”

    The assertion that IRS employees in Cincinnati embarked on a localized rogue operation was preposterous on its face. The IRS employees did what their bosses told them to do. There is no incentive for a low level bureaucrat to do anything innovative and spontaneous, ever, for any reason. This case is no exception.

    The problem here is not personnel. It is not whether the directive to harass Tea Party groups originated in the White House. It is not whether firing someone as a ritual sacrifice will assuage the public.

    It is much bigger than that.

    The IRS is structurally and inevitably a pathological organization that is destructive of our liberty. The people who work there, without regard to their personal morals, face pernicious incentives. That is one of the most poisonous things about bureaucracy. Ordinary, decent people end up participating in destructive policies and processes with no personal malice and even with little or no personal fault.

    The power the IRS possesses, like every power granted to government, will be abused. And the IRS possesses enormous power, and the temptation to abuse that power will prevail, inevitably and frequently and destructively.

    That is why, in our book, we argue for the abolition of the IRS.

    The information routinely gathered by the IRS on law-abiding citizens is abusive and out of step with liberty and privacy. The routine gathering of personal information on every taxpayer is an affront to the letter and spirit of the Fourth Amendment. Yet we have come to accept this as normal and tolerable.

    It isn’t, and we shouldn’t.

    The required disclosure of personal economic information required in filing tax forms constitutes perhaps the largest single invasion of civil liberties in America, violating the spirit of the Fourth Amendment’s guarantee against search and seizure of personal information without a judicial warrant. … Ending income taxation will end this circumvention of the Bill of Rights, one which has been used again and again to political advantage by unscrupulous presidential administrations.

    Repealing the 16th Amendment, ending the income tax, and abolishing the IRS are indeed ambitious goals. At the moment, they appear to be impossible goals. Americans are not yet ready to think this big. But these are goals worth pursuing, and what is possible is not set in stone. Today’s impossible can become tomorrow’s inevitable.

    Destroying the files of the Internal Revenue Service would be the largest restoration of privacy since the destruction of the records of the East German Stasi and other Eastern European secret police services, possibly more so since the Stasi spied only on part of its population but the IRS is interested in everyone who makes any money at all.

    Replacing the existing code with a VAT or sales tax would require different rules and procedures, and eliminating the existing IRS and creating a new organization from scratch would be a step in the right direction.

    We should begin thinking and planning today for a successor method of Federal taxation, and a new organization with no track record to fund the smaller, more focused, more transparent federal government we will need for the 21st Century, the era of America 3.0.

     

    14 Responses to “The IRS: End It, Don’t Mend It”

    1. ErisGuy Says:

      No VAT either. The EU and Canada show how easily it is to abuse it.

      Eliminating the IRS won’t be enough: lustration. No employee, administrator, manager or director of the IRS is to be employed by the federal government in any capacity, elected, appointed, or consultive for the remainder of that person’s life. (Too harsh? It’s better than the justice of the guillotine, which is what is deserved.)

      And to think I’ve been called names beyond measure for demanding the abolition of the IRS for forty years. The Constitution, until it was amended, was correct: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”

      In a society of equal citizens the only possible tax is a head tax, falling equally upon all citizens.

    2. TMLutas Says:

      Let’s start with some questions. Nobody reasonable thinks questions are extreme.

      Since the 16th amendment was passed, what percentage of presidents abused the powers of the IRS? How high a percentage does it have to reach before it is right and proper to say that this is endemic and not readily reformable with the best way to fix it being to end the income tax?

      I suspect a working majority of the people don’t know an answer to the first question and would answer a lower percentage than the well established historical figure. I wouldn’t be surprised if IRS workers would answer a lower percentage than the historical figure.

    3. Tom Holsinger Says:

      IMO we will replace the personal income tax with a VAT. The latter can’t be used to abuse individuals.

    4. Mrs. Davis Says:

      VAT is subject to abuse by legislators. What is needed is a sales tax with no tax exempt organizations. None. 46 states already have the mechanisms established to collect the tax. The other 4 can either set one up or let the Feds do so. The problem with the sales tax, which would need to be in the neighborhood of 20%, is that it is regressive. How we distribute the welfare to those needy will be the difficulty in the absence of W-2′s.

    5. Lexington Green Says:

      We could have a VAT or a sales tax. There are problems with either There might be a flat tax on very high incomes. If people needed to show need to get benefits, it would be up to them to provide proof of their financial condition, and forms would be made available for that. The point is to simplify and end the “lidless eye” scrutiny everyone is subject who has to pay income tax.

    6. Jonathan Says:

      Sales tax, plus one welfare-state payment or negative income tax to cover food, medical, housing for people who quality on account of low income. You would only have to file if you wanted the subsidy. Everybody else could stay out of the system.

      VAT’s tricky because it’s hidden in retail prices and it’s always tempting for pols to raise the rate. A sales tax is transparent and the pain from increasing the rate is immediate.

    7. Mrs. Davis Says:

      Any system that relies on the supplicant to provide evidence of need will be wide open to fraud. How will the granting body know all relevant information has been provided absent a lidless eye to know everyone’s income by recording every payment? Objectively and consistently determining need, even in a small rural township would be a herculean task in the absence of the W-2 and 1099. This will be the greatest hurdle those who wish to abolish the IRS must overcome.

    8. Jonathan Says:

      It’s a difficult problem.

    9. Mrs. Davis Says:

      It is the entitlements problem approached from the other direction. I look forward to finding out how we will deal with it in rev 3.0.

    10. carl from chicago Says:

      I used to write a lot about tax related issues here at Chicago Boyz but it has gotten so depressing that I hate to even bring it up.

      Obama finally figured out that he can incent through the tax code and now there are insane layers upon layers and brief short term incentives (no depreciation on capital with immediate write off!) which skew things even further.

      Also now the social security / medicare system is pretty much acknowledged to be a pay as you go scheme – probably the biggest accomplishment of Obama’s presidency.

      Our corporate taxes are a disaster. Short of the government sending me a letter demanding that I move overseas there are literally no more perverse incentives in the world. The software / medical businesses can use complex schemes to defer / avoid but harder for the rest of America that tries to do business here.

      States are some going the right way (red states) and mostly going the wrong way (blue states).

      Don’t even get me started on “sin” taxes – we have a giant bootlegging industry here in Chicago due to the insane taxes on cigs.

      Plus now people are going to natural gas cars mostly because they avoid the levy that we put on gasoline. I don’t even know what we are trying to incent anymore.

      I guess I need to buckle down and write something to throw my 2 cents in there. But it has gone from bad to worse to a debacle. Complexity on top of madness.

    11. Mike K Says:

      Carl, I am reading Kevin Williamson’s new book, The End is Near, and will report when I finish. His theme is that complexity theory will require that government collapse. It’s on top of my stack ahead of America 3.0. Sorry. Maybe they are complementary.

      It’s similar to my thoughts on climate matters.

      I have three smart kids who support Obama and I am puzzled by it. Two are lawyers and that may explain it. My oldest son has a competition thing with me and that’s related, I think. He’s almost 50 years old. I just don’t get it.

    12. Robert Schwartz Says:

      Sorry folks. Abolition of the IRS is a fantasy.

      Let us suppose that I ran the circus (the US Government). Clearly, getting the financial house of cards in order would be my first order of business. The only way to do that is to shut down the unconstitutional departments (Education, HHS, HUD, CPB) and brutally cut back the rest. Even if we did that The Federal Government would still need to raise enough money to run the Defense Department, the State Department, DoJ, and some of the other miscellany that are within the constitutional scope of its activities.

      Those functions would need about 5% of current GDP (4% for defense and 1% for everything else including the pensions of the hundreds of thousands of federal employees we just laid off).

      Further, we would need to deal with at least two types of debt overhang. The first is the conventional bonded indebtedness of the federal government (not including the amount owed to Social Security that is a different and bigger problem) including, however, the outstanding bonds and guarantees of Fannie Mae and Freddie Mac, which have been improperly excluded from the Federal Budget and the debt limit. The net is about 100% of GDP.

      Amortizing that debt over 30 years would require about 5.1% of GDP. We could be honest and pay it. Or we could expressly default on it, or implicitly default on it by paying it off in hyper-inflated dollars. I believe that Hamilton was right and the best thing to do is to pay our debts in honest currency. But, do not for a second believe the Administration’s bu11$#;+ that the US has never defaulted. FDR paid off the WWI debt in debased non convertible money that represented a 43% haircut for creditors.

      So far just these two items would require the Federal Government to collect about 10% of the GDP in tax revenues. That is more than it collects from the individual income tax.

      The second debt is is not legally a debt, but there would be millions of pissed-off voters if it were not paid in full, and that is social security and medicare benefits. It is not a debt because the courts have held that Congress can change or remove benefits at any time. None the less, there is no way that current vested benefits could be eliminated without serious upset. Paying them takes about 8% of GDP.

      We are therefore at 18% of GDP even after we have eliminated a huge chunk of the monster. We will have to pay taxes to take care of it and stiff taxes at that somebody will have to collect the taxes. That somebody will be as thoroughly detested as the IRS currently is.

    13. Mrs. Davis Says:

      Who detests the agency in your state that collects sales taxes? Do you know its name?

    14. Robert Schwartz Says:

      Mrs. Davis: The Census Bureau says that the States collected 243G$ in sales taxes in 2012.

      http://factfinder2.census.gov/bkmk/table/1.0/en/STC/2012/STC001

      The GDP is around 16,000 G$. So State Sales Taxes are about 1.5% of GDP.

      Not only that, but State Sales Taxes are easily avoided via inter-state travel and internet sales.

      To cover a substantial portion of the Federal burden, a sales tax would have to be 10X current levels of taxation. Not only that but fiddles and walk arounds must be eliminated.

      Tax payers will be pissed off at the revenue collectors and evasion will be a national sport.

      Any tax system that collects 18% of GDP will produce bruises.