Alright, how many of you out there would like to see the IRS abolished?
Right now, there’s a 130(+)-page bill proposed by Sen. Linder (R) that offers to eliminate the 55,000(+)-page current IRS code. The bill proposes that a 23% consumption tax replace the federal income tax. This means that the only tax collected by the government would be 23% on anything bought.
I’m a pretty liberal dude. I’m all about high taxation for public service and helping out those in need. I like social services. That’s why it’s kind of scary that I like this bill and may contact my Senator with an endorsement.
Before the comments begin, allow me to offer a personal experience living within a flat tax zone. For two years I lived in TN, which advertises itself as a music-loving, hippie state, so that tourists won’t realize they’re really bringing tourist dollars into a state controlled by rich, white corrupt Republicans. The first whiff of “something wrong” occurs when one of the many homeless people saunters by and emits that nasty homeless odor. Yes, no income tax in TN. A flat consumption tax in its place. I had never seen such economic disparity before, not even in the homeless pits of Fells Point, B’more, that rivaled the streets of Nashville. I saw the toll a flat tax takes on the people.
But…I saw where Linder’s new bill offers a neat household rebate equal to the sales tax on consumption of essential goods and services.
Still, the questions lingered for me. What was the U.S. like before the IRS? What would the benefits be of getting rid of the IRS now?
George Will’s recent editorial did it for me.
What do you all think?
EDIT by matthew: Linked.
My prediction
My prediction:
They go with the flat use tax.
Then they bring back income tax again.
You heard it here first.
And I’ll be moving to Canada, maybe 🙂 (JK, I love USA! I’d rather fight for right than cower from power!)
—
Matthew P. Barnson
Consumption Tax
Here’s why I can never support a consumption tax.
The less money you have overall, the greater percentage of your money is spent each month. Therefore, the poorest people will be taxed on the largest percentage of their total income. Even though I’m solidly in the lower middle class (for this area), we currently spend about 90% of our income, between the mortgage, childcare, and bills. Someone who makes, say, a million dollars a year, may only spend 10-20% of that income each year. And even though their tax bill will be higher than ours, they’re being taxed on a much smaller portion of their net worth than I am.
Therefore, the system seems to me to benefit the wealthy. Maybe I’d feel differently if I were wealthy. 🙂
— Ben
BURN!
Tee hee. Out of curi
BURN!
Tee hee. Out of curiosity, what is the “No True Scotsman” Fallacy?
Arthur Rowan Brother Katana of Reasoned Discussion Rebel Leader and Verfied Highlander for the Unitarian Jihad
Replace the federal Tax Code
One year later. I’ve been giving this subject a lot of thought. And research. After a year’s worth of reading, long discussions with actual experts, fact-finding missions and personal experiences, I’m now fully in the camp for eliminating the existing federal tax code.
I believe that eliminating the existing federal tax code and replacing it with something along the lines of a straight flat tax, with minimal gradations allotted for low-income returns, could:
-Increase the national GDP -Make up for half of the entire annual current account deficit -Reduce the size and function of the federal government -Bolster the stability of Social Security -Result in an increase of average annual personal savings amongst U.S. households -Shift resources and capital to the most efficient free-market returns without causing an immediate collapse of the U.S. housing market
I’m pretty much disgusted with the current U.S. tax code and the absurd hijacking of our economic system by special and political interests. I think the system has resulted in an extreme amount of personal and institutional waste. It doesn’t make any sense and we’re all getting hurt by it.
I’m ready for a presidential candidate to step up that would put the rewrite of the tax code high on their stump. Unfortunately, the Republicans make me ill because they’re still hung up on their attempts to engineer social values through policy (read: Gays and God).
Anyway, the IRS as it exists today needs to go down.
There Is No Right Answer
I think the media run-up surrounding the recent IRS investigation of tax preparation services demonstrates that the only intelligent life on the planet exists here at barnson.org.
Over the past week, I’ve been hearing about how the IRS sent undercover investigators into ‘large tax preparation firms’ to see if these firms properly prepared a simple return. This must have been in response to H&R Block getting sued for screwing over poor people. The IRS wants to make a case for state-by-state certification. Regardless, the IRS decided to release an insightful discovery in telling the world that only 10% of these firms were able to get the right answer.
The right answer? I could walk into an accounting firm and take 20 CPAs and have them fill out a return for the same conditions and I’d get all different answers. There is no right answer! There is only a confusing monster of a tax system with 9 million words of code. When it comes to the current federal income tax, here is the right answer:
-Having a small enough business/personal adjusted gross income that doesn’t warrant IRS interest in an audit -Filling out a return that looks good enough so that the IRS doesn’t spend time on an audit -Surviving an IRS audit -Successfully engaging the IRS National Taxpayer Advocate’s office and avoiding paying any penalties
There’s your right answer. That’s our system.
Poor people do not benefit from the existing graduated tax code. I think less than a third of the lower-income strata for which the EIC is intended is activating this credit on their return. That’s because the code is so confusing that they have to get the help of services that prey on them by processing quick, formulaic returns and by offering them ancillary investment offers.
The ‘right answer’ would look something like this:
Income: Subtract per-child deduction of $X,XXX: Adjusted Income: Multiply by XX% flat tax rate: Final tax owed:
(If Adjusted Income is below $XX,XXX, then subtract additional deduction of $X,XXX before multiplying by flat tax rate.)
You’re done.
Don’t give up the national sales tax yet
I still think a national sales tax is the way to go:
Pros- Save a lot of money in the gov’t because no need for bloated IRS
- Simple
- Oh, and simple
Cons- Poor IRS workers out of jobs, as well as H&R, Jackson-Hewitt, preparers
- Even greater impetus for a black market of goods, cash, no tax payed
As for the socialists on the site who claim that its unfair to the low income families, then graduate it:
It costs – Tax rate- $0-$1,000 – 10% sales tax
- $1,000-$10,000 – 15% sales tax
- $10,000-$100,000 – 20% sales tax
- $100,000+ – 25% sales tax
Since the wealthy have no right to their money, right?…If you can pay $100,000 for an item, you can pay $125,000 for it, no problems? 😉 I’d also say the scale would be different for personal consumption than business consumption, but then it’s getting more complex again…
What’s wrong with this?
My $.02 Weed
What’s wrong with this
The reason why a consumption task is unfair to low income families is that low and middle income people spend a far greater percentage of their income than high income people.
Someone in the middle class might make $50K a year, and might spend $30K of that each year on taxable consumables. Therefore, that guy is being taxed on 60% of his income.
Someone in the upper class might make $1 million a year, and might spend $200,000 a year on taxable consumables. Yeah, he’s paying a lot more in sales tax than the guy in the middle class, but he’s still only being taxed on 20% of his total income.
That’s the disparity caused by a consumption tax. I’m not making any values judgments, because most of the tax code is over my head, but I’m just pointing out the difficulty.
— Ben
*snort*
I just scrolled up and realized that I made this exact same argument last year. 🙂
— Ben
But
Didn’t I address that with the sliding scale of tax rate? The more expensive the item, the higher its tax rate?
That can also be adjusted for an item’s need, as well. Bread, milk, medicine, etc can have a very low tax rate. Jaguars, yachts, digital cable TV, name brand shoes, etc, can have a higher tax rate. If you’re just living, your tax is low, but if you’re living high on the hog, your pay more taxes.
And that way, if you make $1 million a year, but live frugaly, you’re not taxed disproportionately just because you managed to make a success out of yourself.
My $.02 Weed
Sliding Scale
The sliding scale helps, but I think it would have to be a huge and diverse scale in order to even up the disproportionalities, in which case we’re back to a complicated tax code.
I do, however, support a higher tax on luxury items. That makes sense.
— Ben
National Sales Tax problems
I think the main problems with a national sales tax are 1) the cost of compliance, 2) avoidance and 3) a gradation system that will unfairly impact lower-income or higher-income people.
If the present tax system costs $150B, I would love to see the monitoring and collection costs incurred by enforcing a national sales tax. This system would put the U.S. back to 1770, when the British Treasury was sending out tax collectors to every shop. Retailers currently deal with state and local tax, but the avoidance issue is why it would not decrease the overall collection cost. No one would be buying luxury items in the U.S. We’d all be driving in our newly purchased cars from Canada. ITs as a border patrol? The idea of a simpler income-tax system is to lower the absurd cost of collection.
Furthermore, I don’t like penalizing any class of citizen through taxes. By graduating a sales tax upwards, there is a penalty for having wealth. Why should wealthy people be penalized?
After Bush’s Tax Panel returned recommendations, many tax bills were floated in Congress and only one centered on a national sales tax. I think most people in government recognize that a national sales tax is not a cost-effective or fair system. Personally, I like the flat tax with minimal exemptions for low-income people because it is the system that will lower monitoring and collection costs while improving the total federal tax collection levels.
Bad editorials
I’m looking at the USA Today editorial debate which focuses on the $70B tax cut. Their lead graphic reads, “Since the 2001 Bush tax cuts, federal surpluses have turned to deficits.” ??? As if the sole reason for the deficits were the tax cuts? That logic makes zero sense.
They’re right in that the Bush tax cuts are irresponsible. These latest cuts are irresponsible because they provide a short-term plug for the AMT while favoring specific corporate interests. There is no real, long-term tax reform that renders the system more equitable and growth-oriented for the country.
On the same page the chairman of the Senate Finance Committee writes that the right kind of tax relief is to repeal the whole IRS code. No kidding! He then writes that the reason repeal is difficult right now is because it would cost $611B over 10 years. I’m not sure where he’s getting that stat. Does he mean that taking out the entire code and going to another system of taxation would cost the government $611B in lost tax receipts? That’s a pretty bold statement to make, and I’m sure there are lots of folks calling him on it personally. His office is likely going to have the phone ringing with proponents of flat tax, national sales tax, etc. challenging that assertion.
Could It Be
Could it be here he’s referring to the costs to the government to implement said changes? Redoing all the forms, training the staff, changing the online tax programs, etc, etc?
$611B seems like a lot to do that, but this is the government we’re talking about.
My $.02 Weed
“From Freedom To Fascism”
http://www.imdb.com/title/tt0772153/
I’m psyched that a mass media documentary questioning the legality of the IRS is carrying some “event” status due to the notoriety of the producer, Aaron Russo. Can’t wait to see it!
I found an interview that’s obviously released to hype the movie http://www.videosift.com/story.php?id=6927
National Payroll Week?
In yet another disgusting side effect of the tax code, I present to you National Payroll Week, founded and funded by the American Payroll Association (there’s a shock).
For those of you out there who have always wondered why all that money gets taken out of each paycheck, now is your ‘chance to celebrate.’ We should all be thankful that the IRS endorses a complicated payroll tax system that holds small businesses hostage and sustains the need for merciless automated payroll services that overcharge. I would just as soon celebrate by going to the National Archives and with an official IRS letter opener slice my stomach open and let all my gory innards slop onto the original Constitution.
Thank you tax code!
Let me write you that the absolute hardest thing I’ve had to do since starting my business was figuring out the computing, filing, depositing and reporting requirements of payroll tax. Payroll tax is EVIL. Gnarly evil. It is so evil that most small businesses are jolted into a panic state by mere mention of ‘quarterly estimated federal withholding’ and blindly turn to one of these sinister American Payroll Association providers and pay whatever is charged, even if the service costs more per employee than salary.
Last January I decided not to numbly succumb to this evilness. Once my business finally earned enough to pay me a salary, I decided I was going to avoid paying the ridiculous monthly service charge from one of these payroll services and do payroll myself. Here’s what I learned:
I think the system is idiotic, of course. I don’t want to hire anybody because payroll tax gets prohibitive. The IRS hurts small business by pushing upon them this complicated requirement. It is expensive in terms of both time and cost.
Another example of the IRS code working against US productivity.
New Tip Reporting Program
Ah yes, gentle barnson.org readers, there’s more in store from the IRS when it comes to payroll tax. In case you weren’t watching, the IRS recently expanded tip reporting for the food-and-beverage industry under what it’s calling the Attributed Tip Income Program (ATIP). You may be hearing about this new ATIP expansion because the IRS is out to get its estimated $100B annual unpaid taxes from underreported business income by going after…waiters!
I am absolutely not kidding you when I write the first ‘benefit’ of ATIP, as presented by the IRS to f-and-b employers who sign up for the ATIP reporting program:
Benefit #1: The IRS will not initiate an audit.
I would also like to present to you the first two ‘benefits’ of ATIP, as presented by the IRS to f-and-b employees who sign up for the ATIP reporting program:
Benefit #1: Don’t worry about keeping a daily tip log or other tip records. Benefit #2: The IRS will not initiate an audit.
Gee, you fun, jolly tax people out there in IRS world sure know how to get me excited about your little ATIP program! Since employers who join ATIP base tip reporting on a formula using a percentage of gross tips (“generally attributed among participating employees based on the practices of the restaurant”) here’s what I would do. As a restaurant employer who just loves spending entire weekends dedicated to figuring out payroll, and who just loves the idea of selling out my beloved employees to the IRS, I would be the first person in line at the ‘ole ATIP, and would explain to the government how my employees live in a world where people don’t tip. We get no tips. It’s awful. We’re waiting for the tippers to show up. Now, under the rules, you said you wouldn’t initiate an audit. Thanks for stopping by. Before you leave, never to return again, how ’bout we whip up some nice fresh e-coli salad for you?
I think back to when I waited tables as a kid. I don’t recall getting home each day and thinking to myself, “I have all this cash earned from waiting tables, but have such a hard time keeping daily tally using such complicated devices as pencil and paper, and also feel some of this money would be better spent on broken systems such as Social Security. I should call the IRS right now.” Probably not a bad idea. Forget this ATIP system. Every waiter and tip-reliant service professional out there call up the IRS each day to report your earnings. See how they like that. Especially dancers at a gentleman’s club. There’s the real market for underreporting income.
I hope an IRS official scouring the net in the interest of pulsing ATIP public reaction finds this blog entry, so that official can read my seething hatred for their body of work, and also see how I was just kidding above about not reporting any tip income. I’ve reported every cent I’ve ever made to you. Really. Try the salad.
The reality is this ATIP ‘expansion’ likely has a deeper, sinister purpose. It’s likely a front to go after illegal immigrants working in restaurant kitchens and getting paid cash.
Gotta be…
I have to agree with your assessment. That has to be the reason, because if they were really interested in getting more money, they’d start closing the loopholes that allow companies like the one I work for to effectively pay ZERO tax per year on revenue of tens of billions…
—
Matthew P. Barnson
Harumph
This is yet another indication that the current administration does NOT care about “the little guy”.
Closing the corporate loopholes (i.e. for corporations whose “head office” is a PO Box in the Caymans) would be easier and would be much more lucrative.
— Ben
Your Wish Shall Be Granted
http://levin.senate.gov/newsroom/supporting/2007/PSI.OffshoreTaxBill.021707.pdf
WASHINGTON – Today, citing $100 billion in revenue drained from the U.S. Treasury at the expense of honest, hardworking American families who pay their fair share, Sen. Carl Levin, D-Mich., Sen. Norm Coleman, R-Minn., and Sen. Barack Obama, D-Ill., introduced comprehensive legislation to stop offshore tax haven and tax shelter abuses.
For more than four years, Levin and Coleman, the Chairman and senior Republican of the Permanent Subcommittee on Investigations, have led an in-depth Subcommittee investigation into offshore tax havens, abusive tax shelters, and the professionals who design, market, and implement these tax dodges. Experts have estimated that the total loss to the Treasury from offshore tax evasion alone approaches $100 billion per year, including $40 to $70 billion from individuals and another $30 billion from corporations engaging in offshore tax evasion.
Yay!
That’s fantastic!
— Ben
To Be Fair
To be fair, and to look like someone interested in the system moving forward, and not just complaining all the time, I feel it necessary to report some progress on simplifying tax liability processing for businesses.
Since that writing, I’ve discovered I could request free tutorial videos from the IRS. Also, I’ve ordered a free Small Business Tax Calendar which labels all important dates regarding tax obligations. Finally, and most importantly, the IRS offers a free weekly ‘e-News for Small Businesses’ digital newsletter with good info.
Also, the IRS and Illinois have partnered in the first one-stop electronic filing location for combined federal-state filing. That’s pretty neat if it goes national.
This doesn’t change the fact the entire system is ridiculous, but at least there’s some progress.