I used to think…
…that folks who thought we should abolish the IRS and simplify the tax code were wacko.
Now they make a lot of sense to me, particularly Ted Cruz:
Now that Republicans control Congress, Cruz said the party must seize on the opportunity to simplify the tax code and make it fairer.
“The last two years have fundamentally changed the dynamics of this debate [on the tax code],” he said. “As we have seen the weaponization of the IRS, as we have seen the Obama administration using the IRS in a partisan manner to punish its political enemies.”
The problem is always: what is “fair”? Flat tax?:
“We ought to abolish the IRS and instead move to a simple flat tax, where the average American can fill out our taxes on a postcard,” he said last week on Fox News. “Put down how much you earned, put down a deduction for charitable contributions, for home mortgage and how much you owe. It ought to be just a simple one-page postcard, and take the agents, the bureaucracy out of Washington and limit the power of government.”
Frazier said Cruz views the FairTax as “ideal” but embraces the flat tax as the more “realistic” option politically.
Cruz’s crusade echoes those of other politicians.
Billionaire businessman Steve Forbes built his 2000 presidential bid around a flat tax. Rick Perry advocated a flat tax when he ran for president last year. Dick Armey, the former House majority leader from suburban Dallas, has long pushed a flat tax, as does FreedomWorks, the tea party group he founded.
I don’t think any of these proposals would actually eliminate the IRS, however; the honor system for reporting and collecting wouldn’t work. But it would certainly make the IRS into a token shadow of its former bullying and behemoth self.
Among the 300+ drafts I have for posts unwritten-as-yet but nevertheless researched is a lengthy one on the battles involved in the original passage of the progressive income tax. It was fascinating to see that all the arguments that people have today on the subject were already present back then.
Here’s one tiny example, from a 1906 speech by Teddy Roosevelt (at the time he was proposing a progressive inheritance tax):
It is important to this people to grapple with the problems connected with the amassing of enormous fortunes, and the use of those fortunes, both corporate and individual, in business. We should discriminate in the sharpest way between fortunes well-won and fortunes ill-won; between those gained as an incident to performing great services to the community as a whole, and those gained in evil fashion by keeping just within the limits of mere law-honesty.
Of course no amount of charity in spending such fortunes in any way compensates for misconduct in making them. As a matter of personal conviction, and without pretending to discuss the details or formulate the system, I feel that we shall ultimately have to consider the adoption of some such scheme as that of a progressive tax on all fortunes, beyond a certain amount either given in life or devised or bequeathed upon death to any individual ”” a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual; the tax, of course, to be imposed by the National and not the State Government.
Such taxation should, of course, be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits.
In 1907 he added a progressive income tax, and justified it with some rather fancy tap-dancing:
A heavy progressive tax upon a very large fortune is in no way such a tax upon thrift or industry as a like would be on a small fortune. No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax; and as an incident to its function of revenue raising, such a tax would help to preserve a measurable equality of opportunity for the people of the generations growing to manhood. We have not the slightest sympathy with that socialistic idea which would try to put laziness, thriftlessness and inefficiency on a par with industry, thrift and efficiency; which would strive to break up not merely private property, but what is far more important, the home, the chief prop upon which our whole civilization stands. Such a theory, if ever adopted, would mean the ruin of the entire country–a ruin which would bear heaviest upon the weakest, upon those least able to shift for themselves. But proposals for legislation such as this herein advocated are directly opposed to this class of socialistic theories. Our aim is to recognize what Lincoln pointed out: The fact that there are some respects in which men are obviously not equal; but also to insist that there should be an equality of self-respect and of mutual respect, an equality of rights before the law, and at least an approximate equality in the conditions under which each man obtains the chance to show the stuff that is in him when compared to his fellows.
It is instructive to remember that the federal income tax needed a constitutional amendment to be passed. There was a reason such a tax had been prohibited by the Founders; they had figured out some problems with them:
Direct taxes were viewed by the Founding Fathers as a dangerous tax because they give government great power over its citizens and also because, in order to assess such taxes, agents must have the authority to snoop into the private details of the daily lives of the citizens. They agreed, therefore, that direct taxes are safer if administered by the states, where elected representatives are closer to the people and easier to control. Indirect taxes, on the other hand, were viewed as less dangerous, because people could avoid them, if they wanted, merely by not purchasing the items being taxed. This assumes the establishment of taxes only on those items that are considered nonessential, such as liquor and tobacco, often called luxury taxes. Furthermore, the process of collecting indirect taxes does not endanger the individual’s right of privacy. For these reasons, the delegates agreed that indirect taxes are more appropriate for the federal government.
The Sixteenth Amendment was adopted in 1913, overriding such concerns (go to the link to read more about the history of how it came to be passed):
The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on the United States Census. This amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in the court case of Pollock v. Farmers’ Loan & Trust Co. (1895).
And here we are today.
I’m all for repealing the 16th amendment and replacing it with a national sales tax for all the reasons cited. There’s also another one not cited which is the “47%” problem. Too many people think that they are getting “free” stuff from the federal government when in fact it’s not, and now they would have to pay for what they’re getting and see what it actually costs. The argument that it’s unfair to the poor doesn’t cut it either since they already pay State sales taxes.
A good way to get this started would be to end all Federal witholding including Social Security and Medicare. People should have all that money in their hands and see what they are really paying for government.
It is so basic as to sound silly, but to punish success by progressive taxes is counterproductive.
Too many politicos campaign on ending war, how about the “War on Poverty”? We have wasted Trillions of dollars, and have more “poor” than ever. Many of them are multi-generational. Their offspring don’t stand a chance.
Let’s try something radical, severely limit the size and scope of government on all levels, and watch our country soar.
I strongly support a consumption based tax; and only to a slightly less extent a flat tax on income.
Neither will ever come to pass for the simple reason that too many rice bowls would be broken. Tax lawyers, accountants, real estate brokers, and others in industries that are sell tax shelters, for starters. Those who receive the tax breaks in the system, naturally; and it isn’t just the 47% by any means. Then, consider the power that the present abomination gives to Politicians who can reward favored groups and punish others.
The tax code is just like every other program conceived by government, except prohibition; you just cannot kill it.
Not a chance.
Ted is right. He really might be the only chance America comes out of this mess, but they will portray him as crazy (as they have been doing already..look up Chris Matthews- McCarthyism) If something isn’t done….SOON…we will be slaves forever to Big Government.
I’ll all for simplifying the tax code, but I just don’t think either a national sales tax or a flat tax on income would be fair to those at the lower end of the income scale. For example, if there were a 23% national sales tax (which FairTax proposes), a person buying a $10,000 car would have to pay an additional $2,300 in tax — that’s a hefty chunk of money for someone making, say, $50,000 a year.
The same with a flat tax. Someone making $100,000 would pay a tax of $15,000 with a flat tax rate of 15%, while someone making $50,000 would pay a tax of $7,500. I’d say that amount would be felt much more deeply by that person than the $15,000 paid by the person making $100,000.
oops — that should be “I’m all for…”
It is really amazing how many smart people just don’t get the fact that bad ideas, once enacted in any government of any size, are hardly ever undone. I include Ted Cruz, whom I greatly admire, in this crowd.
Prohibition was the rare thing undone. “Progressive” taxation (odd coincidence, that “Progressive”) based on income has been with us for 100 years. It has become a critical part of Leviathan. It is here forever. It was sold to America the same way the AMT was sold, the same way the Obama/Eliza. Warren crowd beats up on the “one per-cent”—all with suck-’em-in lies.
Yeah, we’ll tweak it this way and that way. But replace it? With something simple, straightforward and not “Progressive”? Put all those good, honest IRS people and about a million CPAs and tax attorneys and H+R Blocks out of work?! Tax “return” (another ironic word use) preparation costs many billions yearly.
Ain’t gonna happen.
Reform the IRS? reform US federal taxes?
It just will not happen. As with anything else coming out of or going into Washington there are too many invested parties to allow sweeping changes.
But, if we were to fix the tax system I’d be in favor of everyone pays the same percent on earned income. No exceptions, no deductions, no loopholes. Everyone pays the same percent. period.
Yea, sure 10% of billionaire’s tax wouldn’t “hurt” him as much as 10% of the lower income person. But, since when is tax suppose to hurt or not hurt someone? (of course, dear Barry says that at some point you’ve earned enough and most likely believes in taking anything else above that amount – liberals pat themselves on their own backs for being so “sophisticated”; while the rest of us call them what are: thieves!)
One could make the argument that those on the lower social/economic scale use more government services than the wealthy; so, why shouldn’t they pay more for those services since they benefit from it most? And the wealthy tend to use less government services so maybe they should pay less? See, I could argue either way – so a simple everyone pays the same percent is (in my mind anyway) the most “fair.”
Further, no one, and I mean NO ONE, should be exempt from paying taxes. Stop this nonsense of the “poor” are too poor to pay taxes. Maybe, if they also had to pay taxes and have those taxes go up when they vote for TaxAndSpend politicians they would be more cautious about their voting habits. In other words they need to see (and feel!) the results of their voting for the TaxAndSpend crowd.
Some years I work in my home state and other years I do work in a neighboring state. While I have managed to get all three forms (home state, neighboring state, and federal) done; it is a major headache.
And this year they are adding the Obamacare fines to your tax form. And if you are one of those who signed up for Obamacare you now have an additional form(s) to be filled out. And another form to be filled out if you qualify for an exemption.
So, not only are there lobby groups invested in a complex tax system; the Washington bureaucrats won’t support change either – they love those forms!
from the time I started my comment to the time I posted, interrupted a while, Oldflyer basically beat me to it. Amen, Oldflyer!
And already we have someone worried about the problem of “fairness.” Define “fair” as applied to tax policy, please, Ann. Sounds like you’re awfully close to “from each according to his ability, to each according to his need.”
Even a flat percentage tax on income won’t get rid of the IRS. What about businesses. Someone has to go over the expenses, etc. If not some form of IRS, who? I don’t like the Cruz manner of making things sound simple, like getting rid of IRS. Someone has to collect the taxes for heaven’s sake.
It’s like critics of the FDA. Yes, it is a horrible bureaucracy, but I really don’t want to fear buying aspirin because they might come from a company in China that has bribed their inspectors. What we really need are heads of these departments who can get rid of the unnecessary regulations and the subordinants who like to make things more complicated than necessary.
The IRS has been weaponized and politicized. In the name of balance, Congress should pass a law exempting gun owners and Republicans from Federal income taxes. I’m at least half-serious.
Ah, the good old days, when taxes on alcohol made up a big part of federal revenue.
Then as a corollary to meddling into the personal lives of human beings, trying to perfect human existence, further oppression was needed to make up for the lost money.
Voila! The fraternal twins were born, prohibition and income taxes. Or was it triplets: prohibition, income tax, and the lawlessness which is always a component of “progressives” imposing more law on human existence?
Just as we are still working out the consequences of slavery, we are working out the consequences of other forms of government oppression.
This is how Ted wins.
Think of the compliance costs of the IRC. Every time I see that H & R Block commercial I want to hurl.
And the lobbyists live on the Code. They feed Congress donations to keep or get their carve outs.
We know felons in jail and illegal aliens collect billions on fake refunds.
A flat and simple income tax would revolutionize America.
I favor a flat tax of 5%. Everything is income, including welfare. Abolish the capital gains tax and treat gains as income taxed at 5%. Capital would flow into the country. Recovery summer could actually happen.
A person’s vote within any given jurisdiction should be directly proportional to how much they paid in taxes on income earned in the private sector. I do not think government workers should be allowed to vote for candidates who promise them wage increases.
Ann, the Fair Tax proposals include an allowance for the poorest to equalize the relative burden on different income levels. My apologies, if someone already explained this in a comment while I was writing mine.
The Fair Tax is a VAT except it is out in the open. The VAT is much harder to dodge and it increases the cost of everything without fail. Go to a country like Canada, Australia, or New Zealand where they have a VAT. Prices are far higher than here. I live 40 minutes south of the Canadian border. The stores here are full of Canucks doing their shopping and buying gasoline. Even when they have to pay tariffs on their purchases it’s cheaper for them.
The Fair Tax sounds good on the surface, but it would be a big drag on all big ticket purchases – cars, houses, boats, airplanes, travel, etc. It would be a drag on the economy worse than all the over-regulation the progs favor. It would also create a black market in small ticket items that can be sold out of the back of a van. I know it all sounds good to the people that are pushing it because it would GET RID OFTHE IRS, their number one big issue. But, IMO, they have not examined human behavior as relates to taxes.
The very best we can hope for is a flatter, (3 brackets – 5-10-15%) simpler (fewer deductions, credits, and loopholes) tax on income.
Taxes on businesses and corporations are a bit of a joke. The businesses and corporations don’t pay taxes, their customers pay them. I would reduce the business/corporate tax to 10% – an amount that requires them to do some honest accounting, but doesn’t affect their plans or behavior that much.
Flatter, simpler, individual taxes and lower business/corporate taxes is the best we can hope for. And it can’t be done all at once. It will take a series of steps to get to the optimum level.
Of the various proposals I’ve seen, the Fair Tax seems the most balanced. It will not be willingly adopted. But the IRS will be ‘reformed’ when the entire monetary system collapses, which for a number of years has been a mathematical certainty.
“$7.5 Trillion in Debt Added Under Obama”
“The Fair Tax sounds good on the surface, but it would be a big drag on all big ticket purchases — cars, houses, boats, airplanes, travel, etc. It would be a drag on the economy worse than all the over-regulation the progs favor. It would also create a black market in small ticket items that can be sold out of the back of a van. I know it all sounds good to the people that are pushing it because it would GET RID OFTHE IRS, their number one big issue. But, IMO, they have not examined human behavior as relates to taxes.” J.J.
Human behavior as it relates to taxes exists no matter the system.
Economic constraints on all big ticket purchases — cars, houses, boats, airplanes, travel, etc. isn’t a ‘bug’, it’s a feature. People don’t save for big ticket items, they go into debt on credit and then pay 3+ times the original cost of the item. A large part of the problem we face is people living beyond their means.
Small ticket items “that can be sold out of the back of a van” is known as free enterprise… is it a loss in regulation you fear?
While I wholeheartedly support abolishing the IRS with a greatly limited replacement, it is NOT my “number one issue”. Less stereotyping please. The only problem with the IRS is a massively over regulated, dysfunctional tax system and politically motivated management.
I think a good first step would be to do away with withholding. At tax time, how many times have you heard: “I didn’t pay any taxes this year. I got a refund!”
Once average people have to start writing a check to Uncle Sam every year (…or quarter) for the taxes they owe, then the hue and cry will go up to “fix” the broken system. Tax-and-spend politicians won’t have such an easy time of it, and at that point, a lot of the things that you all describe, that are not politically possible right now, will suddenly become possible.
There’s lots of ‘steps’ we could take to return this country to fiscal sanity. The problem with incremental steps is that they won’t be implemented in the consistent manner needed to ‘heal’ the patient. This is because of two factors; the mind-set of the majority of the American public is to have ever more material possessions and, special interests as a matter of survival are adamantly opposed to correction of the present system.
It’s a ‘Gordian knot’ with no one having the power to unravel this mess and so like Alexander’s sword that ‘resolved’ the conundrum, reality will sever our economic ‘birds nest’ when mathematical reality becomes physical reality.
The reason it doesn’t happen is because too many people are full of spit for their spines. They are too weak to do anything about it, except talk about it. That’s cause war is something they avoid mentioning, they avoid looking at it, and it’s not something they want to deal with.
Politics is one thing.
I’ll confess that a major eye-opening moment for me, on the subject of income tax, came when a character in a book* remarked: “I realized that I didn’t LIKE being an accountant for the government on no pay.”
That’s what we’ve done — created a country of accountants, all struggling to understand a tax system that defies understanding, knowing as they do so that a mistake can make them felons for life. (Unless they are Tim Geithner or Al Sharpton.) And all this so that the government can be FUNDED… so that they can raise the debt ceiling on themselves, again and again and again?
There are many aspects of the current tax system that bother me. But one of the most bothersome, in my opinion, is that there are so many wrong answers and no right answers. As Will Rogers said, you spend hours preparing your tax return, and at the end you still don’t know if you’re a felon or a sucker.
I agree that there’s very little chance indeed of a simple (or flat) tax system; there are too many vested interests in keeping things complex. But one can hope — and at least Sen. Cruz is fighting the good fight. My hat’s off to him for that.
* — the book was Niven and Pournelle’s “Oath of Fealty”. It’s very dated in some ways, but it has some surprisingly good stuff in it.
neoneocon, with your intelligence and depth of knowledge I find it difficult to believe you’ve only recently come to see the horror of the 16th Amendment. If I was offered a magic wand that could make one and only one poltical change, I would abolish the 16th Amendment without hesitation.
Imagine going to George Washington or Benjamin Franklin and telling them they are not free to offer their labor or pay for another’s labor directly. Imagine telling them the government will first tell them how much of that wage they will be permitted to keep?! It is anathema to all they fought for and all they created.
I certainly like the Flat Tax more than the absurdity we have now, but it fails on the level of principle. Once we agree the Federal Government holds sway over our private dealings with others for labor, we cede our freedom to the Federal Government. The only tax that fits our ideal of Federal Government is a consumption tax.
Make Congress fight for every dime they get. If they want a new agency, new staff, a new war, new regulations… they will first have to determine what new tax they will levy, or existing tax they will raise. And the people involved in those industries will fight them every step of the way, as it should be.
To understand the Fair Tax proposal you need to read the books. Both are on Amazon. You can even link thru Neo’s site!!
http://www.amazon.com/Fair-Tax-Book-Saying-Goodbye/dp/0060875496/ref=sr_1_1?ie=UTF8&qid=1421852283&sr=8-1&keywords=Fair+tax
http://www.amazon.com/FairTax-Answering-Critics-Neal-Boortz/dp/0061540463/ref=sr_1_2?ie=UTF8&qid=1421852283&sr=8-2&keywords=Fair+tax
For quick information go to the Fair Tax website. They do a good job of explaining it and answer a lot of questions. The books go into even more detail. The first one lays it out, the second one answers the critics.
http://fairtax.org
This proposal is easy to distort by its opponents, but you should take the time to find out what it is about for yourself. Don’t listen to the naysayers, learn for yourself. It is worth the time. To the people who say “we could never get this passed”, I say you won’t if you don’t try. Do you like what we have now?
A national sales tax was what the founders originally authorized in the Constitution. We should give it a try again.
I forgot to add, this bill is in the House as H.R. 25. Learn about it and if you like it push your congress critter to support it or elect someone who will. The establishment of both parties do not like this bill because it would diminish their power for us.
dang, hit submit instead of preview – …….”diminish their power over us.”
MikeNC, “This proposal is easy to distort by its opponents, but you should take the time to find out what it is about for yourself. Don’t listen to the naysayers, learn for yourself. It is worth the time.”
I have read the books, studied the issue, and it comes up short. The libertarian bias of Boortz and others of the same mindset create the assumption that all citizens are willing to be fleeced during commercial transactions. The Fair Tax would approximately double my taxes. Do you think I’m not going to devise any strategy I can to decrease them? Multiply me by 100 million others and you have a recipe for destruction of the economy and decreased tax receipts. Figure out what you would actually be paying under that plan and then decide what you would have to do to pay less. It means you would buy less of everything. It would stifle the economy.
The optimal growth rate is 1-3% tax rates, as simulated by a few thousand people exchanging various stuff for a decade.
5-10% and you start seeing some interesting gray and black market activities, bartering and tax evasion. More than that, and it gets to the point where lawyers or some other company profits because a lot of work and jobs are created just to calculate taxations and how to avoid them.
No matter how it’s tweaked, up or down, the fed income tax takes 18% of the GDP, plus or minus a point or two. Reason is that when you are getting taxed heavily on one thing, you do another. That’s tax planning.
“Sure,” says the accountant, “you’re making 8% here, but losing half in taxes. Better to put it where it makes 5% and isn’t taxed.” IOW, tax planning by definition puts money where it is less useful than if it were uninfluenced by taxes. Damages the economy.
The estate tax was founded on three items: Avoiding the permanent class of the uberwealthy, revenue, and pandering to envy. Due to tax planning and various choices, reports I’ve seen say the estate tax brings brings down the economy by about as much as it brings in. So revenue’s failed. Once you get past a certain amount, you can’t spend it fast enough to avoid growth. Buying a castle isn’t spending money; it’s converting it to real estate. Ditto jewels or airplanes. The money you can spend that’s just flat gone is a smaller and smaller amount of the growth on the principle as the principle is larger and larger. You can only drink and party and travel so much. OTOH, somebody who’s got, say, $6 million is going to be taxed on the excess over the exclusion of $5 million. So he has $5.5 to split between three kids. They each get $1.8 million. Growth on that at 5% is $90,000. You can expend that pretty easily at that lifestyle, or even if you pull in your horns. But somebody with $50 million leaves, after taxes, about $9 million to each of three kids. Growth on $9 million at 5% is $450,000. Probably can’t expend that. All numbers are approx and rounded. Making an example. The malefactors of great wealth remain greatly wealthy while the up-and-comers are shut out…by estate taxes. We don’t have the fresh blood, the turnover, that TR fancied. We still have pandering to envy.
Seen a flat tax proposal where–this was some time ago and might be adjusted for inflation–a family of four had an exclusion of $36,000 and 15% on everything over that, no deductions whatsoever. Claim was everybody would be paying more or less what they’re paying now and it would be revenue neutral.
J.J.
I appreciate your opinion. I just disagree with it.
G.B., “A large part of the problem we face is people living beyond their means.”
And the Fair Tax is going to fix that? Personal financial planning is what fixes that. You know, personal responsibility? You sound like you would like to control people’s over-spending as much as the progs want to control success.
GB., “Small ticket items “that can be sold out of the back of a van” is known as free enterprise… is it a loss in regulation you fear?”
You don’t get it do you? Here in Washington State we have an onerous sales tax on cigarettes. There is a big black market in cigarettes here as a result. The state is collecting much less in tax revenue than if they would lower the taxes. But they won’t because smoking is one of the progs socially unapproved activities. (As an aside, they have approved smoking of marijuana with a much more reasonable tax – doesn’t compute to me.) People would also enter into barter arrangements to save paying so much tax. People would not buy anything new except day to day necessities if they could help it. When your taxes will be roughly doubled by passage of a poorly thought out tax scheme, as mine would be, you start to look into the ramifications more closely. If I would change my retail buying habits to pay less tax, why wouldn’t others? Less economic activity means fewer jobs. The Fair Tax is a lot like Communism. It is supposed to provide a new, FAIR way to finance the government. When it stifles economic activity they will wonder what the H**L happened.
All tax schemes are a pain in the ass. Our present scheme is too complex and too loaded toward the top 25% of earners, but it could be revised to make it simpler and flatter. The Fair Tax is uncharted territory – there be dragons there.
Daniel in Brookline, “There are many aspects of the current tax system that bother me. But one of the most bothersome, in my opinion, is that there are so many wrong answers and no right answers.”
Sounds like you may have owned some shares in Master Limited Partnerships (MLPs) I now refuse to own them (even though they are mostly good investments) because of the tax issues. Only tax preparers who specialize in them can provide a reasonably safe and accurate tax return. And those specialists are not cheap. Not for small investors like me anyway. That’s why a first step would be to simplify the code. The MLPs are basically set up to allow businesses to pass through the maximum return to the shareholders along with some of the tax benefits of being in business. With a 10% corporate or business tax, that would no longer make sense. There are even more esoteric things than MLPs, but all are designed to provide some loopholes to some group. That is where simplification comes in. But it will be hard. Too may oxen gored.