23
Jul
13

Why Do We Have the IRS: Abolish It

For 126 years the United States of America had very limited taxes. In this time from 1787 until 1913 the government-funded itself by indirect taxes – mainly tariff, corporation, and other excise taxes. An indirect tax is one that is not levied on each person and can be avoided (or passed on) if you want to. An example of this is the tobacco tax – you do not have to pay the tobacco tax simply for being a resident. You only pay the tax if you voluntarily decide to participate in that activity that the tax is attached to – you can either not smoke or you can grow your own tobacco – you simply avoided that product or service to not pay an indirect tax.

CCH_Title 26Today most Americans have no idea about taxation. Even worse is that they have no idea what the difference is between direct and indirect taxation. Most Americans simply send off any paperwork they may have to a tax professional and that person does it. What is interesting is that you could send your paperwork off to five different individuals and you will come up with a different tax burden computation from each. Each tax preparer will interpret the code and take calculated risks off those interpretations. The sad part is that most of the time they are all right – the tax code is so insanely convoluted that there is an infinite amount of possibilities that one can arrive at for their tax burden – after all Title 26 was reported to be 73,954 pages (~4.5 million words) for 2013. Compare this with the 400 pages (240,045 words) the tax code was in 1913, the Bible with 1,291 pages (774,746 words), and War and Peace at 1,444 pages (866,562 words).

We are routinely told by our government that taxation is a voluntary system but yet every year the IRS sends out legions of enforcers and piles of fines to people they have somehow deemed to be delinquent.  All this despite numerous politicians stating that it is voluntary; even IRS Commissioner Steve Miller said that it was voluntary. How is a system voluntary if we are threatened with fines, court proceedings, garnishment, repossession, liens, and jail time?

Something doesn’t smell right, does it?

Obama-IRS_SMALL

But it doesn’t stop there. Recently we have learned that the Internal Revenue System has targeted political opposition to the President – and worse yet during and election year. This is an obvious abuse of power but despite this fact little to nothing has done to condemn or stop such acts. I think what bothers me about the entire connection with Obama is that a lot of people will claim that he had no knowledge of the targeting nor did he command the targeting. This may be true but I still think it begs a few pertinent questions.

The IRS Commissioner in charge during the targeting was Douglas Shulman. He was to serve for 5 years starting in 2008. So yes, Shulman was put into position during President W. Bush’s term. However, he served less than 9 months under Bush. Furthermore, the Senate that confirmed him was controlled by the Democrats and according to financial records Shulman donated to the Democrats. And this fact is evidenced even further by the White House visitor log showing that the IRS Commissioner Douglas Shulman visited the White House 118 times between 2010 and 2011. By law the President can remove the IRS Commissioner if he has a cause and what a better cause than the IRS targeting certain political groups.

As the proverb goes “You may know a man by the company he keeps.” President Obama had every right to remove Shulman but didn’t. I personally I find it hard to believe that someone visited the White House 118 times in 2 years (that is about once a week) and never squeaked a word about any targeting of the hosts (President’s) opponents. C’mon.

Have you ever thought about how America was before the Tax Code? Arguably America had her biggest growth before 1913 when there were very few taxes and little to no taxes on any income. If you go over to my article entitled The Sixteenth Amendment Did Not Allow the Government to Tax You! then you will see that only 0.37% of the American population even filed for taxes. It wasn’t even until 1916 that over 1% filed and 1943 over 30% filed – mind you that the Sixteenth Amendment was implemented in 1913. Courts have repeatedly ruled that no new powers of taxation were created with the Sixteenth Amendment but that sure as hell doesn’t stop the politicians and the government from saying that is exactly what allows them to tax your paycheck.

We Americans don’t say anything about these inconsistencies because we are scared of the IRS. Check out the list entitled 10 Outrageous Facts About the Income Tax from the CATO Institute.

  1. The U.S. “tax army” is bigger than the U.S. army in Iraq.
    Income taxes are so complex that there are up to 1.2 million paid tax preparers in the country — six times more than the number of troops in Iraq. The tax army includes legions of accountants, lawyers, and computer experts — some of the best minds in the country. Unfortunately, their brainpower is adding little to the nation’s standard of living.
  2. A tax form for every special interest.
    As the income tax grows more complex, the number of IRS tax forms has jumped from 402 in 1990 to 526 by 2002. Congress hands the accountants business on a silver platter when they create special interest tax forms such as “8845-Indian Employment Credit” and “8834-Qualified Electric Vehicle Credit.” When Congress penalizes an activity, we get tax forms such as “6197-Gas Guzzler Tax.” It’s time to end the micromanaging and adopt a simple flat-rate tax. Until then, Congress needs to supplement “6478-Credit for Alcohol Used as Fuel” with form “XXX-Credit for Alcohol Used for Drinking.”
  3. Double-tax on dividends: 60 years and still not fixed.
    Sixty years ago, a Treasury report noted that “double taxation of corporate profits is the principal problem raised in connection with the corporation income tax.” In the 1930s, a Treasury report argued that the tax disincentive to pay dividends caused corporate management problems. Recent scandals proved them right. Congress should bite the bullet and reform dividend taxes now — before the next round of corporate scandals begins. 
  4. Congress promotes discrimination through the tax code.
    The front of the Supreme Court building boldly declares “equal justice under law,” yet the income tax has hundreds of discriminatory provisions. For example, homeowners are treated more favorably than renters since they can deduct mortgage interest and other itemized deductions. Consider that a higher-income homeowner can effectively deduct car loan interest by shifting around his finances but a lower-income apartment dweller cannot. Americans would not stand for such discrimination on other taxes — imagine if each shopper at Wal-Mart was assigned a different sales tax rate!
  5. Congress on tax complexity: Who us?
    Congress frequently holds hearings on tax simplification so members can denounce the tax code’s complexity. Each time, congressional experts and outside think tanks provide useful simplification ideas. Then when the TV cameras are turned off, Congress promptly ignores them and votes for more special interest breaks. The result: The number of pages in the tax code and regulations doubled from 26,300 in 1984 to 54,846 by 2003, according to tax publisher CCH.
  6. AMT designed to catch 155 taxpayers will soon catch 37 million.
    The alternative minimum tax is an unneeded parallel tax system alongside the ordinary income tax. It began life in 1969 after Congress was shocked (shocked!) to learn that 155 wealthy individuals were not paying tax because they used too many of the deductions that Congress had provided them. The AMT has been a complex nuisance ever since. But this dumb idea aimed at the rich is set to explode on the middle-class as the number of AMT taxpayers skyrockets from 3 million today to 36 million by 2010.
  7. Voluntarism works for the U.S. military, not the income tax.
    For years, officials have hailed the income tax as a voluntary system. The Treasury calls it “our voluntary tax system.” The IRS says that it pursues “enforcement programs to promote voluntary compliance” and establishes “strategies to maximize voluntary tax law compliance by emphasizing customer satisfaction.” But with 32 million IRS penalties assessed each year and about $10,000 in income taxes imposed on each taxpaying household, the tax isn’t voluntary and these customers aren’t satisfied.
  8. Congress can’t figure out how to measure “income.”
    Although the income tax is 90 years old, Congress still can’t figure out how to measure “income.” Some income such as municipal bond interest is not taxed, but other income such as dividends is taxed twice. The income tax treatment of savings is particularly incoherent and unstable. For example, there have been 25 major changes in the capital gains tax since 1922. The solution is to replace the income tax with a low-rate tax that exempts savings.
  9. Family saving shouldn’t require an advanced math degree.
    Shouldn’t saving for education, retirement, and other items be as simple as putting money in the bank? Instead, Congress has manufactured hundreds of special savings rules, such as for 401(k)s, Keoghs, deductible IRAs, nondeductible IRAs, education IRAs, Roth IRAs, traditional pension plans, annuities, SIMPLEs, SEPs, MSAs, and others. The IRS guide to IRAs alone is 105 pages long! President Bush’s initiative to consolidate the savings plans and create a universal IRA would be a good step to bring some sanity to this mess.
  10. Income taxes: A bad idea that got worse.
    The income tax is not an example of a good idea gone bad. It was bad from the beginning, and it just keeps getting worse. The income tax distorts financial planning and business investment, and it encourages tax avoidance and evasion. Because the income tax is built on an unworkable base of “income,” the law is continually changing. Let’s simplify Americans’ finances and disband the tax army by pursuing fundamental tax reform.

Why would one want to contend with the IRS or the Tax Law when even the IRS doesn’t know what it says (or apparently what it does)? Here is another list of 10 reasons why the IRS is no good from FreedomWorks.

1. The Code is Too Complex.

The code is so big that politicians can’t even agree on how long it is.  Title 26, the Internal Revenue Service (IRS) code totals to about 3,400,000 million words.  The non-partisan Tax Foundation reports that the entire tax code with regulations in 2005 was over 9,097,000 words.  To put that in perspective, the Bible has 774,746 words.  The code has grown in length between 1995 and 2005 by 18.9 percent.  The directions for filing a typical form 1040 totals 161 pages.  The “EZ” version is 41 pages.

2. The Code is Beyond Comprehension.

No single person knows or understands the entire tax code– not even IRS Employees!

In 2008, the IRS was wrong on questions concerning tax law about 10 percent of the time.  Myriads of accountants and lawyers are employed to decipher the cryptic tax code.  It should be scrapped and simplified.  No small modification to the code can remove the enormous complication.  

3. The IRS is Too Big.

The IRS employed 90,647 people in 2008.  It had operating costs of $11,207,223,000.  If we simplified the code, then many of those IRS employees could go into more productive lines of work, rather than checking up on whether or not the correct amount of money was extracted from hard working Americans.  The money spent on the IRS is economic deadweight loss caused by the level of complication of the code.  If it were scrapped and replaced, billions of taxpayer dollars could be saved just by reducing the size of the IRS–not to mention all the gains from productively employing former IRS staff members in the private sector.

4. The Code Corrupts the Culture in Washington. DC.

Lobbying is the biggest business in Washington.  About $3.2 billion was spent in the 2008 on lobbying.  Many, if not the majority, of America’s 15,139 registered lobbyists are working on increasing the level of complication of the tax code by fighting for special loopholes and regulations that will save their company money or put their competitors out of business. Yet lobbying and ethics reform too often focuses on the symptoms, like gift bans, instead of the underlying cause. What would be America’s single most effective move to clean up the swamp of special interests in Washington? Scrapping the code and replacing it with a fair and simple one.

5. The Code Taxes Some Income Two or More Times.

Our code taxes certain types of income twice.  For instance, a company pays taxes on dividends that it pays out and then when stock holders earn money from the dividends, they pay taxes on them again.  When government taxes particular types of income more than others, it distorts the market economy by punishing certain kinds of behavior with double taxation. Absent government intervening through the tax code with the complicated and unfair system, the market economy would likely perform more efficiently.  

6.   Congress Uses the Tax Code to Legislate Morality.

Congress, with its recent passage of the SCHIP bill, raised taxes on cigarettes by 61 cents per pack.  Our corrupt and easily manipulated tax system allows members of Congress to pass laws that increase the cost of certain behavior.  In the case of SCHIP, they targeted smoking.  In the case of AIG, they targeted bonuses.  Frightening precedents are being set by Congress this session that will likely lead to even more explicit penalties for certain industries.  President Obama claims that he will place a cap-and-trade tax on industry that will eliminate construction of any new coal power plants.  Under a fairer and less easily manipulated tax system, government couldn’t pick winning and losing industries as we have witnessed recently.

7. High Marginal Tax Rates Penalize Success.

Marginal income taxes are higher for each dollar workers earn.  Our most productive members of society face federal taxes of 36 percent or higher.  Under our system, the top 10 percent income earners pay 70 percent of federal income taxes.  The president plans to increase top marginal rates to at least 39 percent–and that’s not even counting state income tax rates.  In virtually every state in the country, high income workers would face top marginal tax rates that would rob them of more than 50 percent of their income.  Our current code destroys the incentive of the most productive to work hard.  

Shouldn’t we be trying to give incentive to the most productive to continue working rather than taxing so much of their income away that they no longer think it’s worth working hard?  How many inventions or cures for diseases have we lost because the most productive stopped working when faced with 50 percent or higher rates on each additional hour of work?

8. Complying with the Code Costs Americans Billions.

Compliance is a multi-billion dollar industry and 59 percent of all individuals filing taxes hire someone else to do it for them totaling to 81 million returns done by accountants last year.  If we scrapped the tax code for a simpler one, people could fill out their tax forms easily.  The sum total benefit could be billions of dollars.  All those accountants and lawyers who make their living off the level of complication of the tax code could go into more productive work that would benefit all Americans.  

Compliance weighs more heavily on the poor–making our tax code more regressive than it appears.  Taxpayers with adjusted gross income (AGI) under $20,000 pay 5.9 percent in compliance costs while those with an AGI of over $200,000 pay .5 percent of their income for compliance.

9. The Code Drives Political Donations

The Congressman on the House Ways and Means Committee Received  $55,157,458  in the 2008 Election Cycle.

The Ways and Means Committee deals with taxes.  It’s responsible for “raising the revenue required to finance the Federal Government. This includes individual and corporate income taxes, excise taxes, estate taxes, gift taxes, and other miscellaneous taxes.”  It’s the busiest committee and it’s membership during the 2008 election cycle received $55,157,458 in campaign contributions.  

If we scrapped the code, the committee members would lose their power to manipulate the code in order to pay off their campaign contributors.  Our tax system leads to corruption and corporate capture of legislation .

10. Laws Should Rest on Principles of Justice.

The tax code is modified every few years along no reasonable principle.  The code is arbitrary and unpredictable, and is morphing from its stated purpose– efficiently raising government revenue– into an instrument that Congress uses to instill fear, punishment, and political control. The code should be scrapped and replaced with a more just system based on principles of fairness and equality before the law rather than on the whim of lobbyists and lawmakers.

IRS_decimal point

America grew best when she didn’t demand through a “voluntary” tax system. People were allowed to manage their finances and plan for their savings. With an ever-changing tax system in place that grows by hundreds of pages per year and is over 73,000 pages what it was originally supposed to be it makes it very difficult to plan anything – especially for businesses. It should be fairly evident by now that the taxes collected aren’t for your benefit – it is for the lobbyist and the political leaders to get ahead of their competition. If you can have the government make your competition squirm while you don’t then you gain an advantage. GE did this in 2010 when it filed a 57,000 page tax return on its $14 billion of profits and paid… no taxes at all.

We should seriously look at shutting down the IRS. While everyone thought he was crazy Ron Paul repeatedly called to end the corrupt IRS.

I want to abolish the income tax, but I don’t want to replace it with anything. About 45 percent of all federal revenue comes from the personal income tax. That means that about 55 percent — over half of all revenue — comes from other sources, like excise taxes, fees, and corporate taxes.

We could eliminate the income tax, replace it with nothing, and still fund the same level of big government we had in the late 1990s. We don’t need to “replace” the income tax at all. I see a consumption tax as being a little better than the personal income tax, and I would vote for the Fair-Tax if it came up in the House of Representatives, but it is not my goal. We can do better.

As much as I hate to say it, the Second Plank of Karl Marx’s Communist Manifesto was “A heavy progressive or graduated income tax.” Why do we have such a tax system where we effectively punish those making money? Not to mention a system where people who pay no taxes repeatedly receive money and benefits for free.

Consider signing the petition here. Click below.

Cruz_Splashgraphic_abolishirs-300x177


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