It’s Time For The IRS To Go And Here’s How To Do It

Loren Berg – February 16, 2015

The abuses by the IRS continue to flow – it is like standing behind a manure spreader that is going 50 miles an hour – the crap is just flying. If you are not from a rural area you might not have the visual but I think you can imagine the process. The latest has the IRS seizing assets with no allegation of wrongdoing, arrest or any other proceeding. A recent example featured a business that had $940K in cash seized strictly because the IRS thought something was wrong with no evidence to support the claim. The business eventually got most of their money back – the IRS kept $50K for who knows why – and the business racked up close to $100K in legal fees. It boggles the mind that in our country we can be deprived of our assets without even a charge of wrongdoing!

Were this the only misdeed by the IRS it would be one thing but it follows a string of transgressions including hiding requested emails from Congress by claiming they had mysteriously disappeared only to have them appear later. Treating non-profit applications differently depending on whether or not the entities mission agreed with the intelligentsia. Watching a senior IRS employee claim before Congress that she has done nothing wrong followed immediately with a statement that she was exercising her Fifth Amendment right and would not be answering any questions. There is probably no doubt that the IRS is the most feared and hated agency in our government and it has earned that reputation. Beyond that the current tax code is totally unintelligible, even by those charged with the responsibility for enforcing it. Now they tell us that because of budget cuts that they will not be answering the phone or responding to taxpayer questions in all cases even though the Commissioner said that all of those cut have been rehired!

I could go on but it would only strengthen the case that the agency has to go. That said, we have to fund the government and the question is how can we accomplish that without an out-of-control agency looking over our shoulder? The answer is a consumption tax – better known as a sales tax. With this system the end user of any product or service, be it an individual or a business, would pay a tax on that purchase. The system to manage this process is already in place as most, if not all, states have a sales tax and that system could be utilized to collect the federal tax. Think about it – April 15^th becomes just another day! All of the horrendous costs, projected at $482 billion for 2015 by the IRS, currently absorbed by individuals and businesses in an attempt to comply with the albatross that we now have for a tax system disappears. That would be a lot of money put back in the system for more productive things – not the least of which might be lower prices and more disposable income. The cost of maintaining the IRS – currently budgeted at almost $13 billion – the “B” word again – and 94,000 full time equivalent employees would go away. There might be some small costs involved in tracking and recording the receipts but that would not even rise to a rounding error compared to the current system’s costs.

The benefits don’t stop there. There is a segment of our economy that currently lives under the IRS and tax radar – appropriately called The Underground Economy. Transactions that are completed in cash and never get recorded anyplace. Wages paid in cash with no reporting or deductions are also a part of this segment. While there is no way to accurately know the size of this segment in a USA Today article from May 2013 it was estimated that the underground economy is as much as $2 trillion – the “T” word – annually. That said, there is no doubt that it exists and with a consumption tax – not a news flash these people and businesses buy things – that group would start paying their “Fair Share” to use the current buzz phrase. By the way, this is the only taxing system that can get at this segment. Even something like the flat tax would require reporting and those in the underground economy that do not report or file now would more than likely not file in a flat tax system. Currently we hear much about the “rich” not paying their fair share – that buzz phrase again – but with a consumption tax they would. Any idea what the consumption tax would be on a private jet or yacht? This should not come as a surprise – those with more income spend more money and under a consumption tax they would pay more taxes. The real beauty in this system is that for those paying the taxes there are no forms or reporting requirements – all you do is make those purchases that you currently make and at the same time settle your tax liability. I suspect that some in power would see this process as a negative as it would fully disclose how much each of us contributes to the functioning of the Federal Government on a daily basis.

Granted we would have to find gainful, and hopefully more productive, employment for all the tax accountants and lawyers currently employed by businesses and individuals in our attempts to comply with the current tax system, but I think that is a reasonable trade considering the benefits to all from eliminating the IRS. Finding gainful employment for the 94,000 IRS employees might be more of a challenge but once again a reasonable trade. Given the discontent with the current tax system I think the time is right to make the kind of change envisioned here. Whether or not our elected representatives have the will, and can put aside their political conflicts of interest, is another issue and one only time will tell.

To add a little levity and help focus on the size of the numbers that are thrown around, particularly by politicians, try this on for size. A trillion is one followed by 12 zeros – 1,000,000,000,000. Nothing that we know now other than dirt existed one trillion seconds ago, that’s clicks of the clock, which by the way is 31,688 years. For context Neanderthals stalked the plains of Europe one trillion seconds ago.