Hedgehog Party

Tax Fraud

Every time you see a tax proposal that includes dollar limits...you may be sure that it is ultimately a fraud.  Tax history is a litany of "this" for those making less than "x" and a new tax for those making "y."  None of these proposals consider the effect of inflation over a period of time.  How else can you have an alternative minimum tax that applies to 23 million returns, when it was originally intended for 155?  This is only one example of a very long list.   

This latest proposal by Harold Ford is just another in the endless parade.  http://www.washingtontimes.com/article/20071129/COMMENTARY/111290014/1012

The Hedge Tax is based on percentages...a key feature.  The orignal intent of the Hedge Tax can't be changed by subterfuge.  Changing it requires new legislation.  That debate turns the lights on the rats and roaches.

Eliminate the IRS?

As a follow-on to the reader’s comment in the post below, let’s examine her second proposal: should we eliminate the IRS? 

There is no shortage of people who hate the IRS and would rejoice at its demise. I’m empathetic to these sentiments, but I don’t support eliminating the IRS – here’s why:

1. The IRS is the instrument with which the government collects the taxes it has devised.  The frustration people feel about the IRS is not (generally) the fault of the IRS but rather the politicians who have made the tax code so complicated.  Countless families and businesses have been destroyed by the IRS because of unintended violations of tax law.  Whose fault is this? Not the “we were carrying out our orders” IRS.   It’s the fault of the politicians who empowered the IRS.  Eliminate the ability of politicians to manipulate taxes, and the complexity that ensnares so many in IRS disputes goes away.  
2. As reluctant as I am to accept it, there are times when not having a strong central taxing authority might put us in danger.  History suggests that had the government not been able to raise taxes centrally, it would not have had the resources to prevail in the two World Wars.  We shouldn’t make it impossible for the government to collect taxes, we should just ensure fairness and equity in the taxes that are imposed.  
3. The alternatives to the IRS are perhaps even scarier.  A key proposal of the FairTax supporters is replacing the IRS with state taxing authorities, who would collect the sales tax and remit it to the Federal government.  The result would be 50 separate tax collectors instead of one, each with its own regulations, timetables, and bureaucracies. It seems to me that the potential for confusion and corruption would be much higher than it is today with the IRS.

So, let’s recognize that the “bad” we see in the IRS is not driven by the IRS itself but by its sponsors in Congress.

Eliminate the income tax?

A thoughtful reader offered this comment on my Mitt Romney posting:

 “All the more reason for the elimination of the Federal Income Tax altogether. Eliminate the source of the political piggy bank and eliminate the waste--and the IRS.”

Let’s look at the two suggestions in separate posts.  First, with regard to the income tax, I can certainly empathize. As Wonk points out in his post below about the Rangel tax proposal, few who supported the 16^th Amendment at the time of its ratification in 1913 ever dreamed that the income tax would become as onerous as it has.  

A reasonable alternative is the Fair Tax, or national sales tax.  I can’t review it adequately in this post (check out their web site here), but it has a number of important benefits, including more effective taxation of the underground economy.  On balance, I support a single rate income tax over a sales tax because I think it will be easier to implement and support. But I do like many aspects of the sales tax. The practical reality is that we need one of these two taxes; there’s nothing else that can reliably provide the revenue required to support our government. 

I submit that the problem with the income tax is not the tax itself but the way flexibility in its implementation is abused by powerful special interests.  These interests and the politicians they target conspire to manipulate taxes in their favor, resulting in confusion, corruption and unfairness. If we eliminate the ability of politicians to manipulate tax rates or what constitutes taxable income, as the Hedge tax proposal does, I believe that much of the hatred of the income tax will fade. People will perceive that the tax is fairly and uniformly applied. Their only complaint should be whether taxes are too high. If a majority has this complaint, they will vote into office politicians who will control spending.