The Fair Tax Would Solve the Problems at the IRS

Janet Novack writes of the funding shortfalls at the IRS that are leading to reduced enforcement, poor customer service, and a low chance of getting through to get answers to even easy questions in her piece, There’s A Crisis At The IRS And It’s Not What You Think.  One might think the agency was awash in money, given the IRS’s ability to go to lavish conferences and produce ridiculous videos such as the ludicrous Star Trek and employee line dancing videos, both produced at taxpayer expense, and the agency’s ability to pay bonuses even to employees who cheated on their own taxes and were guilty of other offenses.  Still, Ms. Novack says the agency needs more money to do its job properly.  Probably the most serious issue that needs to be addressed is the large amount of identity fraud due to people stealing tax returns filed electronically and the filing of false returns by thieves to steal refunds directly. 

There is way to address the issue, however, that would not cost more money – in fact it would cost far less and yet bring in the same amount of money to the government, or possibly even significantly more.  This solution would drastically reduce the amount of work the IRS has rather than increase the amount of funding, allowing them to actually cut staff.  Note that this would also go a long way to solve the issue of taxpayer money being wasted for silly purposes since a smaller overall budget generally results in less waste since each dollar counts so much more.  This solution would be to enact the Fair Tax.

With the Fair Tax, taxes would be collected by retailers when new products or services were sold.  Instead of paying in estimated taxes and having paycheck withholding, citizens would receive a check each month from the government to “prefund” a portion of the taxes they pay.  This is how the system avoids being regressive (i.e., this keeps people with lower incomes from paying a higher portion of their incomes in taxes).  Individuals would receive their entire paycheck, have no need to report their incomes or track expenses, and only pay taxes when they chose to spend their money on new goods or services.

So how would this cut the work at the IRS?  Instead of needing to go through the tax returns of millions of citizens, they would only need to audit the books of thousands of businesses.  And the audit would be simple – how much money did you collect in revenue during the last period and did you multiply it by the correct percentage?  This is something that anyone could check very quickly and any retail establishment could easily get right.  We should be able to cut the size of the IRS by 90% or more, freeing these employees to do something more productive than audit tax returns.

Another advantage of the Fair Tax, which may be more important than the simplification of the tax system and the reduction in the size of the IRS, is the removal of the power held by the IRS and along with it the potential for this power to be abused.  It should send shivers through the spine of any American, regardless of their political persuasion, that the audit power of the IRS was clearly levied against only Conservative groups before the last election and that senior IRS officials are pleading the fifth when asked about the illegal activities.  While this power may have allegedly been used to benefit Democrats during the last election, there is nothing to stop the power from being used to benefit Republicans should they come into power again and be able to appoint IRS officials.  No one should live in fear of harassment over their taxes due to a speech they give, a talk show they host, or a letter they write to a newspaper.

What are your thoughts?  Wouldn’t it be nice to collect the money the government needs without all of the paperwork?  Please leave a comment and let me know.

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