January 10, 2023
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Our Federal Income Tax
A Dishonorable Honor System
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Larry has been writing from the conservative point of view since his 2007 retirement from the private sector.
Barnyard StenchFreeloaders Best FriendAn Unjust Revenue ProducerBusiness TaxesNational Sales Tax - Change You Really Can BelieveNo FavoritismEntitlement FundingUnderground EconomySales Tax AdvantagesWhat to ExemptCongress Will StonewallThe DisplacedLegitimate Government HiringRecognize and Thank the WealthyNo CompromisingFive Takeaways______________________________
Barnyard StenchDo you know the Internal Revenue Service (IRS) has 80,000 employees, collects $4.1 trillion annually, and operates with an annual budget of $12 billion?
Source: IRS Acting Commissioner Douglas O'Donnell
Hold your nose as you read from the IRS website.
Freeloader’s Best FriendThe federal income tax system is the most powerful method we have for taking from the rich and giving to the poor.
What started out as a tax in 1861 to pay the cost of the Civil War became permanent with the 16th Amendment to the Constitution. What started as a 3% tax on individual income greater than $800 has become a mess. Look at us now.
We have Social Security and Medicare along with more and more entitlements for the questionable - key word: questionable - down and out. This is wrong!
An Unjust Revenue Producer Today, tax rates vary because of two disgraceful notions:
• People with more should pay more.
• People should get a tax break because of circumstances.
These are silly and wrong notions for two reasons:
• The fewer taxes paid by anyone – including the rich – allows more consumer spending that, in turn, leads to more jobs and a healthier economy as the wheels of commerce just turn and turn and turn.
• One person’s tax break is another person’s tax burden.
It makes sense to stop penalizing the wealthy. Let the rich spend, spend, and spend some more. Let the millionaires and the billionaires spend 24/7 on luxury homes, expensive vacations, the most prestigious universities, and all the toys, such as airplanes, yachts, motorcycles, and automobiles. This kind of spending will go a long way to keep the economy stronger and the unemployment rate lower. The economy will thrive because we will purchase more and more consumer products.
According to CEO John Faraci of International Paper, as reported by Gennine Kelly of CNBC on September 7, 2011, the economy is 70% consumer-driven. Therefore, the wealthy do us all a favor when they spend, spend and spend some more.
It is wrong to punish the wealthy just because we can. Forcing the wealthy to pay taxes at higher rates is punishment although our liberal Washington politicians will not admit the truth. To them, it is a case of what is ours is theirs. Taxing people when and where you can is easier than exercising fiscal responsibility.
Business TaxesHere is a thought: Exempt all businesses from paying any income taxes. After all, consumers reimburse all business taxes via the built-in (hidden) method at the point of sale. Without paying income taxes, businesses would also realize more profits by avoiding tax-related administrative costs. More profits allow for more investment in equipment and jobs and, in turn, build a stronger economy.
Our income tax system is a powerful tool for our government to use in spreading the wealth among those who have and those who do not have via mandated social programs. It is a powerful tool because the government can do whatever it pleases with tax credits and deductions.
Captive audiences are nice for thieves.
There is a better way than income taxes to collect the revenue needed to fund our common needs.
National Sales Tax - Change You Really Can BelieveA better way to fund our government begins with trashing the income tax system and implementing a national sales tax so everyone who purchases goods and services pays equally.
Over the years, I have never heard of or seen evidence of any individual initiating a conversation praising the merits of a national sales tax for generating revenue. Presidential candidates occasionally talk about what they call a fair tax. Some have advocated filing tax returns via a postcard-size form. Guess what happens after the election. Such disinterest strongly suggests apathy on steroids all the way up to our national government.
No FavoritismA sales tax would give us more control over the amount of taxes we pay. For example, we could buy a Ford instead of a Lincoln or a used car instead of a new car to avoid the higher sales tax attached to the Lincoln and the new car.
A built-in benefit of this approach is that rich and poor alike can adjust their spending to adjust their taxes. The wealthiest man in the country can buy at the thrift store if he wishes. He will not but he, along with the rest of us, would have the choice, all in the name of fair taxes.
Another advantage of a sales tax is the government will have less of our personal information. Just this alone is enough reason for trashing our revenue-collecting honor system. What an honor system it is.
Entitlement FundingThe sales tax method is a big bummer for freeloaders. They would pay taxes along with the rest of us because all purchasers of goods and services would fund all entitlements. Income tax exemptions, credits, and deductions for the benefit of selected groups would be a thing of the past.
So, what is right for America and what is wrong for America?
Supporting ourselves is right. Subsidizing selected groups with tax credits and deductions is wrong!
Let Johnny and Janie Doe fund their kid’s education with their own money, not with money from their neighbor across the street and not with money from people living across the country.
Further, with an equitable sales tax, we should not exempt organizations from paying taxes or allow organizations to pay at a reduced rate. Exempt certain goods and services yes, but certain groups no. In addition to collecting much-needed revenue from organizations, we will reduce the amount of fraud attributed to individuals who now beat the system by purchasing through their tax-exempt organization connections.
Underground EconomyIncome tax fraud is a big business itself.
Drug dealers, for example, do not pay income taxes on their lucrative sales. However, they would pay the national sales tax assessed when they buy their classy cars.
We can say the same for everybody else participating in the underground economy. Everybody includes drug dealers, prostitutes, babysitters, and ten-year-old kids who get their spending money from working adults and on and on and on.
Everybody includes everybody.
Seems like a winning situation for the honest taxpaying citizen.
The growth of the shadow economy can set off a destructive cycle. Transactions in the shadow economy escape taxation, thus keeping tax revenues lower than they otherwise would be. If the tax base or tax compliance is eroded, governments may respond by raising tax rates—encouraging a further flight into the shadow economy that further worsens the budget constraints on the public sector. (On the other hand, at least two-thirds of the income earned in the shadow economy is immediately spent on the official economy, resulting in a considerable positive stimulus effect on the official economy.)
Source: Hiding in the Shadows – The Growth of the Underground Economy:International Monetary FundFriedrich Schneider with Dominik Enste March 2002
Reasonable patriotic Americans surely agree Schneider and Enste present a good case for collecting from the people via a national sales tax instead of the current income tax.
There are more ways to abuse the American people via the income tax system than there are people.
Everybody does it and we do so with the belief we have duped our friends, neighbors, co-workers, and family members along with people we do not know. Actually, we dupe ourselves because each of us must cover the duping of other dupers.
A national sales tax is right. The federal income tax method that relies on the honor system is wrong.
Sales Tax AdvantagesHere is a baker’s dozen list of advantages a well-developed national sales tax program, with collections from individuals and groups, whether for profit or not for profit, at the retail level has over our federal income tax system:
• The people would have an additional $12 billion – the amount currently used to fund the Internal Revenue Service – for maintaining the public infrastructure or other worthwhile projects.
• No more stress of keeping records for tax purposes.
• A few dollars saved from not having to pay tax return preparers.
• We would collect an additional $600 billion to $900 billion annually without the underground economy according to various estimates. (However, I am not confident these numbers are reliable as my research uncovered a wide range of estimates both lower and higher.)
• Our government would have less information about us, something needed for years.
• It would be fair because the rich and poor alike would pay the same rate, thereby no longer penalizing the rich for their good fortune, regardless of whether they earned or inherited their wealth.
• Businesses would pay no income taxes and therefore no longer need to build income taxes, and the related administrative costs, into the price of goods and services for consumers to pay.
• No more grief or inconvenience and no more cost of going through an IRS audit.
• IRS abuse and bullying will end.
• We will no longer need to cover those who falsify income tax returns.
• We will no longer need to cover the amounts tax settlement companies save clients.
• Each of us can have closer control over the taxes we pay by adjusting our spending.
• By paying taxes as we go, the tax bite will be foremost in the minds of wage earners instead of “invisible” as when taxes are withheld from wages, creating greater day-to-day awareness of the cost of funding our common needs.
Politicians have given lip service to the sales tax (aka consumption tax) line for years. Their proposals make no sense at all because they continue the talk of giving different tax treatments to individuals due to different circumstances.
Wrong because shifting the wealth of the wealthy to those with less would continue. From my research, I learned each of the different suggestions provides for the capturing of personal information which will no doubt, in time, lead to a system as botched up as we have now. I much prefer a sales tax with no personal information gathered and with relief built-in for the poor.
What to ExemptWe can exempt tax on items such as some food and household staples, used clothing, vehicles more than four years old, houses more than 10 years old but not on newer built automobiles and homes.
These sales tax exemptions will contribute to a more level the playing field by removing some of the sting - perhaps all - associated with regressive tax paying methods.
The socialistic notion of forced shifting of wealth from the rich to the poor by a taxing method should end.
This approach will help us arrive at the end.
Congress Will StonewallWhen will we achieve this? The answer is never as long as we have buffoons making up the majority of Congress. They will always value their backsides more than they value the best interests of all the American people.
Do you think our “honorable” men and women in Congress want to battle:
• The 80,000 IRS employees plus those earning a living from income tax reporting preparation?
• Constituents who will lose tax credits and deductions?
• Those who pay no income tax now, while receiving benefits afforded by the government, but will have to pay taxes at the point of sale?
The answer to each question is no.
The DisplacedHere is a question for you: What will happen when the Washington politicians begin serious talks – they talk about it during election campaigns but then forget the matter – about ending the anti-American federal income tax, anti-American because it encourages people to turn away from the admirable concept of rugged individualism?
The answer is every single person benefiting from the current revenue collecting method will howl! We have a bunch too including:
• The 80,000 IRS employees whose wages are paid by taxpayers.
• The many private-sector tax preparers including CPAs, attorneys, and neighborhood tax offices.
• Those who evade paying income tax by participating in the underground economy.
• People are exempt from paying income taxes.
The quick and easy way of taking care of the IRS employees is by buying them out. The important thing to remember is we do not want to slight them. The mess is not their fault. After all, they were just looking for work like any other great American.
Why not pay each of the 80,000 employees up to $100,000 in a lump sum? That is a total of $8 billion, less than the current IRS annual budget. Of the $8 billion, those employees would return perhaps $2 billion to the treasury in the form of sales tax, depending upon the tax rate, which some politicians estimate to be 20% to 30% of the cost of purchases. And let us remember the $2 billion would grow for us due to the multiplier effect. By the end of the third year, there should be no further expense incurred for phasing out the IRS.
Now, you might ask, “What about private sector tax preparers?” Many CPAs only prepare federal income tax returns part of the year, January through April. They can survive by concentrating more effort on other opportunities for which they trained. Tax-preparers employed on a seasonal basis will lose that portion of their income. However, many have other income, such as full-time employment or investment income, perhaps both. Most would likely have to make only minor adjustments to their lifestyles.
Legitimate Government HiringIt is the place of our government to employ people for the sole purpose of satisfying our common needs. It isn’t the place of our government to continue paying 80,000 people to collect taxes because – as we have heard time after time – that‘s the way it has always been. In addition, it is not the place of our government to create jobs that provide no value to the people or growth for the economy. A government is negligent when it creates or allows the continuation of a situation detrimental to its citizens.
Recognize and Thank the WealthyExpect our wealthy tax-loving liberal friends to balk if forced to give up their credits and deductions via the sales tax method. The ground will shake when they can no longer evade paying taxes by whatever means they invent.
I heard Joe Biden say during the 2008 campaign that we should want to pay more taxes.
Every taxpayer should want to pay fewer taxes as a way to improve the economy by increasing discretionary spending.
Here is an interesting idea for your intellectual consumption: Encourage tax-loving liberals to put their money where their mouths are as a way to show their patriotism as well as make the lives of us selfish people easier.
It is a simple concept achievable by sending a voluntary “deficit/debt-reduction” checks to the U.S. Treasury. Those do-good liberals could maintain a public website – not taxpayer-supported – listing their names and with their additional amounts paid.
Doing so would be a welcome public service for all of us. For one thing, we would know if the Joe Biden liberals of the country practice what they preach. For another thing, we would accumulate revenue while watching the do-gooders practice the art of one-upmanship to put their names at the top of the list.
Of course, I jest and, of course, we would hear their silence.
Anyway, the national sales tax method of collecting revenue might catch on someday. Some politicians call it a fair tax. Others call it a consumption tax. Whatever, but be careful no matter the name.
No CompromisingI have heard suggestions that we could pay our atrocious national debt with a mix of income and sales taxes. A small sales tax in addition to our current income tax will generate sufficient revenue to pay the debt in time assuming the Washington crowd curtails spending but be careful before buying into the notion.
It would come with risks:
• The income tax will not go away once implemented no matter the language of the legislation. We will be stuck with both.
• It will grow just as state sales tax rates increase when the government wants more money for any reason.
•We cannot expect corresponding income tax reductions with increasing sales tax rates as a way to phase out the income tax no matter what politicians – our “esteemed” proven liars – tell us.
• The government will still have our personal information as long as the “honor-based” income tax system exists.
But a sales tax only is not likely even though it is the best method of all for collecting our national revenue requirements. People will not want to cut away from our present income tax method for funding our common needs because too many people think they benefit from all its credits and deductions.
Five TakeawaysRemember these points even if you take nothing else away from this reading:
• All taxpayers pay each tax deduction and each tax credit given to another taxpayer.
• Every dollar a person gains by evading taxes falls on someone else to pay.
• Every dollar a person saves by utilizing an income tax “loophole” falls on someone else to pay.
• If you are the person “benefiting”, then somebody else pays what you do not pay.
• You pay a share of what another person does not pay whether by taking deductions, getting credits, evading taxes, or utilizing loopholes.
By the way, it will take more than token action from our business-as-usual and status-quo Congress for us to achieve a respectable tax system. If we do not continuously demand such a change, we will get what we deserve - you know, continuing the way it has always been.