No income tax, no IRS

The outrage over IRS targeting of conservative groups is certainly justified. Democrats who claim otherwise might be asked what their reaction would have been had circumstances been reversed and it had been discovered that the IRS had gone after liberal groups during the Bush administration.

All of which makes this the perfect time to revisit the idea of radical tax reform that will make the IRS go away, or at least allow us to create a smaller and less abusive version thereof.

So let’s begin by imagining a world where taxation and income are delinked. No tax brackets, no “death” taxes, no payroll taxes, no capital gains or corporate taxes. No filing deadlines or byzantine rules to figure out. No need to shelter income from the taxman or worry that working harder and making more money might push you into a higher tax bracket. And also no need for political organizations to apply for “tax-exempt” status.

Although it might sometimes seem that way, the federal income tax hasn’t been around forever, only since Woodrow Wilson’s time (like so many other political maladies). It is both possible and tempting to envision a viable tax system without it.

Ideally, its replacement would be a national sales tax, with exemptions for food and medicine.

Under such a system, all the other products you buy would be directly taxed at point of sale by the federal government at a certain rate, let’s say 25 percent for starters. The states could be encouraged to follow suit, to drop their income taxes in favor of higher state sales taxes that could be applied on top of that federal tax.

The end result would probably be at least a 35 percent to 40 percent tax on products and services. In other words, a car that currently costs $20,000 would likely cost under such a system around $28,000, a house that costs $150,000 somewhere around $210,000, and so on.

But the point to remember is that there also would no longer be that huge gap (any gap at all!) between “gross” and “net” on our paychecks, and none of those other taxes that discourage entrepreneurship and investment either.

Although something of a wash at the outset, a number of advantages would, over time, accrue under such a system, the first being our ability to limit our tax exposure. We each would decide, by virtue of how many and which products and services we purchase, how much we are taxed. We can consume (and be taxed more) or save (and be taxed less). It would be our choice.

We could now work as hard as we like and invest and prosper without having to hire tax accountants or squirrel our wealth away in tax shelters; without, in a broader sense,having to worry about taxation at all.

And then there is that earlier point-the dramatic reduction in the power of the IRS. There would still need to be some kind of federal tax overseer and collector, but once income is removed from the picture, its size,power and potential capriciousness would be dramatically reduced.

Indeed, most Americans would never have to deal with it at all because there would be no tax filings. April 15th would cease to be the most unpopular day in the land.

There would be problems to be worked out, for sure, since no tax system is perfect. There would, along those lines, be the need to guard against the tendency of such sales/ consumption taxes becoming European-style value-added taxes over time. But when it comes to taxation, it is always a choice of lesser evils,and what could possibly be worse than the monstrous embarrassment to logic we have now, one which no rational creature would conceive from the ground up?

Within this context, the greatest objection would likely be that such a national sales-tax system would be less “progressive” than the current one, perhaps even “regressive” in the sense of hitting the poor harder than the rich.

That’s where the exemptions for food and medicine come in. Not to mention the fact that payroll taxes have always hurt the working poor and middle classes while largely exempting the rich (which is why, in some cases, a wealthy person like Mitt Romney or Warren Buffett can end up paying at an overall lower tax rate than their secretaries).

But even without those considerations, it is likely that a national sales tax would still have a dramatically progressive tilt toward it. Someone who buys a million-dollar house would pay much more in taxes on that purchase than someone who buys a $60,000 double-wide. The purchaser of a Rolls or Ferrari is going to add a lot more to the federal coffers than the purchaser of a Ford.

And if there truly is something unbecoming and even immoral about conspicuous consumption under conditions of capitalist opulence, as so many on the left claim, then what better way to hit the plutocrats where it hurts than by making them pay more tax on their toys and baubles?

Best of all, we could go back to the splendid idea, so conducive to a regime based on liberty, that our money is no one else’s business, including the government’s.

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Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.

Editorial, Pages 17 on 05/27/2013

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