The Internal Revenue Service (IRS) loves you and has a wonderful plan for your life. It wants to ease your mind about compliance with the tax code and make April 15 as stress-free as possible.
Sound too good to be true? Of course it is. Their real goal is to extract more tax dollars out of your pocket without having to muster the political courage to advocate a tax increase, and to do so in the most cynical way possible—by taking advantage of the least-sophisticated and lowest-income workers.
Some of our elected officials and the revenue establishment are convinced that there is a $345 billion annual “tax gap” between what people actually owe or should be paying and what the IRS actually collects. Of course, in a voluntary compliance system—the alternative to which is a police state—there is always going to be some gap in compliance. Not surprisingly, the IRS doesn’t mention the certainty that many people actually pay more than they owe because they fail to take advantage of deductions available to them.
Does the revenue establishment fault the tax code’s inherent complexity and Congress’ failure to reform it as responsible for the supposed shortfall? Guess again.
Slowly, over the past several years, the IRS has been insisting that more and more information be submitted from employers and from the savings and investment industry directly to them. At the same time, they’ve been tightening down on who can and who cannot prepare tax returns. Have you noticed?
And today, the IRS will hold its second hearing on what they call the “Real-Time Tax System,” which they claim is intended to give the IRS the ability to identify tax non-compliance in real time. Of course, the Real-time Tax System will require even more information from taxpayers, employers, banks and brokerage firms, but of course it’s being done to “reduce the burden for taxpayers.”
Of course it is. There’s actually a fairly insidious plan behind all of this. The “Real-Time Tax System” is just an appetizer for the pièce de résistance of the revenue establishment--a “return-free” system where the IRS would calculate your tax obligation for you (convenience!) and simply ask for your signature in large, friendly letters. In one fell swoop the IRS could claim to have the taxpayer’s best interests at heart, while making the calculation that reflects the best interests of the revenue establishment.
The return-free system (and thus the virtual elimination of voluntary tax compliance) is the ultimate goal of the revenue establishment. Before assisting in the destruction of the U.S. economy, Austan Goolsbee described the benefits of a return-free system in a 2006 op-ed in The New York Times. President Obama has endorsed return-free, and it was also discussed by the so-called “super committee,” which was specifically tasked with finding ways to raise more revenue for the government.
Make no mistake--Not only will the return-free system result in your paying higher taxes, it will require that substantially more of your personal financial information be disclosed to the IRS.
Perhaps the most cynical thing about the return-free system is that it takes advantage of the most vulnerable taxpayers—those with below-average incomes and below-average tax sophistication. What will they do when they get a bill from the IRS in a threatening envelope filled with legalese and threats of penalties? They’ll sign and pay up.
Our elected officials have constructed the most onerous and complicated monstrosity of a tax code imaginable, and instead of fixing it, they want to solve their revenue problem by extracting higher taxes from us without having the political courage to raise tax rates.
Our voluntary tax compliance system is a feature, not a bug. It’s a key indicator of self-government, one of the hallmarks of American freedom. The bug is our absurd tax code, which contains multiple and conflicting definitions of income, saddles the U.S. economy with an incredible compliance burden, and results in deadweight losses to the economy and to our global competitiveness.
If there is a tax gap, the fault lies at the feet of Congress for not overhauling our tax code into something that is functional and competitive in the 21st century. Fix that. In the meantime, I’ll prepare my own taxes, thank you very much.