Monday, June 3, 2013

Flat Tax Could Neuter IRS

The IRS scandal shows how big government becomes corrupt government.  The entire bloated agency is run by mostly unionized, and therefore Democratic, employees.  This has been the case for some time and is true for most of the Federal Government bureaucracy.  So, there will always be considerable reluctance to ever "tame the beast" by Democrats.   But the beast needs taming when the bureaucracy begins to attack perceived adversaries that represent about half of the country's population! 

Peggy Noonan said it best when she summarizes the essence of the IRS scandal in the Wall Street Journal:
What does it mean when half the country—literally half the country—understands that the revenue-gathering arm of its federal government is politically corrupt, sees them as targets, and will shoot at them if they try to raise their heads?
That is the kind of thing that can kill a country, letting half its citizens believe that they no longer have full political rights. Those who think this is just business as usual are ahistorical, and those who think nothing can be done, or nothing serious should be done, are suffering from Cynicism Poisoning.
I've accused Obama of being Chavez-lite with Democratic vote-buying, 'control' of the media, and bulllying of the opposition---tactics used by Chavez to cement his multiple terms of office. The IRS persecution of the political opposition is not bullying?  And why else are the Democrats trying so hard to provide "cost-free" amnesty to 11 million undocumented Mexicans and so eager to offer them government benefits within months?  They see an opportunity to "capture" millions of new voters!!  It's a cynical power play!  They want another group "hooked" on the government for "free benefits." (In this way, we can "ruin" another minority group after we've ruined the Native Americans and African Americans.)

The end result of out-of-control government could be the same as in Venezuela:  inflation, stagnation and administrative politcal coercion.  We already have the stagnation and administrative coercion.  There are signs that inflation is welling-up too.  

When you hear that the head of the IRS has visited the White House 100s of times (which is extremely unusual), you can correctly fear that there is collusion and strong-armed tactics being perpetrated or planned.    We know Obama is obsessed with increasing taxes so he can spend all of that money and more.

Flat Tax Is Fairest and Makes the IRS obsolete 

The best way to neuter the IRS would be to downsize it.  The best way to downsize it is to vastly simplify our 10,000 page tax code.  Replace what we have with a flat tax on income for both individuals and corporations.  From my blog entry from September 2012 called A Flat Rate Income Tax is Truly Fair,

Because we live in time that nearly 50% of tax filers pay no income tax at all,  a flat tax of 16 or 18% on all income above the poverty level would be the fairest and simple tax rule (and no deductions).   Oh, and apply it to corporate entities too.   In that way, everyone pays their fair shar 
 (in this entire discussion, we are talking about income taxes.  It is assumed that payroll taxes would continue as is at 7.2% for individuals and the same amount paid by employers)
If you're single and make $40,000, then you pay 18% of the difference between $40,000 and the poverty level of $11,170.  This equates to 18% of $28,830 or $5,189 in Income Taxes.   If you make $1,040,000, then you $187,200 in Income Taxes.  No deductions.  
That's really fair right??   Right!  I'm glad that you agree.    This way, everyone has "skin in the game" and all can squawk with truly equal vigor about how well their tax dollars are spent.
You want to know why this is so difficult?   It's because the bottom 47% aren't paying income taxes now (they are paying 7% payroll taxes however).  If you have a truly flat rate, then much of the bottom 50% will have to pay a small amount of income taxes too!  
Also, since the top 1% are already paying 24% EFFECTIVE rate on average, then the 18% flat rate actually lowers their marginal rate (but with no deductions, the top 1% payer revenue would go up because of no deductions). 
What? The wealthiest pay lower tax rate???   (but revenues from this group would go up due to no deductions)   Sorry, but you already agreed that the flat rate is fair!   What we have now is unfair and amounts to "representation without taxation" for about half of the people in the USA.  
Oh, an average tax collection rate of say 18% is four percentage points above the post-war average tax take of 14% and would substantially solve the budget deficit problem!  The other thing is to limit the number and amount of tax credits or tax deductions per taxpayer as these "tax expenditures" now total $1 Trillion per year.   Add some real budget cuts to match and you've made some real budgeting reform progress!
With income taxes simplified, the IRS can be scaled back to something realistic and less aggressive.  Now, if we can get a Republican Senate majority in 2014!   Then we might really be on the right track once Obama is gone.

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