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August 02, 2004 Getting rid of the IRS Like hundreds of thousands--maybe millions--of libertarians and conservatives, I experienced a bit of a thrill when I read this.... A domestic centerpiece of the Bush/GOP agenda for a second Bush term is getting rid of the Internal Revenue Service, the DRUDGE REPORT has learned.Ok, it's Drudge, so it hard to tell how serious this is. Is it a pet project of Hastert that won't go anywhere? Is it just an idea being floated? Will it be a centerpiece of the Bush campaign and 2nd term? If it is the latter, it is a sign that the Bush campaign understands he has got to appeal to the conservatives and libertarians. And this proposal would do exactly that. In spades. It's just too bad the election wasn't happening around April 15th. If it was, any candidate proposing to eliminate the IRS would be swept into office with just under 90% of the vote. As it is, we can expect this to be at least as controversial as any proposal of the past decade. For more information on the rationale behind a National Sales Tax, see this post by Dale Franks. UPDATE: Reader "W" (no relation, I assume) writes that "if Bush seriously proposes this - or a flat tax - then I'm voting for him" and I have to agree. To this point, I was unsure whether I would vote against Kerry, or against Kerry and Bush. If I believe the GOP will seriously push this proposal, I will probably vote for Bush. Hell, if I think they can make it happen, I'll freakin' campaign for Bush. On the other hand, if they float it for the election, then drop it, I will actively work against the GOP. This could be the big issue on which the GOP either stakes its future with the libertarian/fiscal conservative faction....or leaves it behind. UPDATE II: Ok, for those who are calling a National Sales Tax "extremely, extremely regressive taxation", perhaps it's time to read up on the concept. Any national sales tax would, necessarily, involve either a "low income rebate" (as with the Fair Tax), or an exclusion for items like food, health care, education, housing, etc. The lower the income of the taxpayer, the more they spend on these items. Result: far less income exposed to taxation. Of course, at this point we don't know what the proposal will be--or if it will come to pass at all....it is, after all, coming from Drudge--but so far it appears the main weapon of its opponents will be fear. Fear, and ignorance. (the two main weapons...) UPDATE III: On the other hand, Atrios (of all people) makes some serious criticisms that proponents of the tax need to keep in mind. Matt Yglesias makes this good point, too... I'm actually a fan of consumption taxation, but it's simply not the case that you could abolish the IRS by moving to a national sales tax or a national VAT. Any tax system is bound to have rules (or if it's not going to have rules it would be a very strange system indeed) and that means people will need to enforce those rules. That's what the IRS does.Indeed. Perhaps it would be better to say that a VAT would strip the IRS of many of its current powers, and dramatically reduce its effect on the taxpayer. UPDATE IV: More information from Hastert can be found here. UPDATE V: Kevin Drum makes some worthwhile criticisms of the Sales and VA taxes. If this proposal is brought to the table, these questions are going to have to be answered. |
Personally, I don't believe it. I'd love it, but I don't believe it.
I was going to skip voting for the office of president, since I'm pretty displeased with Bush (from the right), and could never ever ever ever ever vote for Kerry. However, if Bush seriously proposes this - or a flat tax - then I'm voting for him.
Posted by: W at August 2, 2004 06:17 AM
I don't understand the statement of removing the IRS all together, and I don't agree with it. I just want the nosey bastards to stay out of my personal finances.
I'm already voting for Bush, but if he pushes this, I'll do so without holding my nose.
Posted by: Sharp as a Marble at August 2, 2004 09:23 AM
The IRS will still have its powers, they'll just be shifted toward businesses -- who must collect and pay the tax -- instead of everyone. If you own a business, it might mean audits are more likely for you, not less likely.
Any national sales tax would, necessarily, involve either a "low income rebate" (as with the Fair Tax), or an exclusion for items like food, health care, education, housing, etc.
I see potentially big problems with these. If you have a low income rebate, how is that claimed or enforced? You'll have to have income sources (employers, banks, brokerages, etc) reporting your personal income to the IRS (or its equivalent), in order to prove that your income is low enough. If you start excluding things from taxation, look out for the howls of special interest groups trying to get Congress to exempt them. For example, the steel lobby would want to be exempted from the sales tax so that foreign steel would cost more to consume. It could get out of hand quickly: things would be free of tax for some years and not others, or different items would be taxed at different rates. I'm not saying this will happen, just that it's really easy to imagine it happening.
There are benefits and detriments to any proposal. My personal preference is for a flat income tax rate, but a sales tax has its merits. One big plus would be in exports: what we export would not be taxed, what others import to us would be. I'd prefer even a flawed sales tax to what we have now, but I'm still hoping for a flat income tax :)
Posted by: Steverino at August 2, 2004 09:41 AM
Steverino: Go read the Fair Tax plan. There are no claims, per se. All Americans get the same exemption. IOW, you pay the tax when you buy and then you get reimbursed to a certain level (the exemption).
That takes care of exempting products and simplifies the plan. No one reports your income. That's your business again. And, unless you buy something, you don't pay taxes.
The IRS has no real role in this plan. States now run and administer sales taxes. If there is a role for the IRS it would be with the states, not the individual or businesses.
Posted by: McQ at August 2, 2004 09:55 AM
A minor quibble. There seems to be some confusion in assuming a Sales Tax and a VAT are the same things. They are actually quite different animals.
Posted by: Dale Franks at August 2, 2004 11:13 AM
You know, I've said a National Sales Tax or VAT wouldn't be that bad of an idea. Specifically because of the untaxed underground economy. Unfortunately, if the conflicted conservative/libertarian decides to vote for Bush based on this issue, they would ultimately be let down at the end of four years. There's a better chance of monkeys flying out of my butt than getting something this monumental passed.
Posted by: sean at August 2, 2004 11:49 AM
A few points.
The 'Fair Tax' folks posit a federal rebate paid to everyone with a social security number. It would be paid in monthly installments, and would add up, in a year's time, to the total tax that would be paid by an individual spending the minimum wage. Thus low income people would pay no tax, and those below the 'poverty level' would be slightly subsidized. Those earning above the 'poverty level' would also recieve the rebate, but it would be less significant as income increases. In theory, it would be neutral, not regressive. People spending more would pay more, and there would be no tax shelters.
How many people know someone who can "get it for you wholesale"? Well, under this kind of plan that could be a federal crime. I suspect that the IRS would just shift their focus, not go away.
Then, there is the problem of what is a 'retail sale'. The same used car could be taxed if sold by a dealer, but potentially not if sold by an individual. How about houses? If the same sort of rule applied, the new housing industry could be decimated, since resales might not be taxed, but home builders would. Presumably, internet sales would be taxed for retailers, but not for private sales. How about used books? or antiques?
Although at first blush it might seem that all prices would rise by the amount of the retail tax, there are other factors at work. The typical accumulated tax burden on a manufactured good is about 30%-40% under the current system. Under NST that would go away, so the prospect exists that competition would lower the prices of most goods by a similar amount. Since goods are not taxed until sold by a retailer, manufacturers would be more competitive on the world market since they would not have the existing tax burden.
A final consideration is the cost of compliance with existing tax laws. The Heritage Foundation estimates that the annual cost of compliance with the existing tax laws is $157,000,000,000. In terms of time, it is almost 3 million full time jobs. Almost all of that is the bureaucratic cost of record keeping, researching the tax code, and hiring lawyers, accountants etc. There are also intangible advantages to NST. Businesses do not have to base expansion decisions on tax law. They don't have to spread depreciation over the allowed life of the new equipment. Indeed, they don't have to worry about depreciation if they don't want to. Generally, businesses can be more agile and more cost efficient because they don't have to factor in tax considerations.
Plenty of food for thought!
Posted by: John F. at August 2, 2004 08:03 PM
there is a bill that will be passed called nesara. it takes away bank fraud, the irs and other nasty things as well. go to www.nesara.org
you will find your answers there!!!!!!
Posted by: nathaniel at October 5, 2004 01:20 AM