IRS scandal highlights need for comprehensive tax reform

by - May 30, 2013

For the sake of jobs and economic growth, as well as good governance, we should be thinking about a simpler and more transparent tax system. The banes of complexity and opacity are the “gateway drugs” to abuse and corruption. By contrast, simplicity and transparency are the hallmarks of efficient and honest administration. The wisdom of Supreme Court Justice Louis Brandeis applies here: Sunlight is the best disinfectant. The big lesson is that systems that are exceedingly complex inevitably lead to trouble. There are several reasons why complexity and mischief seem to go hand in hand. First, the more confusing the rules and regulations, the more power bureaucrats can exercise over less well informed citizens. In the case of the IRS agents and the Tea Party, as well as some Democratic-leaning, petitioners, it seems as if the agents used their discretion to tie the applicants up in a surfeit of red tape. Second, the more complex a legal system is, the more costly it is to comply. If you can afford armies of lawyers and accountants, you can get all sorts of breaks from the government. If you can’t, you pay higher tax rates than people who have more money than you do. And finally, the more complex a system is, the more people are tempted to cheat or to pay someone to help them cheat.

The Hill's Congress Blog

Despite its advocates claiming it will save time and money, there are so many disadvantages that this sort of approach will never work if put into action. Even though there are some benefits to the plan, the drawbacks are so pervasive that they overwhelmingly outweigh whatever advantages exist. In this proposed system, each year the IRS would calculate what every taxpayer owes, and send them a bill for that amount. Taxpayers would have the option to accept the IRS’s calculation and pay the bill, or file taxes on their own. The benefit of citizens doing their own taxes is that it forces them to become familiar with the laws that determine how much they pay. By removing taxpayers from the process and letting the IRS prepare individuals’ returns, the value of the self-compliance principle of the federal income tax system would be eroded.

The fallacy of IRS-prepared tax returns - The Hill's Congress Blog

On the question of whether to submit to secular taxation, Jesus famously advised the Jews to “render to Caesar the things that are Caesar's, and unto God the things that are God's.” In response to the ongoing Internal Revenue Service scandal, Congress should take a page out of Mark 12:17 and render to the IRS only the issues that are within the agency’s expertise. Concomitantly, regulation of politics should be vested solely in the agency that is best structured for the role: the Federal Election Commission. In its report of the IRS’s targeting of conservative groups seeking tax-exempt status, the Treasury Inspector General for Tax Administration notes that IRS examiners “lacked knowledge of what [political] activities are allowed by … 501(c)(3) and … 501(c)(4) tax-exempt organizations.” They are not alone. Political and tax law experts grapple with this problem every day.

WWJD about the IRS? - The Hill's Congress Blog

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