Wednesday, January 14, 2015

Budget Cuts Hinder The IRS; Switch To A National Sales Tax, Cut The IRS To Fit Its Budget

Among the things you couldn't possibly get me to shed a tear over, even if you were to rub cut onions directly on my eyeballs, is the IRS singing the blues over difficulties the agency faces due to budget cuts.

Naturally, they're doing their best to figure out ways to hurt you with these developments:

"With a week to go before tax season opens, taxpayers were already bracing for a potentially "miserable" filing season. It turns out that it could live up to the hype.
Internal Revenue Service (IRS) Commissioner Koskinen has advised employees that the budget cuts will result in reduced services to taxpayers. In an email to employees sent earlier today, Commissioner Koskinen advised that "realistically we have no choice but to do less with less." -- Kelly Phillips Erb, Forbes.com
I'll get to the list of bad things predicted for you and I in a moment, but first, I'd like to propose an alternative to the income theft perpetuated against us all by the U.S. Federal tax code as it presently exists: let's switch to a consumption tax. Instead of your pay being withheld from you, you receive 100% of your wages, with no need to file any sort of paperwork with the IRS. There will be no refunds, because there would be no excess withholding to return to you. You would simply pay a sales tax on goods and services that you purchase.

Now then, what they say is going to happen due to the IRS budget cuts, and how it would be different without this insane taxation scheme:

1. Identity theft could increase

Current tax scheme: 
What the author of the piece is referring to here is fraudulent filings with stolen Social Security numbers that collect the various refundable tax credits (earned income, tax credits for dependent children, etc.). The thief gets an electronic deposit to their checking account in your name, disappears, and all kinds of fun ensues when you try to file your return.

National Sales Tax: If we had a national sales tax and no income taxes, this probably wouldn't even be a thing. If there's nothing to file for, there's nothing to fraudulently file for. Any credits that .gov might try to keep in place could be rendered into a different form and distributed in a different way, such as kicking the funds down to local DSHS offices where recipients would be required to file in-person. It would be much, much harder for an identity thief to steal money that way.

2. Refund delays

Current tax scheme: It's pretty obvious what the deal is here, as it simply is what it says. A reduced budget means fewer people and machines processing returns, so a very long line of filings moves at a slower pace. People who count on receiving their refund check every year have to wait longer, which could mean anything from delaying a planned purchase or investment to having their utilities shut off.

National sales tax: If there's no withholding from your paycheck, there can be no excess withholding. There would be nothing to file with the IRS, and no return to wait on. You would already have all of your money.

3. Lags in correspondence

Current tax scheme: This is similar to #2, fewer people and machines means longer wait times to get all kinds of stuff done, sending letters to you obviously being one of those things. If you need a question answered, it's going to take even longer to get an answer. As the author of the piece says on this point, the IRS sends letters that begin with "We need more time..."; you can be sure that the lag in correspondence only goes one way, as they will certainly continue to demand that you file your papers and send a check on time...

National sales tax: You would no longer correspond with the IRS, so it simply would not matter how slow they get. The only people who would correspond with them would be people like me, a business owner. Exactly as I am now a sales tax collector for the state of Washington, so would I be for the IRS. Despite Olympia's best efforts to make sales tax collection and remittance to the state coffers needlessly complex, it is still vastly more simple than dealing with Federal income taxes. A national sales tax would likely be as simple as the state sales taxes I handle now; extrapolated out over the whole of the nation, this switch to a far more simple system, with fewer entities even required to correspond with the IRS, would likely fix this issue simply by reducing the sum total and the complexity of the correspondence, even if the IRS were made far smaller than it is now.

4. Fewer resolutions

Current tax scheme: I have to assume here that the author is referring to those times where the IRS comes up with one set of numbers (higher) and the tax payer being shaken down comes up with a different set of numbers (lower).

National sales tax: This problem simply goes away. You won't get into these kinds of disputes with the IRS if you are not the owner of a business that is tasked with collecting the national sales tax. You pay your taxes at the register when you purchase goods and services, and that's it. If you are the owner of a business, this would only be a problem for you if you're an undisciplined moron: as it goes now with sales taxes here in Washington state, when I receive payments from my clients, I immediately divert the sales tax portion of their payment to a separate account so that the funds are always on-hand and ready to go when I file my quarterly returns with Olympia. It's simple!

5. Unanswered calls

Current tax scheme: This is similar to #4, so no need to go into detail.

National sales tax: Same as the above, this really isn't a concern unless you're a business owner, and then probably only if you're the aforementioned undisciplined moron type.

6. Shutdowns

Current tax scheme: The IRS commissioner has warned of some possible furlough days during the year, which basically just means more delays across the board. The root of the problem here is simply the size of the agency, an effect of all of the crazy things it's required to do owing to our overly-complex Federal tax code: the IRS is so freakishly huge right now that funding cuts can lead to the need to shut the whole thing down periodically so that it's spending as little as possible.

National sales tax: Because a much smaller number of entities would be dealing with the IRS (instead of hundreds of millions of individuals), the agency would not need to be nearly as large as it is now, would require a much smaller budget, and as such would be easier to fund adequately and could easily avoid this kind of scenario. Depending on how often businesses would remit sales taxes to the IRS, it may not even be necessary to have the agency running on anything more than a skeleton crew between return periods. If the model we have here in Washington state is any indication - I can complete my quarterly sales tax filing in about five minutes online - it may be possible to shrink the IRS to a tiny fraction of what it is now, permanently.

Fewer Audit Closures

Current tax scheme: What's being referred to here is finalizing audits of tax payers when a dispute arises, so fewer closures means more audits hanging in limbo while the IRS overcomes its budget woes.

National sales tax: Again, simply not an issue for anyone but undisciplined moron business owners. Audits would still occur with disciplined, intelligent business owners from time-to-time, but that would just be a records check procedure, which owing to the relative simplicity of a sales tax scheme could be completed in an afternoon.

For now I'm leaving out any discussion of related issues with a national sales tax, such as concerns that such taxes are regressive, rates that would be required, exemptions or lack thereof on certain classes of goods, the special interest power built into the current system, etc. I also am not going to discuss specific proposals that are out there right now for something exactly like or similar to what I've described. Today I just wanted to illustrate the basic fact that under what we have now, the structure of the beast forces nearly all of us, whether we receive returns or otherwise, to deal with this bloated, unstable agency that just demands more and more money as it heaps abuse on the very people it needs money from!

Just think about it: would you prefer to keep going with this annual paperwork ritual and the stress and anxiety that comes with it, or would you rather just pay your taxes at a cash register and walk away?


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