Do We Really Need The IRS?

Another April 15 has come. Checks have been written to Uncle Sam; accountants are planning a day off after the three-month rush; people expecting refunds who filed in February are awaiting cash; and all the while one can’t help but wonder: Is this even necessary?

The Taxpayer Advocate Service, an independent group within the Internal Revenue Service, says Americans spend $168 billion annually to file their taxes. The average self-filer spends 13 hours to do it—this accounts for short form filers who spend about 15 minutes to filers with a Schedule C or and a shoebox of 1099s. The Advocate also says American businesses and individuals spend an astonishing 6 billion—yes, with a B—hours a year to comply with tax regulations and file tax returns.

In Congress, typically when there is wrangling over taxes, it’s an argument over small changes in marginal rates and the income level required to bump your bracket. Those battles might win political points with party bases, but they ignore the fact that the federal tax code has grown to about 4 million words.

The accountants I know are smart people. Too smart, I’d say, to spend their productivity trying to figure out how much to pay the government or how to save some money avoiding it. Imagine unleashing all those brain cells on pursuits that grow businesses, rather than merely helping them comply.

I’m not against paying taxes. Without them there are no roads, no parks, no defense—pick your three or four favorites. But really? Can we not come up with a less burdensome way to collect them?

That’s a segue into a new periodic feature, From the Blogosphere, that offers ideas that challenge conventional wisdom and that can be explored on the Web. The first entry contains verbatim excerpts to an idea to replace the federal income tax with a national sales tax.

Unlike most sales tax schemes that attract only conservative outliers, the Fair Tax has a growing contingent of self-identifying liberals embracing the scheme. One of the distinguishing factors of the Fair Tax is that every taxpayer gets a monthly “pre-bate” depending on his or her circumstances, like number of dependents. The system is designed to be revenue-neutral, meaning it is supposed to take in the same amount the government already takes in. The pre-bate phases down for wealthier taxpayers.

The idea seems compelling. Why should we tax work? Why should we tax savings? Why should we get a tax break for buying houses we would buy anyway? Why allow mega corporations to pay negative tax rates (many do) and stick small business with the bill?

Another twist is that retailers who collect the taxes get paid to do it. Rather than throwing yet another regulation at business owners, they get a share of the take. See From the Blogosphere on page 16, and explore. If you have other ideas for From the Blogosphere—ideas that go against the grain of conventional wisdom and are not getting the public dialogue they might deserve—post them on our Facebook page.

In the meantime, if you owed taxes, be glad you made a little money. If you got a  refund, consider spending it locally.