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It's time to abolish the IRS and live free, America

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FILE - March 22, 2013: Exterior of the Internal Revenue Service building in Washington. (AP Photo/Susan Walsh, File)

Frustration with efforts to get to the bottom of IRS targeting of conservative groups should illustrate to even the most ardent supporters of big government that the federal tax agency is dangerous to civil liberties, irrevocably broken and corrupting national politicians.

When all is said and done after this latest IRS scandal, investigators on Capitol Hill and the Justice Department may be able to finger a few malefactors but that won’t fix the agency.  

Thanks to presidential executive orders, the union representing IRS employees is deeply involved in the management of the agency. Its leaders have the self-proclaimed goal of doing whatever it takes to defeat conservative politicians. The union consults regularly with leading Democratic politicians—including President Obama—on electoral strategy.

Dealing with the hassle and cost of annual tax returns and the constant fear of IRS audits makes all of us less free.

Simply put, the IRS has cultivated a culture that encourages employees to exercise discretion in ways harmful to free speech and association.

The IRS is not a neutral tax-collecting institution but a collection of grass roots activists, enjoying virtually unchecked sovereign power to destroy the personal reputations and finances of those who oppose liberal ideas. It inflicts terror on ordinary Americans through the arbitrary and capricious interpretation of tax rules and onerous audits.

Dick Durbin, the Senate Assistant Majority Leader has openly admitted to asking and receiving IRS assistance in harassing citizens groups embracing conservative views.

There is little hope of curbing such behavior or reforming the IRS when his colleagues in the Senate take no substantive action to censure him, and the mainstream media finds nothing much to investigate having learned about such egregious conduct.

The only alternative is to shut the IRS and replace the corporate and personal income tax it administers. The latter are riddled with special interest provisions that offer low taxes to the rich and powerful and impose high rates on the rest of us.

Moreover, the present quagmire of incentives and disincentives from the agency distorts business investment decisions and consumer choices. It reduces economic growth and leaves all of us less satisfied with our lives.

Finally, dealing with the hassle and cost of annual tax returns and the constant fear of IRS audits makes all of us less free.

In 2013, corporate and personal income taxes will yield to the Treasury about $1.5 trillion. This money could be replaced by an 11 percent sales tax on all private outlays—be they purchases of computer equipment, college tuition or a lunch from the corner takeout.

Business and institutions would then pay to Treasury the taxes they collected minus sales taxes they paid on purchases of materials and equipment, rent and the like. This subtraction would avoid the double taxation of materials and create a “value-added tax” so often proposed by advocates of tax reform.

To pay taxes, businesses and institutions would file a three line return, reveal how much they collected, how much they paid and the difference.

Individuals would file no tax return at all!

Temptation would abound to exclude or exempt all kinds of activities from this plan but that is the kind of thinking that gave us the current mess—and inequities, slow growth and exceeding complex tax returns.

If Congress wants to spend more, it could raise the rates. That would make the cost of spending more on government activities completely transparent to all Americans.

If conservatives on Capitol Hill wanted to cut programs, they could explain it to voters in terms of how much those cuts would lower the rate.

Elegant, egalitarian and efficient, such a value-added tax without exemptions would give Americans the tax reforms they want but that privileged rich folks and big businesses spend a fortune forestalling.

The economy would grow more and Americans will live better and in less fear. And, yes, Senator Durbin, that is what America is supposed to be all about.

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.

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