Torture at the Hands of the IRS



April, 2004

While working on your Federal tax returns you may come across the following general rule taken verbatim from Title 26, Subtitle A, Chapter 1, Subchapter Q, Part II, Section 1311 (a): General rule — If a determination (as defined in section 1313) is described in one or more of the paragraphs of section 1312 and, on the date of the determination, correction of the effect of the error referred to in the applicable paragraph of section 1312 is prevented by the operation of any law or rule of law, other than this part and other than section 7122 (relating to compromises), then the effect of the error shall be corrected by an adjustment made in the amount and in the manner specified in section 1314.

 Got that? We’ll spare you recitation of Sections 1313, 1312, 7122, and 1314 … these sections of course go on for pages and, in turn, reference other sections of our 10 million word tax code … ad nauseam. In general, we are opposed to book burnings but our Federal Tax Code would be a wonderful exception. The complexity of the US Tax Code is daunting. Tests employing numerous tax “experts” (who fill out tax forms after being given the same set of “facts”) always lead to nearly as many different answers (or tax obligations) as the number of preparers participating in the tests.

 Scott Mooney, a Senior Economist with the Tax Foundation in Washington DC, testified before the Oversight Subcommittee of the House Ways and Means Committee in 2001 that the US spent 4.6 BILLION hours (well over 2 million people working full time; more people than work in the auto industry, computer manufacturing, airline manufacturing, and steel industry combined! More hours than worked by all the residents of Indiana.) in just one year on the paperwork requirements of the US tax code. The direct cost? $140 billion. Updated estimates for 2002 were 5.8 billion hours and $194 billion – a growth of over 25% in one year.

 But this cost has a piddling impact when you consider the huge distortions in economic activity that result from attempts to take advantage of tax preferences and to avoid tax penalties. It gets worse. The code is so complex that no one (and especially not the average citizen) has any idea of the marginal social or economic impact of individual tax code provisions. Instead of having any real social value, the code is used to satisfy industry lobbyists and to pay off political pressure groups. It combines extortion and bribery on a massive scale.

 In the end we all lose. We are much poorer and we are considerably less free. There are no net benefits … except to the thieves that use the tax code to discourage or eliminate competition (many, but not all, are big businesses) and political “leaders” that pretend compassion. One proposal that, while not perfect, offers a 90% solution is the Flat Tax supported by Steve Forbes. Here is his description: “Start by scrapping the tax code. Don’t fiddle with it. Junk it. Throw it out. Bury it.

 Replace it with a pro-growth, pro-family tax cut that lowers tax rates to 17% across the board and expands exemptions for individuals and children so that a family of four would pay no taxes on the first $36,000 of income. Not one cent to the IRS on the first $36,000. Anything over that would be taxed at a flat, fair 17%. The flat tax would be simple. You could fill it out on a postcard. It would be honest. It would eliminate the principal source of political corruption in Washington. It would be fair. Millions of people would be off the federal income tax rolls.

 There would be no tax on Social Security. No tax on pensions. No tax on personal savings. It would zero out capital gains taxes. It would set off a boom by letting people keep more of what they earn and by lowering barriers to risk taking.” The wisdom of this approach has been recognized by numerous foreign countries … especially those recently emerging from totalitarian rule. “Flat tax” systems were established in Estonia in 1994, Latvia in 1995, Russia in 2001, and adoption is currently reported too be under way in both the Ukraine and Slovakia. You decide. Do you really want: A 10 million-word tax code? $200 billion in wasted human effort every year?

 Thousands of IRS auditors and agents with nearly unbridled power? Economic distortion and rampant tax evasion due to high marginal rates? Corruption, via extortion and bribery, of our entire political system? Or not. Tell Bush and Kerry and your Representatives that you have had enough. Send the IRS a copy of their tax code on April 15th (all 5 cartons of it) … oh, along with your tax return. We wouldn’t want to annoy any of those pesky IRS agents.