Since it is tax-filing season and we all want to honor our wonderful tax system, let’s go into the archives and show this video from last year about the onerous compliance costs of the internal revenue code.
The mini-documentary explains how needless complexity creates an added burden – sort of like a hidden tax that we pay for the supposed privilege of paying taxes.
Two things from the video are worth highlighting.
First, we should make sure to put most of the blame on Congress. The IRS is in the unenviable position of trying to enforce Byzantine tax laws. Yes, there are examples of grotesque IRS abuse, but even the most angelic group of bureaucrats would have a hard time overseeing 70,000-plus pages of laws and regulations (by contrast, the Hong Kong flat tax, which has been in place for more than 60 years, requires less than 200 pages).
Second, we should remember that compliance costs are just the tip of the iceberg. The video also briefly mentions three other costs.
1. The money we send to Washington, which is a direct cost to our pocketbooks and also an indirect cost since the money often is used to finance counterproductive programs that further damage the economy.
2. The budgetary burden of the IRS, which is a staggering $12.5 billion. This is the money we spend to employ an army of tax bureaucrats that is larger than the CIA and FBI combined.
3. The economic burden of the tax system, which measures the lost economic output from a tax system that penalizes productive behavior.
The way to fix this mess, needless to say, is to junk the entire tax code and start all over.
I’ve been a big proponent of the flat tax, which would mean one low tax rate, no double taxation of savings, and no corrupt loopholes. But I’m also a big fan of national sales tax proposals such as the Fair Tax, assuming we can amend the Constitution so that greedy politicians don’t pull a bait and switch and impose both an income tax and a sales tax.
But the most important thing we need to understand is that bloated government is our main problem. If we had a limited federal government, as our Founding Fathers envisioned, it would be almost impossible to have a bad tax system. But if we continue to move in the direction of becoming a European-style welfare state, it will be impossible to have a good tax system.
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I deposit payroll taxes and file 941s for a non-profit. For the last five years or so, all deposits and 941 have been timely. In August 2010, I received a notice from the IRS that they intended to levy on our property because of unpaid payroll taxes under an EIN which we did not own. After hours on the phone with agents, we still do not know how this EIN came to be associated with our account. Agents would not tell me (the taxpayer) anything about the EIN since it was not mine! Yet they wanted big bucks and penalty, interest, etc. from me for this same EIN. Finally, I was able to speak to someone who told me to file many 941s and 941-X forms to settle the matter. Today (April 18, 2011) I learned that all of the taxes, penalties, and interest have been cancelled BUT there is a lien on our property for $10.04 which is collection costs plus one month’s interest. This is to collect money which the IRS admits we never owed! The agent recommended that I pay this to end the nightmare.
big deal… did you know that only 51% of taxpayers pay an actual tax liability?? wow!
1. Not all compliance costs are punitive costs. Typical compliance costs are a business expense; they are normal and ordinary costs of doing business and are deductible from taxable income. Punitive costs are not deductible, ergo they are not compliance costs.
2. The HUGE number of IRS employees that you speak of makes up less that 5% of all federal employees. (est 2MM federal employees)
3. The IRS operates as an administrative function. While the Secretary can pursue cases of noncompliance, the ultimate power rests with the DOJ and the FTC.
4. Get an Econ friend to explain what is wrong with this statement: “I’ve been a big proponent of the flat tax, which would mean one low tax rate”.. srsly?? You will pay more with a flat tax because the income tax system will likely be abolished to avoid “triple taxation” of income, OR your lifestyle will have to be adjusted.
5. If you a relying on inaccurate information for your taxes, chances are you’re doing it wrong and you deserve everything the IRS throws at you! Hire a CPA today!
Good attempt at fear mongering, but you should probably go back to the Wren building…
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[…] In the past couple of days, I’ve posted about the benefits of a better tax system and the unfairness of the current system. […]
Dan is a hoot. What a guy!
Dan — did you know, yes or no, that under Fairtax, the city government of Los Angeles would owe 600 million dollars to the federal government?
Here is from the FAIRT THE TRUTH book by Boortz. Read it.
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“Under our plan, all city and state governments will pay to the federal government a tax on all their spending — on all their purchases, on services and goods, including labor (wages).” Fairtax Answer Book, page 138 ”
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Did you see that Dan? Or not? A federal tax on WAGES of city and state employees. On all spending, including WAGES. (later they exempt education spending)
Sound like a typo or misprint, or taken out of context? A massive tax, including a WAGE tax? Boortz didn’t explain it (of course) he just dropped that sentence in there, and ran away. Very odd.
Is Boortz wrong?
No, the same thing is in HR 25. In HR 25, Section 2(a) subparagraph 7, they sneakily define the government as “a person” to be taxed.
Why did they hide this deep in the fine print? Because they know it’s goofy.
In fact, Fairtax officials (David Kendall for one) have told me that yes there is a tax on government WAGES — state and county and city government will pay MASSIVE taxes to the federal government.
Not just LA city goverment would have to pay 600 million, but EVERY city, every county, every state. There are 25,000 cities in US. All would pay massive taxes.
There are 5,000 or so county governments. All would pay massive taxes.
There are 50 states, all would have to pay massive taxes.
That is what Boortz said – -cryptically – -above, That is what Fairtax HR25 has in the fine print. That is how Fairtax math is set up. That is what Fairtax own research says — we have to tax the GOVERNMENT.
Fairtax own research can be boiled down to this, Dan. “Taxing people 23% won’t work. We have to tax the government a trillion dollars” That is exactly what Fairtax research boils down to.
And it’s goofy. It’s goofy because ONLY PEOPLE PAY TAXES.
What to Fairtax “experts” like David Kendall say? He said — and I quote he “sees nothing wrong with asking city and states to pay”. But Fairtax — nor David — is asking. They are hiding this poop in the fine print.
Asking? they are not asking city and states to pay. Just the opposite, they are HIDING this. David Kendall has refused our repeated questions about -“How is this asking”.
So what they do is hide this preposterous nonsense in the fine print, and then when caught say “Oh, nothing wrong with asking”
That is how goofy Fairtax is.
Dan, you can’t be this dense. You look smarter. The Fairtax is goofy double talk, and their idiot hidden tax on government proves it.
http://fairtaxbs.blogspot.com/
” WE are here from the IRS and we want all your mony so pony it up and die with nothing”