Posts Tagged ‘IRS’

When someone says “IRS,” my Pavlovian response is “flat tax.”

That’s because I’m a policy wonk and I’d like to replace our punitive internal revenue code with something simple and fair that doesn’t do nearly as much damage to our economy.

And it’s a fringe benefit that real tax reform would substantially de-fang the IRS.

But I’m also a big believer in the rule of law and a big opponent of capricious government power, so I’m also interested in curtailing the power of the IRS even if we don’t get a chance to fix the tax code.

I’ve previously commented on the unseemly and corrupt behavior of the IRS, and there’s no question the bureaucracy’s actions have been despicable.

But is it so bad that the Commissioner of the IRS deserves to be impeached? Let’s look at pro and con arguments.

Here’s some of what Bloomberg’s Al Hunt wrote about the controversy. He’s obviously a defender of the current Commissioner.

The specifics of any supposed impeachable offenses are vague. Koskinen, 76, is a respected, successful business and government executive who, at the behest of the White House, took on the job of cleaning up the beleaguered tax agency in December 2013, after offenses had been committed. …The accusations stem from 2013, when the IRS’s tax-exempt division was found to have disproportionately targeted conservative groups for scrutiny. Although Koskinen was brought in after the damage had been done, …Some, rather recklessly, accuse him of lying. …The specific charges seem specious: There may have been miscommunication, but there is no evidence of wrongdoing by Koskinen. …The pre-Koskinen abuses by the IRS’s tax-exempt division have been the subject of three inquiries… All were critical of IRS mismanagement, but none found any evidence of illegal activities or political direction from on high.

George Will is not so sanguine about Koskinen’s role. Here are excerpts from his column in the Washington Post.

Federal officials can be impeached for dereliction of duty (as in Koskinen’s failure to disclose the disappearance of e-mails germane to a congressional investigation); for failure to comply (as in Koskinen’s noncompliance with a preservation order pertaining to an investigation); and for breach of trust (as in Koskinen’s refusal to testify accurately and keep promises made to Congress). …After Koskinen complained about the high cost in time and money involved in the search, employees at a West Virginia data center told a Treasury Department official that no one asked for backup tapes of Lerner’s e-mails. Subpoenaed documents, including 422 tapes potentially containing 24,000 Lerner e-mails, were destroyed. For four months, Koskinen kept from Congress information about Lerner’s elusive e-mails. He testified under oath that he had “confirmed” that none of the tapes could be recovered. …Koskinen’s obfuscating testimonies have impeded investigation of unsavory practices, including the IRS’s sharing, potentially in violation of tax privacy laws, up to 1.25 million pages of confidential tax documents. …Koskinen consistently mischaracterized the Government Accountability Office report on IRS practices pertaining to IRS audits of tax-exempt status to groups.

These charges don’t seem (as Hunt asserted) to be “specious.”

That doesn’t mean, by the way, that there aren’t good (or at least adequate) responses to these accusations.

And perhaps Koskinen didn’t technically commit perjury. Maybe he simply engaged in some Clintonian parsing and misdirection.

So I’ll be the first to admit that it’s unclear whether Koskinen deserves to be impeached.

But I’ll also be the first to argue that the IRS is a rogue bureaucracy that needs to slapped down. That’s why it deserves budget cuts rather than the increases favored by the White House.

And Lois Lerner almost certainly should be in jail. Beyond that, I’m open to ideas on how to discourage the tax collectors from engaging in rampant misbehavior.

Just in case you think I’m exaggerating, here’s a list.

These horror stories provide plenty of evidence that the internal revenue service should have its wings clipped.

P.S. Since we’re criticizing the IRS, I can’t resist sharing some oldies but goodies.

P.P.P.S. And since I’m digging through my archives, here’s my collection of IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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I’m delighted that so many presidential candidates are talking about partial tax reform and I’ve specifically analyzed the plans put forth by Marco Rubio, Rand Paul, Jeb Bush, and Donald Trump.

These proposals all make the tax code less punitive, and that would be good news for job creation, growth, and American competitiveness.

But that doesn’t mean any of them are perfect. They all fall short of the pure flat tax, which is the gold standard for full tax reform. Another problem is that these proposals won’t be plausible or sustainable unless unaccompanied by some prudent plans to restrain the growth of federal spending.

Today, though, I want to focus on another shortcoming. The various plans need to be augmented by long-overdue restrictions on the IRS, which has become and abusive and rogue bureaucracy.

Consider a few examples.

These horror stories provide plenty of evidence that the internal revenue service should have its wings clipped.

But let’s add another straw to the camel’s back. The tax collection agency in the midst of an audit fight with Microsoft and the IRS is making a mockery of its own rules and flagrantly abusing the company’s legal rights.

This is bad news for one of America’s most successful firms, but it also is creating a very dangerous precedent that could victimize many other companies – large and small – in the future.

Writing for The Hill, Andy Quinlan of the Center for Freedom and Prosperity highlights some of the IRS’s most offensive actions.

First, the IRS is flouting its own rules as part of its persecution of Microsoft.

Government officials, counter to federal law, are trying to bully the company into extending an audit process that should have ended over 6 years ago. …Federal law provides a three-year time period for the completion of an audit, yet IRS officials have been digging through the company’s files for over nine years.

Second, the IRS won’t even tell the company how much money it wants!

Seattle-based Microsoft had to force a hearing on this matter because the IRS refused to submit a final tax bill to Microsoft for a dispute over taxes owed from 2004 to 2006. The IRS has been dragging out this audit process for close to a decade, and continues to pressure the company to sign waivers extending the audit infinitum.

Third, the IRS has been whining about supposedly inadequate budgets, but the bureaucrats are paying a private law firm millions of dollars to participate in this never-ending audit.

In 2014, the government in an unprecedented move hired Quinn Emanuel, a L.A.-based litigation firm to help audit the company. The IRS has billions in budget, teams of lawyers and accountants, yet they decided spend $2.2 million dollars outsourcing their legal team to lawyers that charge in excess of $1000 an hour.  It should come as no shock to anyone following the IRS scandal that Quinn Emanuel is chock full of lawyers who are also large contributors to the party in power.

Fourth, the IRS’s rogue behavior may become standard practice if the bureaucrats don’t face any repercussions for stepping over the line.

This fight actually has little to do with Microsoft. It has everything to do with the prospect of the IRS abusing power, wasting taxpayer money and setting dangerous precedents for enforcement against small businesses. …The actions of the IRS that put this matter into court threatens to set a dangerous precedent on the power of the federal government with regard to tax issues. Congress needs to protect citizens against IRS overreach, and now a potential new procedure that will allow private tax information to be shared with outside law firms.

Wow, what a damning indictment against a vindictive bureaucracy.

And while Microsoft is a big company with plenty of money to defend itself, this is still outrageous. Particularly since the IRS will employ these thuggish tactics against less powerful taxpayers if it isn’t slapped down for by either Congress or the courts.

By the way, I should say something about the underlying dispute. The IRS is not happy about the prices that Microsoft charged when doing intra-firm sales between the parent company and foreign subsidiaries.

Yet if the bureaucrats really think Microsoft abused the “transfer pricing” rules, then the IRS should come up with its own estimate and – if necessary – they can go to court to see who’s right.

For what it’s worth, I suspect the IRS isn’t presenting Microsoft with a bill precisely because the bureaucrats ultimately wouldn’t prevail in a legal fight. The agency probably hopes a never-ending audit eventually will force the company to voluntarily over-pay just to end the torture.

Since I’m a policy wonk, I can’t resist noting that the only reason this kind of dispute even exists is because the United States has the highest corporate tax rate in the entire world. So companies naturally seek to maximize the income they earn in other nations (sort of like entrepreneurs and investors decide it’s better to do business in low-tax states such as Texas rather than fiscal hellholes such as Illinois).

And there’s nothing wrong – legally or ethically – with taxpayers choosing not to overpay the federal government.

The IRS can, of course, ask politicians to change the law if their goal is to grab more money. But as explained by Brian McNicoll in a column for the Washington Times, it shouldn’t try to confiscate more loot with endless harassment and dubious tactics.

If Microsoft’s business strategies are a problem for the IRS, it is up to Congress to change the tax law. But as long as those strategies are legal, no one should question Microsoft for doing what it can to limit its tax obligation. …there is reason Congress gives the IRS three years — not eight and certainly not carte blanche to go on indefinitely. …If the IRS has something on Microsoft, by all means bring it forward. But if it doesn’t, it needs to close the books on this near-decade of harassment and send Microsoft a bill for its taxes.

Returning to our main point, this is why tax reform should be accompanied by reforms to rein in the IRS’s improper behavior.

P.S. They haven’t put forth many details, but some candidates have indicated support for the kind of radical tax reform that would de-fang the IRS. Rick Santorum, Ben Carson, and John Kasich have all stated that they like the flat tax. And Mike Huckabee embraces a national sales tax to replace the current tax code.

And if there’s wholesale replacement of the internal revenue code, then a lot of the problems with the IRS automatically disappear.

P.P.S. Since we’re criticizing the IRS, I can’t resist sharing some oldies but goodies.

P.P.P.S. And since I’m digging through my archives, here’s my collection of IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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Remember Sleepless in Seattle, the 1993 romantic comedy starring Tom Hanks and Meg Ryan?

Well, there should be a remake of that film entitled Clueless in Washington. But it wouldn’t be romantic and it wouldn’t be a comedy.

Though there would be a laughable aspect to this film, because it would be about an editorial writer at the Washington Post trying to convince people to feel sorry for the IRS. Here’s some of what Stephen Stromberg wrote on Wednesday.

Congress has done some dumb things. One of the dumbest is the GOP’s penny-wise-pound-foolish campaign to defund the Internal Revenue Service. …its mindless tantrum against the IRS has produced for taxpayers: a tax season that was “by far the worst in memory,” according to the Taxpayer Advocate Service, an agency watchdog.

Before I share any more of the article, I should point out that the “Taxpayer Advocate Service” isn’t a watchdog. It should be renamed the “Government Advocate Service” since its main goal is to increase the IRS’s budget.

But I’m digressing. Let’s continue with Mr. Stromberg’s love letter to tax collectors.

The underlying problem is that Congress has asked the IRS to do a lot more, such as administering a critical piece of Obamacare, but the GOP Congress won’t give the agency the funding it needs to do its work. …But good luck convincing Republicans to fix the IRS’s entirely predictable and avoidable problems. Not when that would mean restraining the impulse to act on anti-tax orthodoxy, blind populist anger and scandal-mongering about the IRS mistreating conservatives. In fact, Republicans want to double down on their nonsense budgeting, proposing deep cuts to the IRS last month.

Oops, time for another correction.

Stromberg is cherry picking data to imply that the IRS budget has been savaged.

If you look at the long-run data, however, you’ll see that the IRS now has almost twice as much money to run its operations as it did a few decades ago.

And that’s based on inflation-adjusted dollars, so we have a very fair apples-to-apples comparison.

Stromberg also wants us to sympathize with the bureaucrats because the tax code has been made more complex.

The underlying irrationality is the same: The IRS doesn’t write the tax code or health-care law, but the agency must apply these policies and engage with people affected by them, so it is an easy scapegoat.

Part of this passage is correct, and I’ve specifically pointed out that the tax code is mind-numbingly complex and that politicians deserve an overwhelming share of the blame for this sorry state of affairs.

That being said, the IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that put foreign tax law above American tax law. And when it arbitrarily rewrote the Obamacare legislation to enable additional subsidies.

In other words, it deserves to be scapegoated.

But there’s a bigger issue, one that Stromberg never even addresses. Why should we give more money to a bureaucracy that manages to find plenty of resources to do bad things?

Never forget, after all, that this is the bureaucracy that – in an odious display of bias – interfered with the electoral process by targeting the President’s opponents.

And then awarded bonuses to itself for this corrupt behavior!

Even more outrageous, the Washington Examiner reports today that the IRS still hasn’t cleaned up its act.

A series of new revelations Wednesday and Thursday put the Internal Revenue Service back under fire for its alleged efforts to curtail…conservative nonprofits. …the Government Accountability Office uncovered evidence that holes in the tax agency’s procedure for selecting nonprofit groups to be audited could allow bias to seep into the process. …lawmakers exposed the lack of safeguards that could prevent IRS officials from going after groups with which they disagreed. Meanwhile, the conservative watchdog Judicial Watch released documents Wednesday that suggested the IRS targeted the donors of certain tax-exempt organizations.

Does this sound like a bureaucracy that deserves more of our money?

If you’re still not sure how to answer, consider the fact that the IRS also somehow has enough money in its budget to engage in the disgusting “asset forfeiture” racket.

The Wall Street Journal recently opined on this scandal.

…a pair of new horror stories show why Americans dread any interaction with the vindictive tax man. Khalid Quran owns a small business in Greenville, North Carolina. He emigrated to the U.S. in 1997, opened a convenience store near a local airport, and worked long hours to give his four children more opportunity. After nearly two decades, Mr. Quran had saved $150,000 for retirement. Then in 2014 the IRS seized his bank account because he had made withdrawals that raised red flags under “structuring” laws that require banks to report transactions of more than $10,000. Mr. Quran had made transactions below that limit.

So even though Mr. Quran did nothing illegal and even though it’s legal to make deposits of less than $10,000, the IRS stole his money.

Just like money was stolen from the Dehko family.

Here’s the other example from the WSJ.

Maryland dairy farmer Randy Sowers…had $62,936.04 seized from his bank account because of the pattern of his deposits, though the money was all legally earned. …Mr. Sowers told his story to a local newspaper…a lawyer for Mr. Sowers asked…“why he is being treated differently.” Mr. Cassella replied that the other forfeiture target “did not give an interview to the press.” So much for equal treatment under the law.

Yes, you read correctly. If you have the temerity to expose the IRS’s reprehensible actions, the government will try to punish you more severely.

Even though the only wrongdoing that ever happened was the IRS’s confiscation of money in the first place!

So let’s celebrate the fact that the IRS is being subjected to some modest but long-overdue belt-tightening.

Notwithstanding Mr. Stromberg’s column, the IRS is not a praiseworthy organization. And many of the bureaucrats at the agency deserve our disdain.

The bottom line is that IRS budget cuts show that Republicans sometimes do the right thing.

And maybe if there are continued cuts and the current tax system actually does become unenforceable at some point, maybe politicians could be convinced to replace the corrupt internal revenue code with a simple and fair flat tax.

P.S. Clueless in Washington won’t be the only remake out of DC if President Obama decides to go Hollywood after 2016. Indeed, I suspect his acting career would be more successful than mine.

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When I wrote about the media, it’s generally to criticize sloppy and/or biased reporting

But maybe I need to have a new category that features misleading headlines.

For instance, here’s a report by Fox Business News that grabbed my attention because of the headline. The story is about the arrest of an IRS bureaucrat.

The main reason I was startled by the story is that it didn’t seem at all newsworthy.

To be blunt, isn’t it the job of IRS employees to use our Social Security numbers to steal our money? That’s certainly what goes through my mind as I fill out my tax return.

So why was this bureaucrat arrested?

Was it for being a slacker, I wondered? The federal government confiscates about $3.5 trillion of our money each year, after all, which means the 95,000 IRS bureaucrats generate an average haul of more than $35 million. By contrast, $326 thousand is a mere pittance.

But then I read the story and realized that the story was about a completely different kind of theft. It appears that the bureaucrat was getting in on the nationwide scam of filing false claims to get EIC handouts.

An IRS employee who worked in the agency’s St. Louis, MO., office pled guilty this week to charges of tax fraud. Demetria Brown netted $326,000 in a fraud in which she stole taxpayer identities and created fake tax returns to steal refunds. …The scheme lasted seven years from 2008 to 2001.

So my first instinct was correct. There isn’t really anything newsworthy in that story. After all, nobody should be surprised that income-redistribution programs such as the EIC attract a lot of fraud. Nobody should be surprised that an IRS bureaucrat decided to take other people’s money (above and beyond the excessive salary the rest of us paid for). And nobody should be surprised that the other bureaucrats at the IRS were so incompetent that the scam was successful for seven years.

By the way, this isn’t the first time a thieving IRS bureaucrat generated a story with a misleading headline.

Speaking of which, here’s our second example of a headline that creates a completely false impression. It’s from a story in the Toronto Star.

Needless to say, I was completely shocked at first. After all, France is the nation where the national sport is taxation. It’s the country where taxes are so onerous that even the European Commission warns about over-taxation. It’s the nation where thousands of people have to pay more than 100 percent of their income to the tax authorities. It’s the country where high taxes are equated to patriotism. And it’s the nation that pushes tax policies that are so radical than even the Obama Administration sometimes says no.

So is it true? Is France going to become a Libertopia? The Galt’s Gulch of Europe?

But then my bubble burst. It turns out the story is about a technical shift in how taxes are collected.

The government wants to shift to a system of automatic withholding, similar to that in Canada and much of the rest of the world. Employees in France currently pay taxes a year after their income is earned. Christian Eckert, France’s budget secretary, said Wednesday that the government will not double-tax workers in 2018, the year automatic withholding is to begin. So 2017 incomes could effectively be tax-free for regular salaries. Taxpayers won’t actually feel much of a difference though — they would still spend 2017 paying for the previous year.

Though this might create an interesting social science experiment.

Depending on how rigorously France decides to be with its definition of “regular salaries,” this might be an opportunity for long-suffering French taxpayers to figure out ways of delaying 2016 income until 2017 and accelerating 2018 income so it’s received in 2017.

This could be a particularly useful strategy for investors, entrepreneurs, and small business owners, all of whom (if they’re like their American counterparts) presumably have some control over the timing, level, and composition of their income.

But I suspect the French government already is contemplating ways of making sure that every possible penny is being taxed at the highest possible rate, so I won’t hold my breath.

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I realize it’s tax week and I should be condemning our convoluted tax code and oppressive IRS.

But I can’t resist getting diverted to another topic. It’s time to debunk the notion that there is rampant sexism in the private economy that causes women to by systematically underpaid.

I addressed the issue back in 2010, citing the solid work of Christina Hoff Summers. And I cited more of her work, as well as some analysis by Steve Chapman, when writing about the topic in 2012. The bottom line is that rigorous analysis finds that the so-called gender gap largely disappears once you consider factors such as occupational choice, hours worked, and education.

I’ll add my two cents to the discussion. For decades, I’ve been dealing with leftists who repeatedly tell me that business owners are consumed by greed and put profit above everything. Yet if women truly were making less money than men for doing equal work, then why aren’t these greed-filled business owners firing all their male employees and hiring women who will work for 80 percent of what it costs to employ men? Or 85 percent? Or 90 percent?

When I pose this question, my statist friends begin to mumble and stumble, but the clever ones eventually asset that business owners are not only soulless profiteers but also malign sexists. And the sexism apparently trumps the greed because they’re willing to employ men when equally competent women would work for less.

At that point, I usually ask them why entrepreneurs (presumably women and perhaps financed by rich leftists) don’t take advantage of a huge competitive opportunity by setting up rival businesses that could hire women for less money and lure customers away from the greedy sexist firms by charging lower prices.

I still haven’t received an answer to that question.

And that may explain why even one of President Obama’s top economic advisers basically admitted that equal-pay propaganda from the left is completely bogus.

Let’s dig into the data. Mark Perry of the American Enterprise Institute does a very good job of explaining why Equal Pay Day is based on nonsensical numbers.

…the bogus feminist holiday event known as Equal Pay Day…is a statistical fairy tale because it’s based on the false assumption that women get paid 23% less than men for doing exactly the same work in the exact same occupations and careers, working side-by-side with men on the same job for the same organization, working the same number of hours per week, traveling the same amount of time for work obligations, with the same exact work experience and education, with exactly the same level of productivity, etc. …The reality is that you can only find a 23% gender pay gap by comparing raw, aggregate, unadjusted full-time median salaries, i.e. when you control for NOTHING that would help explain gender differences in salaries… Most economic studies that control for all of those variables conclude that gender discrimination accounts for only a very small fraction of gender pay differences, and may not even be a statistically significant factor at all. …As the Department of Labor concluded in 2009, “The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.” They also concluded that “the raw wage gap should not be used as the basis to justify corrective action.”

By the way, all this data and research doesn’t mean sexism doesn’t exist. I’m sure it does, and it probably goes both ways.

I’m simply saying that unjustified discrimination in a competitive market economy is expensive. People who put prejudice above profits suffer. Which is why there’s so little actual evidence to support the feminist position.

Now let’s enjoy a bit of fun. It’s always amusing to expose statist hypocrisy.

The Obama White House claims to believe in so-called equal pay for equal work. But apparently that’s only a rule for us peasants.

And Hillary Clinton doubtlessly will regale us with speeches about equal pay over the next several months. Yet she didn’t practice what she preaches.

Yes, I realize we’re all shocked that politicians like Hillary prevaricate and dissemble.

P.S. Since this is tax season, I suppose I should close with a couple of relevant items.

First, we have an update to the infamous chart on the number of pages in the tax code.

Second, we have a new video from Reason TV about the “best tax code.”

Sadly, I don’t think my tax videos will ever be that entertaining.

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I’m not a fan of the IRS or it’s Commissioner, a partisan Democrat named John Koskinen. The agency has become politicized, interfering with America’s political process. Needless to say, I’m not shedding tears that the bureaucracy is no longer getting big budget increases.

By contrast, I oftentimes applaud Senator Ted Cruz. His shutdown fight against Obamacare was a net plus. He was one of the few 2016 candidates who took a strong stand against cronyism in Iowa. And he manages to retain a sense of humor in the fight against big government.

So it’s with considerable chagrin that I feel compelled to admit that IRS boss made a good point, at least from a technical perspective, when he criticized Senator Cruz on the topic of the flat tax.

Here’s the background. A story in Bloomberg quotes Senator Cruz about his goal for tax reform.

“Instead of a tax code that crushes innovation, that imposes burdens on families struggling to make ends meet, imagine a simple flat tax that lets every American fill out his or her taxes on a post card. Imagine abolishing the IRS,” Cruz said.

Now here’s an excerpt from a Politico report about Mr. Koskinen’s response.

IRS Commissioner John Koskinen poked holes in Republican presidential candidate Ted Cruz’s plan to abolish the IRS and create a simple flat tax so taxpayers could file their taxes on a postcard. Koskinen pointed out that even if taxpayers were to file their taxes on “a small card,” someone would have to collect the money and make sure the numbers filled out are actually correct. “You can call [tax collectors] something else than the IRS if that makes you feel better, but basically someone has to follow through on all of that,” Koskinen told reporters today after a speech at the National Press Club.

Koskinen is right. So long as the federal government intends to extract more than $3 trillion from taxpayers, there will be a tax-collection agency. That’s true even if you have a flat tax or a national sales tax.

Sure, you can rename the IRS, or even require states to collect the revenue instead, but none of that changes the fact that some coercive body will exist to take our money.

That being said, Cruz’s overall point surely is correct. The IRS in a flat tax world would be largely de-fanged. Indeed, the Tax Foundation estimated several years ago that compliance costs would drop by more than 94 percent if we replaced the internal revenue code with a flat tax. And, as pointed out in this video, the tax code today is even more complex, so the savings now presumably would be even larger.

So Koskinen may be technically correct, but only because he is focusing the conversation on the narrow issue of whether government will still have a tax-enforcement body.

But Cruz is correct on the big-picture issue of whether the IRS as it exists today will no longer exist.

Since we’re on the topic of tax reform, Amity Shlaes and Matthew Denhart, both with the Calvin Coolidge Presidential Foundation, have a column in today’s Wall Street Journal that is somewhat critical of the Rubio-Lee tax reform plan.

The authors start by pointing out that the defining characteristic of supply-side economics is lower marginal tax rates on productive behavior (work, saving, investment, risk-taking, entrepreneurship).

Signaling opportunity throughout the tax code has long been the basis of the philosophy known as supply-side economics, or “Reaganomics.” Reaganomics treats even individual wage earners as entrepreneurs. The marginal rate to which a worker is subject under the progressive tax schedule is crucial. A higher rate on the next dollar a worker earns discourages him from working more. The highest tax bracket is especially important as top earners produce the most and innovate the most. …That top marginal rate also functions as a symbol of how society rewards enterprise.

Their unhappiness with Rubio-Lee is due to the fact that their proposal does not contain big rate reductions for labor income to match the very good rate reductions for business and investment income.

…on the personal side their proposal drops the top marginal rate on individual income by a puny 4.6 percentage points, to 35% from 39.6%. …What’s more, Rubio-Lee lowers tax thresholds drastically. Singles with taxable income as low as $75,000 find themselves entering the 35% top bracket; for couples the top rate applies after $150,000. Currently, individuals don’t hit the 35% bracket until $411,501, and the same holds for couples.

So why aren’t there big reductions in tax rates for households to match the very good reforms for businesses? The answer, at least in part, is that “Rubio-Lee also raises the child credit” and this consumes a lot of money, in effect crowding out lower marginal tax rates.

As a result, you get big economic benefits from the reforms to business taxation, but the child credits don’t have any impact on incentives to create wealth, expand jobs, or boost income.

The nonpartisan Tax Foundation recently estimated that Rubio-Lee would increase economic growth so that by 2025 the economy would be 15% larger than otherwise, almost entirely due to business tax cuts. The effect of the child credit on growth is reckoned at zero. 

But imagine if Rubio-Lee took their good tax reform plan and made it better by replacing the child credit with lower rates? And then made it even better by getting rid of additional tax preferences such as the healthcare exclusion?

Shlaes and Denhart quote me in their column as pointing out that if Rubio and Lee made their plan into something akin to the flat tax, the tax rate could be under 20 percent.

Dan Mitchell of the Cato Institute notes that if Rubio-Lee dropped all the preferences it contains, old and new, the plan could drop its top income-tax rate to 20% or lower.

I confess that I don’t have up-to-date estimates to confirm my assertion, but the Clinton Treasury Department back in 1996 estimated that the flat tax rate in a revenue-neutral world would be 20.8 percent.

But since the Rubio-Lee plan is a very large tax cut, amounting to more than $4 trillion over 10 years, combining that amount of tax relief with the flat tax surely would allow the rate to be well below 20 percent.

By the way, none of this should be interpreted to suggest that Rubio-Lee is bad tax policy. It’s a huge improvement over the current system. As I wrote last month, it’s a very good tax reform plan. It is especially good about fixing some of the worst features of the current tax code, such as worldwide taxation, depreciation, and double taxation.

But that doesn’t mean it is as good as the flat tax, which does everything good in Rubio-Lee, but also has a low rate for households and fewer tax preferences.

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With tax day fast approaching, it’s time to write about our good friends at the Internal Revenue Service.

One of the new traditions at the IRS is an annual release of tax scams. It’s know as the “dirty dozen” list, and while it may exist mostly as a publicity stunt, it does contain some useful advice.

And that’s true of this year’s version. But I worry that the IRS is looking at a few trees and missing the forest.

The Washington Examiner was kind enough to let me write a cover story on the “dirty dozen” list. Here’s my effort to add some context to the discussion.

…our friends at the Internal Revenue Service have a relatively new tradition of providing an annual list of 12 “tax scams” that taxpayers should avoid. It’s an odd collection, comprised of both recommendations that taxpayers protect themselves from fraud, as well as admonitions that taxpayers should be fully obedient to all IRS demands. Unsurprisingly, the list contains no warnings about the needless complexity and punitive nature of the tax code. Nor does the IRS say anything about how taxpayers lose the presumption of innocence if there’s any sort of conflict with the tax agency. Perhaps most important, there’s no acknowledgement from the IRS that many of the dirty dozen scams only exist because of bad tax policy.

In the article, I list each scam and make a few observations.

But I think my most useful comments came at the end of my piece.

…maybe the tax system wouldn’t engender so much hostility and disrespect if it was simple, transparent, fair, and conducive to growth. And that may be the big-picture lesson to learn as we conclude our analysis. When the income tax was first imposed back in 1913, the top tax rate was only 7 percent, the tax form was only two pages, and the tax code was easily understandable. But now that 100 years have gone by, the tax system has become a mess, like a ship encrusted with so many barnacles that it can no longer function. …the bottom line is that the biggest scam is the entire internal revenue code. The winners are the lobbyists, politicians, bureaucrats and insiders. The losers are America’s workers, investors, and consumers.

In other words, if we actually want a humane and sensible system, we should throw the current tax code in the garbage and replace it with a simple and fair flat tax.

And that’s exactly the message I shared in this interview with C-Span.

Here are a few of the points from the discussion that are worth emphasizing.

The current tax code benefits Washington insiders, not the American people.

But I’m not optimistic about fixing the tax code, in part because the crowd in DC would lose some power.

We’ll never get good tax reform unless there’s genuine entitlement reform to restrain the growing burden of government spending.

The flat tax and national sales tax are basically different sides of the same coin.

If you want class-warfare tax rates on the rich, keep in mind that high rates don’t necessarily translate into more revenue.

The no-tax-hike pledge is a vital and necessary component of a strategy to restrain government.

Itemized deductions benefit the rich, not the poor.

If you care about poor people, focus on growth rather than inequality.

We should mimic Hong Kong and Singapore, not France and Greece.

P.S. I wrote last week that the Senate GOP put together a budget that is surprisingly good, both in content and presentation. A reader since reminded me that the Chairman of the Senate Budget Committee was a sponsor of the “Penny Plan,” which would lower non-interest outlays by 1 percent per year.

Since Mitchell’s Golden Rule simply requires that spending grow by less than the private sector, Senator Enzi’s Penny Plan obviously passes with flying colors.

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