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Posts Tagged ‘IRS’

There are some fortunate people (in the Cayman Islands, BermudaMonacoVanuatuAntigua and Barbuda, and a few other places) who don’t have to pay income taxes.

The United States used to be in that lucky club. The income tax did not become a permanent blight upon the nation until 1913 (there was a temporary income tax during the Civil War and an attempted income tax in 1894 – ruled unconstitutional in 1895).

Indeed, this odious tax is a relatively new invention for the entire world. If my memory is correct, the first income tax was a temporary measure imposed by the United Kingdom to finance the fight against Napoleon. And the U.K. also was the first country to impose a permanent income tax (ironically, to help offset lower taxes on international trade).

In every case, politicians followed the same script. Income taxes originally were supposed to have low rates and only apply to the rich.

But it was simply a matter of time before small taxes on the wealthy became punitive taxes on everybody.

Since today is tax filing today for Americans, let’s take the opportunity to highlight two specific unfortunate consequences of the income tax.

First, it enabled the modern welfare state. You can see from the chart that the explosion of redistribution spending only occurred after politicians obtained a new source of revenue (a problem that was exacerbated in Europe when politicians adopted value-added taxes and were able to further increase the burden of government spending).

Needless to say, this is a reason to oppose an energy tax, a wealth tax, or a financial transactions tax. Giving politicians a new source of revenue is like giving alcoholics the keys to a liquor store.

Second, the income tax enabled costly economic discrimination. Prior to income taxes, governments largely relied on trade taxes and excise taxes, and those levies did not create many opportunities for mischief.

An income tax, by contrast, allows the government to impose all sorts of special penalties – either with discriminatory tax rates or with extra layers of tax on saving and investment – on people who generate a lot of economic output.

And it’s worth mentioning that the income tax also allows politicians to create all sorts of special credits, exemptions, deduction, exclusion, and other preferences (about 75,000 pages of them) for politically well-connected interest groups.

These penalties and preferences are both morally troubling (rampant cronyism) and economically damaging (back-door methods of central planning).

Let’s wrap up today’s column with this helpful reminder that the income tax is basically a penalty on productive behavior.

P.S. Politicians can play games with other revenue sources (i.e., special VAT rates or differential tariff burdens), but the income tax stands apart because it is capable of generating large amounts of revenue while simultaneously giving politicians considerable ability to pick winners and losers.

P.P.S. If you need some gallows humor to make it through tax day, go to the bottom of this column.

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I recently appeared on CNBC to talk about everyone’s favorite government agency, those warm and cuddly folks at the IRS.

Our tax system is a dysfunctional mess, but you’ll notice that I mostly blamed politicians. After all, they are the ones who have unceasingly made the internal revenue code more complex, starting on that dark day in 1913 when the income tax was approved.

But I don’t want to give the IRS a free pass.

I’ve cited IRS incompetence and misbehavior in the past, most notably when discussing political bias, targeted harassment, and other shenanigans.

And, as illustrated by these five examples, we can always cite new evidence.

Such as lack of accountability.

…a new report from the Cause of Action Institute reveals that the IRS has been evading numerous oversight mechanisms, and it refuses to comply with laws requiring it to measure the economic impact of its rules. Congress has passed several laws, including the Regulatory Flexibility Act and the Congressional Review Act, that require agencies to report on their rules’ economic impact to lawmakers and the public. …These good-government measures are meant to ensure unelected bureaucrats can be checked by the public. …the IRS has made up a series of exemptions that allow it to avoid basic scrutiny. The agency takes the position that its rules have no economic effect because any impact is attributable to the underlying law that authorized the rule.

Such as inefficiency.

Private debt collectors cost the Internal Revenue Service $20 million in the last fiscal year, but brought in only $6.7 million in back taxes, the agency’s taxpayer advocate reported Wednesday. That was less than 1 percent of the amount assigned for collection. What’s more, private contractors in some cases were paid 25 percent commissions on collections that the I.R.S. made without their help…the report stated, “the I.R.S. has implemented the program in a manner that causes excessive financial harm to taxpayers and constitutes an end run around taxpayer rights protections.”

Such as rewarding scandal.

The Internal Revenue Service (IRS) issued more than $1.7 million in awards in fiscal 2016 and early fiscal 2017 to employees who had been disciplined by the agency, a Treasury Department watchdog said. “Some of these employees had serious misconduct, such as unauthorized access to tax return information, substance abuse and sexual misconduct,” the Treasury Inspector General for Tax Administration (TIGTA) said in a report made public this week. …in fiscal 2016 and early fiscal 2017, the IRS had given awards to nearly 2,000 employees who were disciplined in the 12 months prior to receiving the bonus.

By the way, the IRS has a pattern of rewarding bad behavior.

Such as pursuing bad policy.

…for 35 years the Internal Revenue Service has exempted itself from the most basic regulatory oversight. …Tax regulations (like all regulations) have exploded in recent decades, and of course IRS bureaucrats impose their own policy judgments. The IRS has in recent years unilaterally decided when and how to enforce ObamaCare tax provisions, often dependent on political winds. In 2016 it proposed a rule to force more business owners to pay estate and gift taxes via a complicated new reading of the law. …Secretary Steve Mnuchin’s Treasury…department is inexplicably backing IRS lawlessness with a string of excuses.

Again, this is not the first time the IRS has interfered with congressional policy.

Such as stifling political speech.

The Internal Revenue Service infamously targeted dissenters during President Obama’s re-election campaign. Now the IRS is at it again. Earlier this year it issued a rule suppressing huge swaths of First Amendment protected speech. …The innocuously named Revenue Procedure 2018-5 contains a well-hidden provision enabling the Service to withhold tax-exempt status from organizations seeking to improve “business conditions . . . relating to an activity involving controlled substances…” The rule does not apply to all speech dealing with the listed substances, only that involving an “improvement” in “business conditions,” such as legalization or deregulation. …This is constitutionally pernicious viewpoint discrimination.

In other words, the bureaucrats didn’t learn from the Lois Lerner scandal.

Now that I’ve hopefully convinced people that I’m not going soft on IRS malfeasance, let’s look at the budgetary issue that was the focus of the CNBC interview.

Is the IRS budget too small? Should it be increased so that more agents can conduct more audits and extract more money?

Both the host and my fellow guest started from the assumption that the IRS budget has been gutted. But that relies on cherry-picked data, starting when the IRS budget was at a peak level in 2011 thanks in part to all the money sloshing around Washington following Obama’s failed stimulus legislation.

Here are the more relevant numbers, taken from lines 2564-2609 of this massive database in the OMB’s supplemental materials on the budget. As you can see, IRS spending – adjusted for inflation – has nearly doubled since the early 1980s.

In other words, we shouldn’t feel sorry for the IRS and give it more money.

To augment these numbers, I made two simple points in the above interview.

  • First, we should demand more efficiency from the bureaucracy.
  • Second, we should reform the tax code to eliminate complexity.

The latter point is especially important because we could dramatically improve compliance while also shrinking the IRS if we had a simple and fair system such as the flat tax.

Last but not least, here’s a clip from another recent interview. I explained that the recent shutdown will be used as an excuse for any problems that occur in the near future.

Standard operating procedure for any bureaucracy.

P.S. My archive of IRS humor features a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a Reason video, 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 collection of IRS jokes, 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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On several occasions, I’ve shared horror stories of government brutality and asserted that all decent people should be libertarians.

If you still are not convinced, today we’re going to look at seven stories about so-called civil asset forfeiture, which is a sanitized term. Most people call it stealing.

Or “policing for profit.”

Let’s look at how this third-world scam operates, starting with a disgusting example of asset forfeiture from Reason.

Rustem Kazazi, an American citizen, was just trying to get on a plane to return to his native Albania last October, from Cleveland Hopkins International Airport. He was initially flying to Newark where he’d catch a connection to Albania. …Given facts about the Albanian banking and finance system and the advantages of cash there, he chose to turn his life savings into U.S. dollars and bring them with him to cover expenses related to the above house needs and his long stay rather than deal with bank transfers… Kazazi ran his carry-on luggage through the x-ray machine, like we all must. In that luggage was his life savings in cash, $58,100. There was zero attempt to be clandestine or smuggle-y about it. It was divided into three labeled and marked stacks of $100 bills, all in one envelope with $58,100 written on the outside.

Here’s how despicable bureaucrats reacted.

TSA agents noticed the money. …They called Customs and Border Patrol (CBP) on Kazazi, who took him off to a private room to grill him, as well as strip him naked… They kept his money, without telling him why, then tried to get him to just get on his flight without it. The receipt they handed him made no reference to the specific amount they’d confiscated. When he refused initially to just go on with his day as if he hadn’t just suffered a horrible crime, they escorted him out of the airport. …In December CBP finally formally informed him via a “Notice of Seizure” that they’d taken $57,330 from him, $770 less than he insists was actually taken. The Kazazis filed all the officially required forms and notices to proceed with trying to get their money back… CBP agents tried to finagle the Kazazis into withdrawing their demand for federal court action, but failed.

The good news is that the invaluable Institute for Justice has intervened.

Kazazi and his family today filed a formal motion for return of property…with the assistance of consistent civil-forfeiture-justice fighters from the Institute for Justice… Let’s hope the courts do the right, and legal, thing, demand CBP obey the law and return the stolen money.

And here’s a nauseating example of theft-by-government from Texas.

For nearly a decade, Anthonia Nwaorie dreamed of starting a medical clinic in her hometown in Southern Nigeria. Last October, the 59-year-old nurse was boarding a plane in Houston with medical equipment, supplies, and about $41,000 in cash — which had taken her years to save — when Customs and Border Protection officials stopped her. …Nwaorie said she was detained for hours. She missed her flight to Nigeria and the customs officers seized all her money. …CBP took the money because Nwaorie, a U.S. citizen since 1994 who lives in Katy, had not declared that she was taking more than $10,000 out of the country — a technical requirement that her lawyers say is not well-publicized…six months after her money was taken, Nwaorie has not been charged with a crime.

Once again, the great people at IJ are involved.

Lawyers at the Institute for Justice, an Arlington, Virginia-based public interest law firm, say her case demonstrates just how abusive the practice of civil forfeiture — which allows the government to take property that is believed to be tied to a crime — can be. ….the Institute for Justice filed a class-action lawsuit against the agency on Nwaorie’s behalf, demanding that CBP return her money without forcing her to sign any written agreement. They’re also asking a federal court in Houston to void all such agreements that might have been signed by others trying to get seized property back.

George Will opined about another reprehensible example from Texas.

On Sept. 21, 2015, Serrano drove to the Eagle Pass, Tex., border crossing, intending to try to interest a Mexican cousin in expanding his solar panel installation business in the United States. …they searched his truck — this was unusual for a vehicle leaving the country — and one agent said, “We got him!” …Having found five .380-caliber bullets in the truck’s center console — he has a concealed-carry permit but had no weapon with him — they handcuffed him and seized his truck under civil forfeiture, saying it had been used to transport “munitions of war.”

The heroes at IJ are on the case.

Assisted by litigators from the Institute for Justice (IJ), whose appearance on the West Texas horizon probably panicked the government into pretending to be law-abiding, Serrano wants to make the government less larcenous and more constitutional when it is enriching itself through civil forfeiture. …Serrano is suing for restitution but also seeking a class-action judgment on behalf of others who have been similarly mistreated. …Robert Everett Johnson is one of the IJ lawyers… Johnson says: “Imagine being detained at an airport checkpoint because you innocently forgot to take a tube of toothpaste out of your luggage. But rather than asking you to throw it out or put it in a plastic bag, the TSA agents told you they were seizing all of your luggage, including the toothpaste tube.” That happened to Serrano at the hands of a government — the one north of the border — that felt free to say, “You have no rights here.”

Here’s an example of this despicable practice from Wyoming.

Phil Parhamovich…had spent years restoring and selling houses, cars, and musical instruments, often clocking 12-hour workdays, to save up more than $91,000. And now it was all going to pay off: He would buy a music studio in Madison, Wisconsin… Then came the police stop… By the time it was over, police in Wyoming would take all of Parhamovich’s money — the full $91,800. Parhamovich, who has no criminal record, was not accused of or charged with a serious crime; he only got a $25 ticket for improperly wearing his seat belt and a warning for “lane use.” …state officials said they consider the cash “abandoned.” The state has even moved to forfeiture the money without notifying Parhamovich of the relevant court hearing until after it happened.

You won’t be surprised to learn who got involved to protect Parhamovich’s rights.

According to Parhamovich and his attorneys with the advocacy group, the Institute for Justice, this is another classic example of policing for profit and the problems it causes. Police initiated the stop for a minor traffic violation, but quickly escalated it further and further until they took a man’s life savings — all to use that money for their own law enforcement purposes.

This story has a happy ending (except for the fact that the cop isn’t in jail for stealing).

Wyoming lawmakers, citing this story, have now banned the roadside waivers that police used to wrongly take Phil Parhamovich’s $91,800. Previously, Parhamovich…got…his money back during a court hearing.

The IRS also participates in this thuggish racket, as reported by the Washington Post.

Oh Suk Kwon, who left South Korea for America in 1976, served as a fleet mechanic in the U.S. Army. After four years in the military, decades of working in an electrical plant and as an auto mechanic, after raising the kids and seeing them off to their adult lives, Kwon finally bought a gas station in Ellicott City in 2007. It meant everything to him. Just a few years after he opened it, zealous government investigators…seized all of the station’s money on a hunch — and wiped the family out. No, they weren’t money launderers or terrorists or mobsters or tax evaders. The government found no evidence of criminal activity. …the gas station went under, and Kwon’s wife died amid the stress of it all…the agency won’t give Kwon his money back. …He’s heartbroken that the country he loves is treating him this way.

The story has additional examples.

…fervent investigations targeted scores of small businesses in Maryland. The best known of these was South Mountain Creamery… the creamery was accused of structuring — farmer Randy Sowers also said his bank teller told him to keep the deposits under $10,000 to cut paperwork — the farm’s entire operating budget was seized. …The government eventually found out that the cows weren’t drug mules and the chickens weren’t gangsters and allowed Sowers to sign a settlement agreement to get back half of about $60,000 that the IRS took. Sowers did it because he needed that money to keep the farm going. Another Maryland farmer, Calvin Taylor, had about $90,000 seized in 2011 after the government snagged him in a similar investigation. He couldn’t take the time to fight the charge, either, and agreed to a settlement where the government returned about $41,000.

Once again, the IJ people are fighting to protect people from rapacious government.

The farmers didn’t walk away from the fight. Backed by the libertarian Institute for Justice, Sowers, Taylor and others testified before Congress, petitioned and fought for three years to get their cash back.

The awful thugs at the IRS also stole money in Connecticut.

David Vocatura watched $68,000 disappear. He was at his family’s bakery in Norwich, Connecticut, when a squad of armed IRS agents filed into the store. The agents wanted to know if Vocatura and his brother Larry were trafficking drugs or running a prostitution ring. The brothers had no idea what they were talking about. …the IRS refused to believe Vocatura’s Bakery was operating on the up and up. Agents said the business raised red flags because of a series of cash deposits in sums under $10,000, the amount at which banks are required to report transactions to the federal government. …The agents had no evidence of other wrongdoing, but thanks to a controversial law enforcement tool known as civil asset forfeiture, they didn’t need any to seize every penny in the Vocaturas’ bank account… The IRS has…[been] subjecting David, 53, and his brother Larry, 69, to a series of increasingly aggressive legal maneuvers — including threats of significant prison time and additional fines — in an attempt to strong-arm them into permanently forfeiting their assets.

Naturally, IJ is riding to the rescue.

…the Institute for Justice, a libertarian public interest law firm, filed a lawsuit in U.S. District Court for the District of Connecticut on behalf of Vocatura’s Bakery, demanding that the IRS promptly return their money. …Hours after the suit was filed, the IRS said it would finally give the Vocaturas their money back.

But the jackboots in government are vindictively going after the family.

Peter S. Jongbloed, assistant U.S. attorney for the District of Connecticut, served the Vocaturas a grand jury subpoena calling for them to turn over every financial record from the six years between March 2007 and April 2013, so the agency could finally begin investigating the business’s tax and regulatory compliance. …“At this point, the government is in so deep, they’ve put these guys through three years of hell — and held onto their money for three years — and so they feel like they need to justify it,” said Robert Everett Johnson, an attorney for the Institute for Justice who is representing the Vocaturas. “So now they’re going to conduct this investigation into the bakery in some effort to try to find something that will make it look like they were doing the right thing all along.”

Let’s review one final example of banana-republic law enforcement, this time from Alabama.

The morning of June 29, 2010, began much like any other at FAR Computers in Ensley. Frank Ranelli, who has owned the computer repair business for more than two decades, was doing some paperwork in his windowless office when he heard loud banging on the front door. When he answered it, he was unaware that about 20 officers with the Homewood and Mountain Brook police departments were surrounding his store, some wearing flak jackets and carrying assault rifles. Within moments, a Homewood police sergeant had declared a room full of customers’ computers, merchandise and other items “stolen goods,” Ranelli recalled. …The police proceeded to confiscate more than 130 computers – most of which were customers’ units waiting to be repaired, though some were for sale – as well as the company’s business servers and workstations and even receipts and checkbooks. …Nothing ever came of the case. The single charge of receiving stolen goods was dismissed after Ranelli demonstrated that he had followed proper protocol in purchasing the sole laptop computer he was accused of receiving illegally. Yet none of the property seized by police that summer morning more than seven years ago has been returned to him.

The article references the stellar work of IJ.

Alabama’s laws, however, still provide the state’s citizens with few protections from the practices, earning the state a “D- for its civil asset forfeiture laws” in a November 2015 report by the Institute for Justice, a Virginia nonprofit advocacy law firm. Alabama laws stack the deck against victims of asset forfeiture by establishing a “low bar to forfeit” and not requiring a conviction to do so; offering “limited protections for innocent third-party property owners”; and letting “100% of forfeiture proceeds go to law enforcement,” the report stated. …In a time of increasingly tight budgets for many law enforcement agencies, seizing property offers an opportunity for them to increase revenue without politicians having to raise taxes.

The good news (relatively speaking) is that some states are trying to curtail this evil practice.

The bad news is that cops in some states have figured out how to steal regardless.

In theory, New Hampshire has reformed its asset forfeiture laws. The state passed a bill in June 2016 to keep police from seizing and keeping people’s property unless those people have been convicted of a crime. And yet New Hampshire Public Radio reports this week that the state’s cops are still trying to keep stuff seized from people who have been accused but not actually convicting of criminal behavior. …when the reforms were passed…there was a big loophole. The U.S. Justice Department’s “Equitable Sharing” program allows local law enforcement agencies to partner with the feds for busts, then funnel the forfeiture through the looser federal program, which doesn’t require convictions, back into the local police budgets. Doing this allows them to skirt any state-level restrictions on asset forfeiture.

In other states, the establishment is going nuts trying to preserve their shady scam.

…a local prosecutor and police officer say the state will be welcoming violent drug cartels if a Republican lawmaker gets his way. State Sen. Kyle Loveless has been trying to muster support this year for a bill that would reform a controversial law enforcement tool known as civil asset forfeiture. …Loveless sees this as a fundamental violation of people’s rights to due process and property and says the lax standards have gotten innocent people in Oklahoma caught in the civil asset forfeiture net. On Thursday, he sparred with Tulsa County District Attorney Steve Kunzweiler and Eric Dalgleish, a major at the Tulsa Police Department, over the merits of his bill to require a criminal conviction to permanently take someone’s property. …Kunzweiler, the district attorney, said the extra level of protection was unnecessary and that raising the bar for forfeiture would effectively roll out a welcome mat to ruthless drug traffickers from Mexico. …Dalgleish later said that cartels were keeping a close eye on Loveless’ legislation and even lobbying for its passage.

Shame on Kunzweiler and Dagleish. What reckless and dishonest demagoguery.

And three cheers for Sen. Loveless, who deserves a lot of love for putting the principles of the Constitution first.

Sadly, the Trump Administration is on the side of theft-by-government, which is especially disappointing since there was a small move in the right direction during the Obama years.

P.S. Just like intrusive and ineffective money-laundering laws, wretched asset forfeiture laws are largely the result of the foolish War on Drugs. One bad policy generates another bad policy. Lather, rinse, repeat.

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For the past 30 years, I’ve been criticizing both the tax code and the IRS. Which raises an interesting chicken-or-egg question about who should be blamed for our nightmarish tax system.

Should we blame IRS bureaucrats, who have a dismal track record of abusing taxpayers? Or should we blame politicians, who have been making the tax code more onerous ever since that dark day in 1913 when the income tax was adopted?

In this exchange with Stuart Varney, I take an ecumenical approach and blame both.

As you can see, I am slightly conflicted on this debate.

There are plenty of reasons to condemn the IRS, and not just because of what I mentioned in the interview about its deplorable campaign to suppress political speech by Tea Party organizations.

Yet there is an equally strong case to be made that politicians are the real problem. They are the ones who created the tax system. They are the ones who make it more complex with each passing year.

And they are the ones who constantly give more power and money to the IRS in hopes of generating more cash that can be used to buy votes.

Indeed, the most important thing I said in the interview is that the IRS budget has dramatically increased over the past few decades. And that’s after adjusting for inflation!

So while I’m surely not a fan of the IRS, I’m probably even more critical of politicians since they’re the ones responsible for the bad laws that empower bureaucrats.

But that doesn’t really matter because the solution is the same regardless of whether one blames politicians or the IRS. Throw the tax code in the garbage and replace it with a simple and fair flat tax (or, if there are ever sufficient votes to undo the 16th Amendment, replace the internal revenue code with a national consumption tax).*

Let’s close with some humor. First, here’s a painful reminder (h/t: Reddit‘s libertarian page) of the relationship between taxpayers and politicians, though it’s worth noting that they want to grab your income regardless of whether there’s a lot or a little. In other words, the taxpayer could be holding a minnow and nothing would change.

Maybe I should add this image to my archive of IRS humor, which already features a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a Reason video, 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 collection of IRS jokes, 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.

*In my libertarian fantasy world, we would return to the limited government created by the Founding Fathers, thus eliminating the need for any broad-based tax.

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I realize that we’re in the midst of an important tax battle in Washington and that I should probably be writing about likely amendments to the Senate tax bill.

But long-time readers know that I’m bizarrely preoccupied by international tax issues (I would argue for very good reasons since global tax competition is a way to discipline greedy politicians and because I want the power of governments to be constrained by national borders).

So I can’t resist commenting on a Washington Post story about the tax implications of the upcoming wedding of Prince Harry and Meghan Markle.

It may seem like a modern fairy tale, but the upcoming wedding of Britain’s Prince Harry to American actress Meghan Markle will come with some mundane hurdles. Perhaps most inconveniently for the British royals, this transatlantic partnership could end up involving the United States’ Internal Revenue Service.

Most readers probably wonder how and why the IRS will be involved. After all, Ms. Markle no longer will be living in the United States or earning income in the United States after she marries the Prince.

But here’s the bad news (for the millions of Americans who live overseas, not just Ms. Markle): The United States imposes “worldwide taxation,” which means the IRS claims the right to tax all income earned by citizens, even if those citizens live overseas and earn all their income outside of America.

…there already has been widespread speculation that the union of Prince Harry and Markle eventually could result in some British royal children wielding American passports. But there’s a big obstacle in the way: American tax laws. …The United States’ citizenship-based taxation system is unusual: Only Eritrea has a similar system. It’s a relic of the Civil War and the Revenue Act of 1862, which called for the taxing of U.S. citizens abroad.

Here’s what this means for the royal family.

Markle’s American citizenship could open up the secretive finances of the royal family to outside scrutiny. If she remains a U.S. citizen, Markle will have to file her taxes to the IRS every year. And if she has more than $300,000 in assets at any point during the tax year — a likely scenario, given her successful acting career and her future husband — she will be expected to annually file a document called Form 8938 that will reveal the detail of these assets, which could include foreign trusts. …Although Markle’s tax information would not become public once sent to the United States, it would leave the royal family open not only to IRS review but also the risk that the information could leak, said Dianne Mehany, a tax lawyer at Caplin & Drysdale.

So what’s the solution if the royal family wants to avoid the greedy and intrusive IRS?

Ms. Markle will need to copy thousands of other overseas Americans and renounce her citizenship.

…the royal family employs some of the country’s best tax consultants. …”My guess is that she’ll be pressured by the Royal family to renounce [her U.S. citizenship], even if she’d rather not,” Spiro added. In many ways, that solution may be the simplest. And if Markle does give up her citizenship, she won’t be alone. Treasury Department data show that 5,411 people chose to expatriate in 2016 — a 26 percent year-over-year increase and potentially a historic high — and experts expect that number to keep rising because of the increasing tax burdens placed on U.S. citizens living abroad.

And it’s embarrassing to acknowledge that the United States has a very barbaric practice (used by evil regimes such as Nazi Germany and Soviet Russia) of extorting funds from Americas who are forced to give up citizenship.

She…would be subject to a potentially considerable exit tax.

This is adding injury to injury.

But Ms. Markle can be comforted by the fact that she’s not an outlier. Because of America’s bad worldwide tax regime (and especially because of FATCA, which makes enforcement of that bad system especially painful), an ever-growing number of overseas Americans have been forced to give up their citizenship.

Maybe as a wedding present to Prince Harry, American politicians can junk America’s terrible worldwide tax regime. That doesn’t require dramatic change, but why not fix a bunch of problems at once? I’ll simply point out that the flat tax is based on the common-sense approach of territorial taxation (governments only tax economic activity inside national borders).

P.S. This issue also impacts America’s Olympic athletes.

P.P.S. And Santa Claus as well!

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It’s that time of year. Those of us who wait until the last minute are rushing to get tax returns filed (or extensions submitted).

So it’s also a good time to remind ourselves that there is a better way.

Economists look at the tax system and focus on the warts that undermine growth.

Other people focus on the immorality of the tax code.

Most of these problems have existed for decades and are familiar to people who have the misfortune of working for tax reform.

But every so often, policy wonks like me get surprised because we find out that things are even worse than we thought.

For instance, here are some excerpts from a very disturbing article in The Hill about the IRS’s we-don’t-care attitude about fraudulent use of Social Security numbers.

…illegal immigrants…use other people’s social security numbers (SSNs) to get jobs and then file their taxes with their IRS-issued Individual Taxpayer Identification Numbers (ITINs). Although the tax returns contain false W-2 information, the IRS continues to process them, and the agency does not notify the people whose SSNs were used. …Koskinen said that in such cases “it’s in everybody’s interest to have them pay the taxes they owe.” …Rep. Dave Brat (R-Va.)…told The Hill on Friday that he was “shocked” and “horrified” by Koskinen’s response. …House Freedom Caucus Chairman Jim Jordan (R-Ohio)…said Friday that Koskinen’s comments about illegal immigrants’ tax returns are “just one more example of why Koskinen is doing such a poor job and should be impeached.”

As a quick aside, I’d be very curious to get some confirmation about Commissioner Koskinen’s assertion that illegals are net taxpayers. I wouldn’t be surprised to learn instead that they are a net drain because of “earned income tax credit,” which is a form of redistribution that gets laundered through the tax code.

But setting that aside, it’s completely outrageous that the IRS doesn’t let taxpayers know that their Social Security numbers have been stolen.

Congressman Jordan (and George Will) are right. There should be consequences for a government official who treats taxpayers with contempt.

Though Koskinen does deserve some credit for honesty about tax reform, as reported by the Washington Free Beacon.

IRS Commissioner John Koskinen told lawmakers on Wednesday that implementing a flat tax would be simpler than the current tax system and would save the agency a lot of money. …Rep. Blaine Luetkemeyer (R., Mo.) asked Koskinen whether a flat tax policy would save the agency money. …”clearly if you had a two-page form or a one-page form where you got rid of all the deductions and everything else and people just paid…a flat tax…it would be simpler for taxpayers and it would be much simpler for us,” Koskinen said. …Luetkemeyer asked Koskinen for more specifics about how much of the IRS’ current budget of $11.2 billion could be saved if a flat tax were implemented. “…it would be a lot,” Koskinen said. “It’d clearly be a sea change, a difference in the way the place operates.”

To call the flat tax “a sea change” is an understatement. As explained in this video, research from the Tax Foundation shows that the compliance burden of the tax code would fall by more than 90 percent.

And the economy would grow much faster since a key principle of the flat tax is that revenue should be collected in the least-damaging manner.

Though if you’re worried that a flat tax is too timid and you would prefer no broad-based tax for Washington, Mark Perry of the American Enterprise Institute shared this wonderful image.

Which is why October 3, 1913 may be the worst day in American history.

Some people claim that it would be impossible to have a modern society without an income tax.

Well, the Cayman Islands, Bermuda, and Monaco are very modern, and all those jurisdictions enjoy great prosperity in large part because there is no income tax.

And we could enjoy the same freedom and prosperity in the United States. But only if we reduced the size of the public sector.

In other words, we could free ourselves of the income tax if we could somehow get rid of all the programs that were created once the income tax gave politicians a big new source of tax revenue.

The challenge is convincing politicians to give up their ability to buy votes with other people’s money.

Incidentally, this is why we should be stalwart in our opposition to the value-added tax. The experience with the income tax shows that politicians will expand the burden of government spending if they obtain any significant new source of revenue.

Let’s close with a somewhat amusing look at how tax compliance works in India. Here are some blurbs from a story in the Wall Street Journal.

For five years, real-estate developer Prahul Sawant ignored government orders to pay his taxes. Then the drummers showed up, beating their instruments and demanding he cough up the cash. Neighbors leaned out windows and gawked. Within hours, a red-faced Mr. Sawant had written a $945 check to settle his long-standing arrears. Shame is the name of the game as India’s local governments try new tools to collect taxes from reluctant citizens. …Thane’s municipal commissioner, Sanjeev Jaiswal, is resorting to public embarrassment of tax scofflaws. …Since the drummers started work early this year in this suburb of Indian commercial capital Mumbai, property-tax revenue has jumped 20%, said Mr. Jaiswal.

It’s also safer for the tax bureaucrats to rely on drummers.

Tax collectors in Vitawa-Kalwa are glad the drummers, and some security officers, are touring the neighborhood with them. “When the staff show up to collect tax alone, people get angry and beat them up,” said S.R. Patole, the assistant commissioner, who is responsible for revenue in the area.

And if drummers don’t work, the municipal commissioner has a back-up plan.

Mr. Jaiswal…plans to deploy groups of transgender women, known in India as hijras, to perform mocking dances to shame tax delinquents. Hijras are widely believed to be able to impose hexes.

I’ll have to add this story to my collection of “great moments in tax enforcement.”

For what it’s worth, I’m on the side of the taxpayers because of the Indian government’s legendary ability to waste money.

P.S. If you’re a late filer and need some humor to get through the day, here’s my collection of IRS-related jokes: 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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The good thing about being nonpartisan is that I can freely criticize (or even praise) policy makers without giving any thought to whether they have an R or D after their name.

That doesn’t mean Republicans and Democrats are the same, at least with regards to rhetoric. The two big political parties in the United States ostensibly have some core beliefs. And because of that, it is sometimes very revealing to identify deviations.

Democrats supposedly believe the rich should pay higher taxes and that low-tax jurisdictions should be persecuted, yet many Democrat bigwigs utilize tax havens.

Republicans supposedly believe in smaller government, yet many of them decide to get rich by lobbying to expand the size and scope of Washington.

Democrats supposedly believe there’s a big gender pay gap, but Obama’s top economic adviser said such numbers are fake and Hillary gave higher pay to men in her office.

Let’s now add to the list.

The IRS has stonewalled and treated Congress with contempt. The bureaucrats have disregarded the law to advance Obama’s hard-left agenda. They have used their power to help Obama’s reelection campaign. And IRS employees even donate lots of money to Democrats.

Given all this, you would think Republicans would be doing everything possible to punish this rogue bureaucracy. Even if only because of self interest rather than principles.

Yet GOPers decided, as part of their capitulation on spending caps (again!), to boost the IRS’s budget. I’m not joking. The Hill has a report with the sordid details.

The spending bill…provides an increase in funding to the Internal Revenue Service, a rare win for an agency that has been on the outs with congressional Republicans. The $1.1 trillion omnibus provides an additional $290 million for the IRS, an increase of 3 percent over the last fiscal year.

What’s especially discouraging is that Congress was on track to reduce the IRS’s bloated budget.

…the outcome for the IRS in the omnibus could have been far worse. A bill advanced by the House Appropriations Committee earlier this year that would have slashed IRS funding by $838 million, while a bill passed by the Senate Appropriations Committee would have reduced funding by $470 million. Instead, the spending package gives the IRS a nearly $300 million bump.

This is yet another piece of evidence that budget deals crafted behind closed doors inevitably produce bad numbers and bad policy.

And it’s certainly another sign that Republicans truly are the Stupid Party.

Just in case you think I’m being unfair to either GOPers or the IRS, let’s look at some recent developments. Here are the best parts of an editorial on unseemly IRS behavior from the Washington Examiner.

President Obama’s IRS repeatedly los[es] hard drives loaded with data related to scandals at the agency. To lose one might be regarded as suspicious happenstance; to lose two looks like conspiracy. The most famous case is that of Lois Lerner, whose division became notorious for targeting conservative groups applying for nonprofit status. Her computer hard drive malfunctioned before that scandal broke, around the same time Congress was looking for information on a separate IRS targeting scheme aimed at conservative donors. …The newest case of IRS hard drive trouble happened last April, but came to light only this month. …the IRS has notified the Justice Department that it erased a hard drive after being ordered not to do so by a federal judge. In this case, the missing communications are those of a former IRS official named Samuel Maruca in the Large Business and International division. He is believed to have been among the senior IRS employees who made the unusual and possibly illegal decision in May 2014 to hire the outside law firm Quinn Emanuel to help conduct an audit of Microsoft Corporation.

And here’s some shocking (or maybe not so shocking) information from the Daily Caller. The IRS’s new ethics chief (wow, there’s an oxymoron) has a track record of illegally destroying records.

The new head of the Internal Revenue Service’s (IRS) ethics office once oversaw the illegal shredding of documents sought by the federal tax agency’s inspector general (IG), and allegedly retaliated on the colleague he believed snitched on him about it.

Yup, he sounds like the kind of guy who deserves a bigger budget.

Let’s close with some very good advice from the Washington Examiner.

In the nearly three years since the targeting scandal was revealed, it has become clear that it was just a symptom of a much deeper problem at the IRS — a culture that lacks accountability, rewards failure, and persecutes the innocent. …it needs a thorough housecleaning, not…bonuses.

Too bad Republicans decided the entire IRS deserved a big bonus.

P.S. From my archives, here are some examples of the bureaucrats who will benefit from a bigger IRS budget.

P.P.P.S. And since we’re recycling some oldies but goodies, 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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