Tuesday, July 09, 2013

On Abolishing the IRS

IMHO, tax reform proposals should be judged on the effects the proposal has on the people and not on the effects it has on the IRS.

In this regards I really dislike political campaigns that begin with slogans like "Abolish The IRS."

If the driving intent of a reform is simply to harm an enemy, then the reform is as bad the IRS Scandals in which government employees misused the power of the IRS to target political enemies.

The idea that one will create a tax reform that eliminates the tax collector is laughable.

No matter how one goes about tax reform, there will be an agency manned with people who collect the taxes.

The Fair Tax uses the slogan "Abolish the IRS." According to Wikipedia [drawn 7/9/13] the Fair Tax creates two new tax agencies called "Excise Tax Bureau" and a "Sales Tax Bureau." The Fair Tax will also require a massive build of State level taxing authorities.

Rand Paul is advertising a site called "Abolish the IRS" by Citizens United. The site is a bit like ObamaCare. It has no clear details on how it will accomplish this goal.

Hmm, the site has a huge donate button and no details. I am disappointed that Rand Paul endorsed this site.

Anyway, the slogan "Abolish the IRS" has me sitting up and thinking about the effects that the Object Tax would have on the IRS.

The goal of the Object Tax is to use Object Design techniques developed in the computer industry to create a new interface for executing the current tax code.

The program does not seek radical change. The program seeks to use proven design technology to make the current system better.

In the current tax interface, employers withhold taxes. They issue a W2 form summing up a year's salary. Employees file a tax return with is due by April 15th.

The IRS needs to audit both the tax withholdings and the tax returns.

The Object Tax creates an alternative interface for the income tax which relies on a program called a Tax Aware Account hosted by a financial institution (the institution could be a CPA firm, a bank, credit union, or independent ASP.)

The Object Tax is not disruptive. People would have the choice of continuing with the current withholding system or using a Tax Aware Account provided by a third party.

The Tax Aware Account eliminates payroll withholdings. People who choose to use a Tax Aware Account would receive their entire paycheck in their account. They would pay their income tax (at a progressive rate) when they withdraw the money.

Eliminating Payroll Withholdings would eliminate the need for businesses to send checks to the IRS. Businesses would simply have to prove that they deposited funds into Tax Aware Accounts.

If designed well, people would settle their tax bill as they interface with the account. This eliminates the need to file an annual return.

Since the accounts are doing all of the work, the primary job of the tax authority (The IRS) is to make sure the programs that execute the tax code are working correctly.

The taxing authority with the Object Tax would spend most of its time working with the financial service providers that host the Tax Aware Accounts.

People with tax questions will interface primarily with the customer service department of the financial institution that hosts their account.

The government will need to audit accounts. Since the Tax Aware Accounts do all the work, the government audits will largely be a matter of making sure people push their financial transactions through a Tax Aware Account (and not under the table).

When all is said and done, the Object Tax is likely to need a less intrusive tax authority than the Fair Tax, the Flat Tax or the strange tax reform proposed by Citizens United.

But I refuse to make any stupid claim about abolishing the IRS.

Personally, I wish everyone at the IRS well.

Because the Object Tax is not disruptive and allows people to switch to the new system as they desire, the program would allow an internal transition in the IRS without massive disruption.

Wikipedia says that there's over a hundred thousand people working at the IRS. That sounds like a ridiculously large number of people to work on tax collection. The Object Tax is likely to streamline the process and reduce the need for that large of an IRS. The gradual implementation of the tax would allow the staff reduction to take place through attrition and not blood letting.

I refuse to be led by hate. The conservative pundits who venomously attack the IRS with plots of abolishing the IRS turn me off as much as the IRS agents who target Conservatives.

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