That’s right, Senator Ted Cruz in a speech to the Heritage Foundation sounded like he wants to start a Crusade to abolish the IRS. We suspect he’ll find a lot of willing ears in that Crusade, were not so sure about the willing feet.
Abolishing the IRS is a popular cause among conservatives and libertarians. Judge Napolitano had an interesting discussion with Stuart Varney on the subject, and as the judge notes Cruz isn’t talking about abolishing taxes, he’s talking about abolishing tens of thousands of pages of IRS regulations in favor of a “flat tax” or “fair tax.”
We like the idea of a flat tax and we think the idea of the “fair tax” is probably worse than the system we’ve got now.
If you’re not familiar with the so-called fair tax, it’s a national sales tax and it does away with income taxes. Proponents insist it will do away with the IRS because states will collect the taxes along with their state sales tax and remit a check to the federal government. No more need for the IRS.
The problem we have with this scheme is that it’s too complicated and just as open to tinkering by politicians as our current system. It’s also a relatively invisible tax because you pay it a little bit at a time every time you make a purchase.
With respect to tinkering, the fair tax includes something called a “pre-bate” for the poor. It’s a way of graduating the fair tax. The Congress will set poverty guidelines and the US treasury will cut a check to those who fall below specific guidelines on a quarterly basis. That money, the “pre-bate,” is supposed to offset the sales tax that the poor will be paying. It’s a matter of “fairness.”
Obviously the Congress will be able to tinker with the so-called poverty guidelines that determine the amount of “pre-bate” that the “poor” will receive. We have history that proves that, look back at what was done to the food stamp program in the first two years of the Obama administration.
The fact that the fair tax is a sales tax and paid a little at a time also gives the Congress the opportunity to tinker with the rate, because small adjustments to the rate won’t have much effect on individual purchases and won’t be felt by taxpayers.
We favor a flat tax. We like the idea of a three tier flat tax where each taxpayer would pay 8% on their first $40,000 of income, 15% on their next hundred and $175,000 of income, and 22% on everything over that. No deductions, exemptions, or rebates. Business taxes under this flat tax would be zero, with the exception of a 15% surtax on any purchase order placed outside the US and a 22% surtax on any dividends paid outside the US.
We favor zeroing out business taxes because businesses don’t pay taxes. They calculate their expected tax burden and add it to their prices paid by consumers. Businesses also spend trillions of dollars on tax planning and on purchases designed solely to reduce their tax burden rather than make their business more productive.
One side benefit of this plan is it puts virtually every tax lawyer in the US out of business.
Ted Cruz has a nice talking point about abolishing the IRS. And there are options that can be debated to replace our current tax structure. The real problem is that the ability to mess with tax regulations hands tremendous power to legislators. No Democrat and no Establishment Republican is going to give up that power willingly.
It’s a nice talking point, but with today’s House of Representatives and today’s Senate, the IRS is here to stay.
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