Curbing The IRS Is Easy–With A Flat Tax
Guest post written by
Mr. Brough is the chief economist and vice president of research at FreedomWorks.
The Internal Revenue Service (IRS) has been making headlines fairly regularly over the past year, most of them unflattering. From its pursuit of conservative political groups, to missing emails about the agency’s actions and a massive data breach that exposed the information of more than 330,000 taxpayers, the IRS has been struggling to bolster its public image.
Yet recent actions at the IRS suggest that more than a public relations campaign is required to rejuvenate the agency. More specifically, it has been revealed that the IRS is targeting American businesses—big and small—with strong-arm tactics that not only raise questions of legality, but also hamper economic activity.
The IRS’ discretionary enforcement of law with respect to political groups is well-known and forced Lois Lerner to step down. While Lerner was running the division within the IRS that determines tax-exempt status, Tea Party groups struggled to have their status approved and were often subjected to intense examination and questioning.
Lerner retired one step ahead of a review board’s report that would recommend she be fired for “neglect of duties.” Her behavior is an indication of the antagonistic relationship between the IRS and taxpayers. Rather than respected, taxpayers are viewed with suspicion, and the agency is not shy about applying strong-arm tactics.
Civil asset forefeiture has left some small businesses decimated without ever being accused of wrongdoing
For example, the IRS is waging a war on American businesses that makes it more difficult to be successful in a global economy, while throwing conventional views of right and wrong out the window. One tactic in particular—civil asset forefeiture—has left some small businesses decimated without ever being accused of wrongdoing.
Originally adopted as a measure to crack down on drug dealers and terrorists, civil asset forfeiture allows the IRS to seize assets suspected of coming from illegal activities—without any charges being filed. Any bank deposits greater than $10,000 trigger tougher reporting requirements, and the IRS monitors lesser deposits to ensure that individuals are not structuring deposits to skate around the reporting requirements. But the law has gone far beyond seizing ill-gotten gains, and small businesses have had millions seized merely on the suspicion that they were structuring deposits.
This damaging practice became so widespread that a bipartisan group in Congress sent a letter admonishing the IRS to stop this practice and return the money to the small businesses.
Big businesses face their own challenges with the IRS
Big businesses face their own challenges with the IRS. Microsoft, for example, has been the victim of a long-term legal onslaught from the IRS that has raised serious questions about the legality of the IRS’ tactics.
For the past seven years, the IRS has been auditing Microsoft’s tax returns for the years 2004, 2005 and 2006. The audit has been exhaustive, and Microsoft has turned over more than a million pages of information. When the company refused to accept a settlement, the IRS doubled down and began issuing demands for even more information. Even more surprising, the IRS decided to hire outside counsel to help in the audit, despite the fact that the IRS employs more than 82,000 employees.
Not content, the IRS apparently needs to spend taxpayer dollars to hire a white-shoe law firm. And to do so, the IRS issued a temporary rule—without the traditional public comment period—to allow the use of non-government employees in its audits. Again, this suggests an attitude that the IRS plays by its own rules.
The power of the IRS is fueled by the complexity of the tax code that Congress has created
While, clearly, the IRS has demonstrated tendencies to exercise arbitrary behavior in pursuit of its own agenda, the agency is not wholly at fault. Congress, too, should take some blame for creating a tax code so complex that no one can fully fathom its totality—even employees of the IRS.
Year after year, Congress tweaks the tax code, adding new layers to an already incomprehensible mess. It has reached the point where taxpayers spend 7.6 billion hours annually simply filing taxes. Each layer of complexity offers new opportunities for discretionary behavior on the part of the IRS as they interpret how any new requirements should be enforced. And when the code becomes so complex that it is internally inconsistent, the IRS begins to wield a tremendous amount of arbitrary power.
The best way to clip the agency’s wings is to simplify the tax code, removing opportunities for arbitrary and discretionary behavior by the IRS. A simple, fair, flat tax would do just that.