Will IRS corruption lead to tax reform?

by Robert Maynard

British historian Lord Acton is famous for his observation that: “Power corrupts and absolute power corrupts absolutely.”  No where is this observation more evident than in the corruption being revealed by the IRS scandal. While numerous politicians have decried that corruption and called for those responsible to be held accountable, few have touched on the core of the problem.  Our current tax code is far too complicated and it gives the IRS far to much power over our lives.  It would be a miracle if there was no corruption in this agency.  By all means, let’s hold those responsible accountable, but let’s also address the core problem of too much political power concentrated in the hands of the IRS.  As noted by this recent Red State article, the only way to do so is with tax reform:

Rupert Murdoch took some heat for observing on Twitter, “Growing IRS scandal makes perfect case for flat tax and abolition all deductions. Nothing could be fairer and abuse free.”

Several responses took Murdoch to task because the abusive treatment of certain groups applying for tax-exempt status, based on their politics, doesn’t have any direct relationship with the progressive income tax system, or plans to replace it.

But if I might be a bit more charitable to Murdoch, I think he was trying to make the broader case that a Flat Tax system would greatly reduce the size and power of the IRS. If his suggestion is taken literally, and all deductions are abolished, it follows that no one would be applying for any sort of tax-exempt status at all. One of the complaints raised by the groups targeted in the IRS scandal is that it put them at a competitive disadvantage against liberal groups, which sailed right through the Tax Exempt Organizations unit and secured approval in a matter of weeks – even when they were actually violating tax law at the time, as in the case of the Barack H. Obama Foundation, run by the President’s half-brother. This isn’t just a scandal about those who were given a hard time; it’s also about those who weren’t.

Take all of this power and discretion away from the IRS, reduce it to processing a massive pile of postcard-sized tax returns every quarter, and you won’t have any more scandals like the one currently gripping Washington. You also won’t have as many opportunities for politicians to control our behavior or reward favored constituencies by modifying the tax code in countless non-scandalous, but nonetheless corrupt ways.

The tax system really should be the fairest, flattest, most efficient method of funding the government, dispersing the burden as evenly and widely as possible. It shouldn’t provide new, surreptitious methods for the government to exercise power over us. And the tax burden should be clearly understood by every American, not hidden with quick-and-painless paycheck deductions everyone forgets about, or concealed behind impenetrable layers of pass-through corporate taxation. No citizen of the United States fully understands his tax burden at the moment, and of course the government feels no compulsion to limit its spending to anywhere near the amount of revenue it takes in.

If we don’t understand these vital attributes of government, how can we truly exercise our electoral freedom by casting fully informed votes? Our political rhetoric is filled with talk of “choice.” Choice is only meaningful in the presence of accurate information about costs, benefits, and consequences. That’s why business entities can be sued for fraud – when they lie to attract customers, those customers are not freely choosing to engage in commerce with them. There are no more thoroughly defrauded “customers” on Earth than U.S. taxpayers, who actually were referred to as customers by Acting IRS Commissioner Steven Miller during House Ways and Means Committee hearings last Friday.

The Fair Tax, which would shift the burden of taxation to a national sales tax, would also strip Washington of powers that invite political abuse. Politicians love to play a little game where they introduce new taxes by claiming they’ll only apply to a few ultra-rich people, but they end up affecting nearly everyone. The Alternative Minimum Tax was sold this way – it was only supposed to hit one hundred and fifty-five super-wealthy individuals when it was introduced in the late 1960s, but now it slams into more than 30 million people per year. The income tax itself was originally presented as a very modest surtax on the richest Americans.