Recently, the Supreme Court upheld the constitutionality of the Affordable Care Act by defining the individual mandate as a tax. The ruling focused on a technical explanation of the individual mandate, with Chief Justice Roberts noting in his opinion: "... it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress's power to tax."
In essence, the Court endorsed the practice of lawmakers encouraging or discouraging individuals to change behaviors through the tax system. Whether you believe that this is good health care policy or not, most would agree that it's lousy tax policy. The propensity of our legislative branch to correct the social system through tax breaks and penalties has created a national tax law that is unfair, unnecessarily complicated, and economically inefficient.
The practice of using the tax code to advance social agendas and to change economic or societal behavior has skyrocketed over the last 25 years. Tax breaks for homeownership, retirement saving, having children, promoting energy conservation and more abound in the tax code. In fact, tax breaks rather than budgeted spending account for one-fourth to one-third of benefits and subsidies granted to the public, according to the Urban Institute's C. Eugene Steuerle. "Taxes powerfully influence how we all consume, work, save, and invest," he notes.
The result: a tax code that is millions of words long, with even longer regulations, and one that is an indecipherable patchwork quilt of provisions, breaks, and penalties designed to reward or punish behaviors that our "social scientists" deem important.
Currently the IRS is responsible for $2.5 trillion a year or an estimated 92 percent of all federal government receipts. Each year, Congress enacts legislation that results in numerous changes to the tax code, each requiring new paperwork, updated computer systems, revised audit procedures, and lengthy explanations for tax preparers and the public. And each year, the IRS also fails to collect an estimated $450 billion in individual and corporate income taxes, as well as employment, excise, and estate and gift taxes due, in part, to lack of funding and staffing to keep up with tax code changes.
And now with the Supreme Court's ruling, we are asking the IRS to add enforcement of an individual health insurance mandate to its portfolio. That means that, on top of its current responsibilities, the IRS will have to collect an assortment of fees that employers and companies would have to pay under the legislation, distribute federal subsidies to small businesses and low-income individuals, and enforce the insurance mandate. The Congressional Budget Office estimated that the IRS would need an additional $5 billion to $10 billion in funding over 10 years to implement the bill's provisions.
The Obama Administration asked to increase the IRS's annual budget to $12.8 billion, in part to fund the necessary changes needed to administer the new program, but Republicans opposed to the bill were successful in cutting the agency's funds back to $11.8 billion in the budget approved earlier this year, with some Republicans even calling for the elimination of the agency altogether.
While the IRS is the federal agency that most Americans love to hate (conservative talk radio has already begun to blame it for the proposed expansion of power under health care reform), what is closer to reality is that the IRS has no interest in policing health care.
What is increasingly evident is the reach and magnitude of the power that Congress possesses in its taxing authority. It is our lawmakers and their apparently almost limitless ability to tax that have given us a tax code out of control -- subject to the social whims of the day and relied upon to cure societal ills that include a lack of health care coverage, addiction to tobacco, and more.
There have been books written about the IRS and its "Power to Destroy." But the IRS is merely the politicians' tool. Our lawmakers have the power to destroy, and their weapon of choice is their almost limitless ability to tax. In my world, Justice Roberts' decision exposes the scary dangers of the federal taxing power. It's time for Congress to rethink the practice of "social engineering" through the tax code and come to respect and restrain the awesome power to tax.
Christopher Bergin is President and Publisher of Tax Analysts and blogs for Tax.com. An expert on federal tax policy, he has written extensively on the subject and has worked in tax publishing for 30 years. This post was previously published in the Congress Blog of The Hill.
I guess those Republicans who want to eliminate the IRS would turn tax collection over to private collection agencies, who charge between 15% and 50% to collect debts, whereas the IRS does it for less than one-twentieth of 1%.
The government shouldn't be picking winners and losers in life or in business.
I know we're so far into it right now that we probably can't dig our way out, but giving tax breaks for certain behaviors shouldn't be happening.
People respond to incentives. It absolutely makes sense for the government to give tax breaks for behaviours it wants to encourage (having children, owning a business), and to have increased taxes on things it wants to discourage (smoking). This is market forces working in exactly the way that they are supposed to, and is producing outcomes that are desirable. Yes, we don't have to subsidize those things, but why wouldn't we subsidize things that are beneficial to society as a whole?
As an aside, the system is already actually weighted quite heavily in your favour, compared to that hypothetical identical parent. The lifetime cost of having a child for a middle class person is approximately the same as buying a house, even including the tax breaks. They're already at a huge disadvantage compared to you in terms of earnings potential. The tax break doesn't even begin to make up the difference in where you'll be twenty or thirty years from now. The tax breaks aren't stacking the deck in their favour; they're trying to offset the huge disadvantages currently associated with parenthood.
No, the government granting tax breaks to certain groups of people is not "market forces." Just like the government placing unnecessarily high tariffs and quotas on sugar and subsidizing corn isn't "market forces." It's the government favoring one person or group over another and interfering in market forces.
Yes, if you spend your money on one thing you can't spend it again on something else. That's the choice people make. You can't have your cake and eat it, too.
Part of the reason people have children is to have someone to help take care of them when they're older. If I don't have any children, I won't have anyone to take care of me and I'll have to pay someone if I get to that point. The system is weighted more heavily in favor of those with children and that's the choice I make by not having any.
Witness Romney's ability to put unlimited amounts of money into his IRA - not something the average wage earner, capped at $2,000 a year in contributions, can do. What about Exxon making $45 BILLION in profit (not gross, profit) in 2010 and paying ZERO federal income taxes?
That's what is driving tax code complexity, not "social engineering" and the power to tax. As usual, on the rare time the tax code actually is used to affect something that is broad based, it is attacked as "social engineering" and Congress is "abusing" its power to tax.
Where is the author's article about how the majority of large corporations pay NO federal income tax? How's that for "social engineering"?
From what I personally have observed?
The only "fair" tax in the minds of all too many people in this country, is the one someone ELSE has to pay.
Congress WORKS................for the ones that pay them the most............That ain't us.
Statistically over the last 3-4 decades, only the wealthiest of the wealthy have seen their financial fortunes rise. Statistically less than 1/4 of 1% of the population of America, provides the majority of the funding for our politicians campaigns.
Connect the dots.