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Punish -- and Reform -- the IRS

Posted: 07/17/2013 2:22 pm

Mike Leven is President and Chief Operating Officer of the Las Vegas Sands Corporation and a Job Creators Alliance member.

Americans have a right to demand that the Internal Revenue Service do its job without political bias. Yet today, the IRS has gone off the rails and decided political intimidation is part of the agency's mission. There is no question that Congress should investigate. Lawbreakers must be prosecuted.

The scandal has even had a significant impact on Main Street: in a Job Creators Alliance poll last month, 61 percent of small business owners said they, too, feared retribution from Washington bureaucrats if they spoke out.

Your member of Congress may soon bring punishment to bear against an out-of-control IRS. But if that's all they get done, then you should fire your representative for not fixing the problem.

The real scandal isn't how the IRS enforces the tax laws - it's the tax code itself. We want to believe that the Rule of Law governs in America, but the punishing and costly complexity of our tax code leaves us ruled not by law, but by lawyers and accountants.

The modern federal income tax was born 100 years ago, and the first CCH Standard Federal Tax Reporter was published to explain it all. That first edition in 1913 was just 400 pages, yet today it runs to nearly 74,000 pages. If the first tax rules required a 100-yard dash of compliance knowledge, the modern version is like running half a marathon.

The IRS says the annual cost of this paperwork for all of us is $168 billion and 6.1 million man-hours. That's an economy larger than South Carolina and at least two dozen other states. It is no surprise that this power is a tempting target for abuse, and the IRS has been used as a political weapon during the reign of at least four other Presidents from both parties: Nixon, LBJ, FDR, and JFK.

Murder, bootlegging and bribery were among the list of serious crimes attributed to mobster Al Capone, yet accountants enforcing the federal income tax were the only lawmen that could bring him to heel. The US Supreme Court had ruled that even illegal income was subject to the tax, and Capone couldn't figure a way to pay up.

We all rightfully appreciate that this violent gangster was brought to justice. But there's a sobering lesson: The federal tax register checked in at just 500 or so pages back in 1931, and apparently it was already easier to get away with murder than comply with the federal income tax.

Today, it's not surprising that individuals and businesses often feel like criminals for just trying to honestly sort out what they owe and what of their own legally earned money they can keep. Hundreds of millions can be spent lobbying politicians for and against changes in the tax code as political debates fixate on who is or is not paying their "fair share" and which politically connected businesses deserve special breaks.

The result is not a tax code, but a moral code, and morality needs a lot more rules, lobbyists and loopholes. And it makes more room for ideological witch hunts.

The IRS says the annual tax compliance paperwork cost imposed on all of us - that $168 billion - is equal to 15 percent of the total money that the Tax Man takes. Other estimates have calculated a number more than twice as high. We may be paying close to one dollar in tax compliance cost for every three the government collects.

It's an immoral waste. The purpose of a tax service should be to efficiently collect the money we need to fund the government we want. Period.

Big reformers suggest tossing out the tax code and replacing with a simple, flat income tax, or a new flat-rate sales tax. These have their flaws and their critics, but most really would be an improvement.

Real, less ambitious solutions can work as well. President Reagan and Congress agreed to serious tax simplification in 1986, and the state of Michigan recently threw out the nation's worst business tax and replaced it with a much simpler, pro-growth reform.

At Job Creators Alliance, we believe the IRS scandal will not be truly resolved until we have real tax reform. If taxpayers accept anything less in the wake of the IRS scandal, we have failed.

 

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