TED Conversations

John Gaver

This conversation is closed.

How can a flat income tax eliminate the IRS?

There has been a lot of talk lately, with members of Congress suggesting that we go to a flat income tax, with no deductions or other breaks, so you can fill out your tax return on a postcard and that this would somehow eliminate the IRS. But wouldn't there still have to be someone to audit all those postcards?

Wouldn't there have to be someone checking to see that the millionaire reported all of his income, that the waitress reported all of her tips, and that the corporate C++ programmer reported his income from developing websites on the side? Does anyone really believe that the government is suddenly going to trust everyone to report all of their income?

It seems to me that the IRS would become far more prevalent in our lives, under a flat tax. I mean, think about it…

1) Have you ever heard of a government agency getting smaller? Then consider that it currently takes weeks to audit a millionaire and months to audit a billionaire and under a flat tax, those audits will take an hour or two. What will the IRS do with all that spare time?

2) Consider that with no tax shelters to examine, the IRS will have to be more aggressive in finding what is not reported at all.

I'm thinking that instead of eliminating the IRS, the IRS will not only continue, but that with all that spare time, they'll perform 30 or 40 times more audits than they do today and they'll be far more aggressive in doing so. Worse, since the income of most millionaires (except crime lords) is well documented and tracked by the banking system, the IRS will probably focus on middle and low income taxpayers, where cash payments are common and banks aren't required to report every small deposit.

Seems to me that the IRS would not only continue under a flat tax, but low and middle income people, who work off book, would be most hurt by it.

Am I missing something here?

By the way, this is the question that moved me away from supporting a flat income tax and ultimately led me to support the FairTax.


Showing single comment thread. View the full conversation.

  • Apr 7 2014: I think that all taxes should be sales taxes. Get rid of the IRS altogether. Big taxes on big ticket luxuries like yachts and presidential suites at hotels, and the like.

    If the American people knew how much they were paying in hidden taxes, which is what personal income taxes are because it hides my tax from you, they would rebel.

    consider the car you (probably) drive. Let's say it cost you $30k. UP to 80% of the cost of that car is made up of hidden corporate taxes. But Corporations don't pay taxes. They add the amount they paid for costs of goods, includes the taxes of all of the companies that have come before it in the supply chain. So when you go to the DMV, and you pay your sales tax plus registration taxes, you think you are paying taxes on the car, but you are not. You are paying sales taxes on the $6k car plus the $24k of taxes paid by all of the vendors and shippers that have already written their portion of those taxes off as a cost of doing business.

    America should wake up.
    • thumb
      Apr 8 2014: Gail, you hit the nail on the head. Many people are easily misled and thing that businesses pay income tax and that the payroll tax doesn't reduce their pay.

      I would love to see a constitutional amendment that required that the only form of taxation could be a sales tax, with the amount of tax going to each government agency printed clearly on every receipt. No income tax. No property tax. Just sales tax. When people saw on their receipt, what they really pay for this mediocre government, they would demand less spending.

      However, your idea of big taxes on big ticket items has already been proven to be not just a failure, but to have a huge negative impact on US business. Several years back, we had a number of the best yacht builders, right here in the USA. Then the government imposed a luxury tax on those big ticket yachts. Within two years, we were down to just one mega-yacht-builder and that one was struggling to stay afloat. Some 8000+ jobs were shipped overseas because of that luxury tax. As much as they may have wanted to buy American, nobody wanted to pay such a premium for "Made in USA".

      When Microsoft co-founder, Paul Allen, spent more than $200M for the yacht Octopus, it was a Lürssen (German). When he bought Tatoosh, it was a Nobiskrug (German, but Arab-owned).

      Luxury taxes just drive luxury purchases offshore and that drives those jobs offshore.

      A single rate sales tax, with a cost-of-living rebate allows the effective tax rate of the rich to be higher, while the poor pay zero or close to it. If that 200M yacht had been built in the USA under a FairTax system, it would have cost around $150M before tax and the FairTax would have brought the price back up to about $200M and Allen could have had made in USA workmanship for that same price. But the luxury tax drove the purchase to Germany.

Showing single comment thread. View the full conversation.