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John Gaver

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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.

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  • Apr 8 2014: Studies don't really confirm your hypothesis that the current tax system is concentrating money into fewer and fewer hands. In fact, most of those who are rich today are first or second generation wealth who derived their wealth from new products, industries, or services.

    That said, I'd entertain going back even further. We didn't have an income tax during the most productive years of our Nation's growth, prior to 1913. Let's go back to those days if you want explosive growth.

    And, at the same time, let's shrink government to those days as well!!
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      Apr 8 2014: Steve, that's a very important point that you made. In fact, Fortune magazine reported several years ago, that roughly 80% of those on their list of wealthiest Americans, were first generation billionaires. Very few families manage to stay on top for long, unless they are politically connected.

      What that means is that, at least for a little while longer, this is still the land of opportunity. But those Forbes' lists also indicate that wealth in the USA is growing at a severely smaller rate than worldwide wealth. Either our billionaires aren't as smart as foreign billionaires or our billionaires are leaving and becoming their billionaires.

      BTW, most members of Congress enter Congress with less than half a million net worth and leave with a net worth in the 8 or even 9 figure range. Then, if they can get a son or daughter elected, they can build a dynasty. The two clans who seem to have done that best are named Kennedy and Bush.

      Also, here are just a few of the recognizable names of people who have renounced US citizenship:

      John “Ippy” Dorrance (Campbells Soup) - Ireland
      Kenneth Dart (Dart Container) - Belize
      Sir John Templeton (Templeton Fund) - Bahamas
      Mark Mobius (Templeton Emerging Markets Fund) - Germany
      Fred Freible (Locktite) - Turks & Caicos
      Michael Dingman (Abex & Ford) - Bahamas
      Joseph Bogdanovich (Star-Kist & H.J. Heinz)
      Ted Arison (Carnival Cruise Lines) - Israel
      4 of the J. Paul Getty grandsons

      Of that group, only Dorrance and the Getty grandsons inherited their wealth.

      I should also point out that John Templeton said that he saved more than $100M in taxes, in his first tax year offshore. That's $100M in income tax that the rest of us had to make up. Worse, each person on that list could probably say the something similar. So just this small list probably represents over a billion in lost taxes, each and every year from now on, as long as they or their heirs don't return. Think about it…

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