Opinion: Op-Eds

Don't reform the IRS, shut it down

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Op-Eds,Taxes,Treasury,IRS,Analysis,Constitutionality,Waste and Fraud

Human institutions have this funny habit of appearing to be indissoluble right up to the moment they dissolve.

From ancient empires (Rome ruled the world, and then didn't) to modern corporations (U.S. Steel was once the largest company in the world, now it is worth less than Elon Musk), organizations that appear permanent can quickly disappear.

What about the IRS? We will always have taxes, but do we really need the IRS? I believe there is a compelling case that the time has come to end the IRS and restructure the tax system that enables it.

First, as a nation, we have too few jobs and too much consumption. And yet the federal government taxes jobs (wages, profits, capital gains) and gives consumption a free pass. We have an IRS because we tax production; switch to a consumption tax instead of a production tax and we no longer need the IRS, as we know it.

A consumption tax can fund the government. In fact, two of the largest and most vibrant economies in the world run without income, payroll, or capital gains taxes: Florida and Texas. And the federal government operated without an income tax for over 120 years.

Second, the data collected by the IRS is discomfiting. If you're concerned about eroding privacy in the digital age, or the NSA collecting metadata on your phone calls, consider that every April 15, millions of Americans hand over data to the IRS about how much money they make, where they make it, who they give it to, what they spend it on, their children and dependents and so on.

Any system that relies on that much personal information is a privacy time bomb waiting to explode.

Third, concentrating so much power in a single agency is a bad design. The IRS collects about $2.3 trillion in taxes. That's over 15 percent of GDP flowing through one entity.

And given the way Congress has written the tax code, the IRS also has great discretion over how the law is enforced — discretion that has been abused under multiple administrations, and both parties. The Tea Party suppression scandal is just the latest example of abuse.

Finally, the current tax code is an incumbent's delight. The link between the tax code, lobbying activity, political fundraising, and incumbent protection is both clear and dangerous to the nation's future.

The enforcement of that code is the responsibility of the IRS, but the code itself is a creature of congressional power and the 16th Amendment.

That is why the debate about taxes needs to start with fundamentals. Fixing the existing system or "reforming the IRS" will not address the root of the problem: federal revenues coming from taxes on production.

So the place to start is repealing the 16th Amendment. Americans have done this sort of thing before. Many states used to impose a poll tax. But when it became clear that system was being used in an abusive way, we passed the 24th Amendment prohibiting that tax.

Many will say, "We can't repeal the 16th Amendment until we agree on what will replace income taxes." But that is a classic political ploy, and we shouldn't fall for it.

There are lots of ways to fund the federal government without income taxes, and we don't need to agree on the solution before we address the root problem. We didn't need to agree on how to regulate alcohol before repealing the 18th Amendment and ending prohibition.

It is time to redesign our tax system, and the place to start is repealing the 16th Amendment and prohibiting taxes on production. That would bring an end to the 100-year failed experiment of the federal income tax and end the IRS.

Then the real debate about what comes after can begin.

Leo Linbeck III is CEO of Aquinas Companies LLC, a privately-held business. He is also a lecturer at Stanford Graduate School of Business and founder of EndTheIRS.com.

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