Thursday, April 15, 2010

Tax Day Musings: Let’s Abolish the IRS

I will grant you that the title of this post might seem a little over-the-top, unrealistic rhetoric that will turn off the serious reader. But I am actually serious, and if you bear with me, you will see why. But first let me digress with a couple of introductory side points:

Back in February I wrote a post entitled The Non-census of It All, which lamented, among other things, the whole approach to the census. Surely you have seen or heard the census bureau’s advertising campaigns stating, “Without a complete, accurate census, your community may not receive its fair share [of federal funding].” This is not the way things were supposed to work. Indeed, as I had pointed out:

Our founding fathers never envisioned—indeed they crafted the Constitution to specifically avoid—a behemoth federal government that did most of the taxing and spending. Rather, the majority of taxation and government influence was to be at the local level, where elected leaders are more easily held accountable. We have since turned the wisdom of our founding fathers on its head to the point where state and local governments are mere appendages of the federal government.

More recently I learned something else disturbing about our current fiscal and tax policy. The Heritage Foundation and others have pointed out that we have reached that dangerous point where more than half of the U.S. population pays no federal income tax. The reason this is dangerous is that, with demagogues in government always harping about those greedy rich people needing to pay their fair share, and with the majority of the population paying no federal taxes but receiving some kind of government benefits, this majority will soon realize that it can vote itself more and more benefits--and there is nothing that the tax-paying, productive sectors of society can do about it, except maybe leave the country. It is a recipe for tyranny and eventual economic collapse.

Perhaps I digress too much, but keep these ideas in mind as I set forth my radical proposal. What if we went back to the wisdom of the founding fathers and vested more power in the states? What if we had the states doing the taxing and spending based on the needs of their own populations, but also sending a portion of their tax revenue to the federal government to fund those services which states cannot efficiently provide for themselves and which are therefore better suited to the federal government?

Let’s look at some hard data to see if we can make this work. According to Wikipedia, federal spending in fiscal year 2009 totaled about $3.1 trillion. For the sake of argument, let us for a moment believe the lie that $944 billion of this amount devoted to Social Security benefits is really not part of the federal budget, but is actually held within the proverbial lock box consisting of all the payroll taxes paid by you and your employer. Therefore, the actual federal budget for FY 2009 was arguably closer to $2.1 trillion.

Now let’s look at the U.S. population in 2009, which--again according to Wikipedia--was 307,006,550. Let’s call it 300 million for rounding purposes. That means that in 2009, the federal government spent $7000 for every man, woman and child in the United States. Staggering, isn’t it?

Again for the sake of argument, let us once again suspend disbelief and assume that all this spending is actually necessary at the federal level. Why don’t we at least eliminate the redundancy of the IRS and have each of the states (who have their own taxing authority and bureaucracies) simply collect enough taxes to meet their own needs PLUS send the federal government $7000 for every man, woman and child within their borders? According to U.S. Census Bureau data, my home state of Maryland had a population of 5,699,478 in 2009, which means Annapolis would have been required to pay $39,896,346,000 (almost $40 billion) to the federal government.

“Now hold on just one minute!, “ you protest. “Maryland itself has an annual state budget of about $32 billion, so are you suggesting that Maryland should collect enough taxes from its citizens to fund their own $32 billion budget and to also pay for the federal tab of $40 billion? That’s a total of $72 billion, which comes to $12,632 for every man, woman and child in the state!”

Precisely! This is how much your government costs you: $7000 a head for the feds, and another $5632 per head if you live in Maryland. It puts into perspective, doesn’t it?

“Oh,” but you protest, “Surely I don’t pay that amount. Most of that bill is paid by all those nasty corporations and rich people!” Don’t kid yourself. You are paying for it in one way or another, if not directly to the government, then surely in the higher cost of goods and services, which those nasty corporations pass on to you in order to cover their tax bill.

So what are the advantages of having the states collect all the taxes and then send their share to the federal government? In addition to the previously mentioned benefit of eliminating the IRS redundancy, here are a few:

  • You only have to deal with one taxing authority and only one form (hooray!)
  • The state taxing authority can choose whatever means it deems most sensible for collecting taxes, be it sales taxes, value-added taxes, property taxes, individual income taxes (whether flat or progressive), corporate income taxes, etc.
  • The state taxing authority is more directly accountable to the voting population than a federal taxing authority, and is therefore less likely to engage in shenanigans, shameless demagoguery, or fiscal policy that is detrimental to the economic interests of the individuals and corporations within its borders. If they do, these same individuals can more easily remedy the situation by:
    • Calling their elected officials to account and voting their butts out of office, or
    • Voting with their feet by moving to a state that is friendlier to its economic interests (Something not as easily done when the federal government taxes and spends us into oblivion). This only has to happen a few times before elected officials get the message, either by losing their jobs, or by having to figure out whom else to tax when the higher income earners and/or corporations start leaving the state in droves.
And finally, if states get more into the habit of looking after the interests of their own population, we can perhaps reconsider the size and scope of the federal budget. Remember, we had suspended disbelief for the sake of argument and assumed that the entire $2.1 trillion budget—not counting Social Security—was actually necessary. It isn’t. To cite just one example, the Department of Education spent $45.4 billion in 2009. Where did most of that money go (other than to pay the salaries of its many employees)? It went back to the states to fund education at the state level, with plenty of strings attached, of course. Why not let the states handle their own education budgets and structures (indeed, like they used to), which they can probably do more efficiently and without interference from the feds?

If we go through the budget line-item by line item, we might actually find a number of things that are more efficiently handled by state governments, leaving the federal government to handle things like national defense, enforcement of federal law, international relations and foreign policy and the few other things that are specifically enumerated in the Constitution as the legitimate purview of the federal government. What a concept!

Happy tax day!


Ginx said...

As I did not see this as your central point in the Census post, I should point out initially that the census also aids in state and local fund allocation. States and local municipalities take more taxes than the federal government. The largest chunk of federal dollars go to large projects ranging from roads to schools, but even these are largely funded at the state level. If you really want to save money, cut military spending and end war-profiteering.

America already pays very little in the way of taxes, and our whiney inability to accept the bill for living in a first-class nation is a pathetic tradition going all the way back to our temper tantrum over losing our free-ride as untaxed colonies. Were our founding fathers concerned with the fact they were being taxed less than those in England? Of course not, they just wanted to be the tax collector.

Well, we have representation... and yet we still moan about it. We pay less taxes than any other first-world nation, and yet the complaining continues. We can eliminate the IRS, but there will just be another agency the next day called something else which will do the exact same thing. If there isn't, our country will deteriorate at a rapid pace (rather, at a more rapid pace than it already is).

feeno said...
This comment has been removed by a blog administrator.
feeno said...


Many Americans are taxed to much? Although I do tend to wine to much (you got me there) I'm not necessarily upset that my taxes are to high, I'm upset on the waste. And why nobody in the federal govt. cares when things get tight. Because instead of trying to spend less, their solution is to tax more.

If we went to a consumption tax we could wipe out 95% of the IRS. The Govt. still gets paid, yet we don't have to pay for their collection efforts. The rich are still paying more because they buy more.

Why do we need mailed delivered 6 days a week. Fire half of the postal workers and they can deliver mail on Mon, Wed and Fridays. The ones who don't get thrown in jail for going postal can go to work for fed ex or ups.

Speaking of jails it costs about $50,000 a year to house one prisoner. I think it could be done very humanely for less than half of that. (maybe privately)?

Why not model our public schools after many private and Catholic schools which spend far less money per student with much better results.

The fraud and abuse and embezzlement of federal money and credit cards is mind boggling if you ever decided to research it.

Medicare, although there are few complaints is being raped and they tend to pay twice as much and up to 8 to ten times as much for medication and equipment as other federal agencies.

And one of the things that drives me crazy is how politicians, and govt. agencies play with numbers and manipulate facts to encourage spending more. Instead of balancing our budget first, then they can spend more.

These are just a few things people may or may not really care about? But what about all the little things we get taxed with every day. Gas, eating, clothes, home improvement stuff. paying 85 dollars to renew your drivers license. Or to buy a 1 inch sticker for your license plates. If you want to do plumbing in your house you need to get a permit. If I own a dog I must get a dog license. I spent about $250.00 just to carry a gun legally. Which needs to be renewed every 4(?) years or so, with yet another fee. Although my kids school district just passed a tax levy (after three tries)I still have to pay for many school functions. This at a public school.

Now think about the poor sap who wants to start a business. How much red-tape and money do you think he needs to give away for "taxes".

I've never made enough money to bitch to much about what I pay. But I don't think it's fair that just because my competition is more successful than I am, that he should be taxed more? I love rich people, broke asses ain't out buying new tile floors. They are already helping out the economy.

maybe none of that even makes sense. I just like to type sometimes.

Later Home Slice, feeno

feeno said...

Crusty Terrapin

I love the idea of allowing more state interference if it means less federal interference. Why pay the middleman. Feds should build roads and fight wars. And even the road building is debatable. And just because I believe they should fight our wars doesn't mean I don't think we waste money there either. half the wars were fighting are useless, including this one. (IMHO). God bless the men and women fighting them tho. Good lookin' out troops, thank you, I love my country and the rights I still have, and thank you for your bravery and patriotism. I will continue to pray for you guys.

I'm just a rambling out of control blogger today. It was a stressful day, maybe this is my way of lashing out?

very nice post


The Maryland Crustacean said...

Thanks, feeno, for your comments. The comment of yours that I deleted was a duplicate of the one you sent to Ginx. Not trying to censure you by any means! Figured you only wanted to say it once. :-)

The Maryland Crustacean said...


As you apparently did in the census post, you again missed the main point. The main issue is not how much we are paying in taxes, though I think that is a legitimate secondary issue that I would gladly debate.

The issue is one of accountability and responsiveness of the government to the governed. The larger and further removed the former is from the latter, the less accountable and responsive it is. That is why the founding fathers, whom you cavalierly dismiss as throwers of temper-tantrums, saw the wisdom of a small and limited federal government. It is much easier to deal with an elected official in your community or state capital than it is to deal with a far away bureaucrat or elected official in Washington.

Furthermore, it is simply not true that states take more money than the federal government. Just look at my home state, one of the higher taxed states in the nation. On a per capita basis, the feds spent $7000 for every Marylander, while the state only spent $5632. Then again, states like New Jersey and New York might give the feds a run for their money when it comes to high taxation and government waste, which might explain why people keep leaving those states and others like it.

Tracy said...

Definitely agree with the concept that the further removed government is from those it governs, the less responsive it can be. Because of that, I too would rather see taxes accomplished at the state level. I am a firm believer in the concept that the more flat, the more productive and cost efficient the enterprise. We all have seen the waste, lack of responsiveness, high cost and low quality, not to mention just plain difficulty to deal with, experience when dealing with large governmental agencies (I just spent an hour at the DMV recently-although this is a state agency...)

The Maryland Crustacean said...

Yes, the inefficiency and non-responsiveness of DMV's has become almost proverbial, though I must admit that many have gotten better due to the availability of conducting transactions online.

But I think the traditional non-responsiveness has to do not so much with whether it is a local, state or federal agency, but the fact that they are the only game in town. If you need a license, a registration or a title, you MUST go to the DMV. And just like all government agencies that have a captive audience, there is little or no motivation to provide fast and courteous service. It's not like you can take your business elsewhere.

His Lordship The Gun-Toting Atheist said...

While I have to agree that local governments are generally more accountable and more responsive to local concerns, I wonder how doing the bulk of the taxing at the local level would play out in the long run. My concern is that small states (or small towns, if you want to scale it down) may have trouble paying for large infrastructure projects that are sometimes necessary for economic development, and may need assistance.

The Maryland Crustacean said...

Thanks for commenting.

I have wondered that too, but I think that economic development comes more easily and at a lower price tag not when it is subsidized by the government, but rather when the government creates an environment that encourages private investment; that is: a level playing field, political stability and some level of assurance that economic success will not be punished by the government with confiscatory taxation. As I hinted at in my post, the states that engage in demagoguery, wealth redistribution and otherwise engage in policies that are not in the best economic interest of ALL of its citizens will will end up being the poorest. People would either end up voting their officials out of office or voting with their feet by moving to another state, where there are more opportunities for a better future.

Wouldn't it be wonderful if states engaged in healthy competition for which could be the most people freindly and business friendly by offering greater individual and economic freedom balanced with consistent laws that ensured a level playing field of opportunity for all.

The Maryland Crustacean said...

Oh Maryland, my Maryland! The 4th least tax friendly state in the union!

JD Curtis said...

Thought you might get a kick out of this..

"the IRS website now offers 1,909 different documents, up from 1,770 last year. These include the riveting Form 8833: Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b). And don’t miss Form 990-W: Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations. This year’s basic 1040 tax return includes 76 lines and 174 pages of instructions, up from 68 lines and 52 pages in 1985.

Last year, NTU calculated that U.S. corporations spent $159.4 billion on tax compliance, equal to 54 percent of corporate-income-tax revenue. In 2008, General Electric’s tax return droned on for some 24,000 pages. If only all that energy had brought good things to life." Deroy Murdock
Link to full article

The Maryland Crustacean said...

Thanks, JD. I only get a kick out of it because I fortunately don't have to fill out too many of the forms mentioned. (I am particularly amused about the form for Taxable Income for Non-Profit Organizations." But I do have my share of forms to complete. Thank goodness for Turbotax. I suppose that the tax software companies, H&R Block and the army of tax attorneys and accountants are an example of the way the government stimulates the economy.

Phelps said...

This would also be more constitutional, since in Article I of the constitution, it says that representatives and taxation shall be apportioned among the states by population.

It makes the math very easy. Count up your Representatives, divide by the number in the House, and that is what your state owes in Taxes. That leaves it up to the state to figure out how to collect it.