Op-ed views and opinions expressed are solely those of the author.
The Inflation Reduction Act will add 87,000 employees to the IRS while increasing funding by $80 billion. President Biden says this is necessary because there were 55 large corporations who didn’t pay any federal income tax in one year. The IRS says that tax revenue will increase by $124 billion as a result of this law.
Biden wants to increase tax revenue to help reduce the astronomical Public Debt which now exceeds $31 trillion and to reduce the annual deficit which has exceeded $1 trillion in each of the last three fiscal years. Biden believes that tax revenue will increase if the IRS can catch the tax cheats.
The problem is the IRS agents will claim they will be able to catch tax cheats by auditing ordinary Americans. The reality is that the wealthy and large corporations generally hire a team of tax accountants and tax lawyers to prepare their taxes. These experts examine every possible loophole in the tax code to minimize their clients’ tax liability.
The returns are signed by Certified Public Accountants. While there can always be some debate about the amount and number of deductions that can be taken, these higher-income entities usually have their returns upheld under scrutiny.
That means to gain additional tax revenue the IRS will have to audit middle-income households and small to medium-sized businesses, where some deductions can be debated. That will result in average Americans fearing the IRS even more than they do today.
There is a much better way to virtually eliminate the IRS and save the annual funding they receive, increase economic growth, increase tax revenue to the government, minimize the amount of cheating, eliminate the need for tax professionals for American households and make the system more equitable.
How is that done?
Eliminate the current tax code completely and replace it with this:
A 15% single rate tax on all income above a livable minimum (twice the poverty level) with no deductions for anything. All income, wages, rent, interest, profit and capital gain is taxed at 15%. The corporate tax rate is also 15%.
For a family of four that earned total income from all sources of $80,000, their tax liability would be easy to calculate. They would simply subtract the livable minimum of $50,000 (twice the poverty level) leaving a balance of $30,000. Then just multiply the taxable income of $30,000 by 15% to get a tax liability of $4,500. That’s as simple as can be.
Since the tax liability is simply calculated there is no need for tax accountants or tax lawyers. There are no loopholes. No special treatments.
Some would argue that a progressive tax system, where the tax rate increases as income increases, is fair. This system is slightly progressive, although admittedly far less progressive than many would like.
See below for a family of four:
Total Livable Taxable Tax Liability Tax rate as a
Income Minimum Income 15% percent of total income
$50,000 $50,000 0 0 0%
$80,000 $50,000 $30,000 $4,500 5.6%
$100,000 $50,000 $50,000 $7,500 7.5%
$200,000 $50,000 $150,000 $22,500 11.25%
$500,000 $50,000 $450,000 $67,500 13.5%
$1,000,000 $50,000 $950,000 $142,500 14.2%
$10,000,000 $50,000 $9,950,000 $1,492,500 14.9%
This table shows that as income increases, the tax rate increases. Therefore, it is a progressive tax with the top tax rate approaching 15%.
This plan means that all income earners will pay their fair share. Every American is treated the same regardless of how their income is earned or how that income is spent. Labor wages and investors’ capital gains are taxed the same.
This plan would add about ½% or more to long-term economic growth. It should eliminate cheating, mostly because there is no reason to cheat. It is easier to pay a 15% tax than to risk the penalties of cheating.
Additionally, this plan causes no market distortions, creates large amounts of new capital, is very easy to determine tax liability for each income earner, and is (arguably) equitable.
Wouldn’t every taxpayer pay their fair share under this plan?
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