We now have two presidential candidates who promote abolishing the IRS – Senator Ted Cruz and Senator Rand Paul. (For example, see Christian Science Monitor of 3/25/15 on Cruz and Citizens United on Paul.) Why would they make such an odd statement? They must know that a government agency is needed to help taxpayers comply with the tax law, collect taxes, and use audits and other techniques to be sure taxpayers have properly computed and paid their taxes. While both men also call for tax reform, there would still be taxes. And there would still be complexities. The size of a tax return (such as a postcard) does not mean it is simple. It all depends on how much information is summarized and given to the IRS. Today’s income tax could go on a postcard (total income less deductions, and the net tax); it would still be complicated to compute these figures.
So, why do these elected officials, who know how government works, spend so much time talking about abolishing the IRS? Hopefully the public will be asking more specific questions about their tax plans such as:
• Is your tax reform plan revenue neutral? If not and it collects less, who pays less and what spending will be cut? If it collects more, what will be done with the additional revenue?
• Is it distributionally neutral or will some income groups pay less while others pay more? If yes, which groups?
• Is it regressive (such as is typical with a flat (consumption) tax unless other mechanisms are used to address that) or progressvie? To what degree?
• How will it simplify the current system?
• If you are going to lower the rates in a revenue neutral manner, give me the honest truth about how this means that the largest tax expenditures will need to be reduced (exclusion for employer-provided health care, lower rate for capital gains and the mortgage interest deduction)? Remind me that these large tax expenditures mostly benefit high income individuals. Show me the math that to get any meaningful rate reduction, you have to make permanent changes to the biggest deductions and exclusions. Don’t show me timing changes (such as postponing deductions) or budget gimmicks.
• Won’t there still need to an administrative agency to collect taxes and enforce the rules? (yes)
• If you just plan to rename the IRS, what is the point?
What do you think?
Original Post By: Annette Nellen
Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
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