Want a Neutral IRS? Then do away with the IRS and the Tax Code it rides on

The NYTimes takes a look at the IRS scandal in "The Real I.R.S. Scandal" and virtually ignores the First

Amendment ramifications that the IRS actions placed on free speech in favor of a view that suggests the trouble is all related the the Supreme Court's Citizens United decision.

Oh, woe, says the NYT, after strong evidence of partiality surfaces, the IRS now faces a damage control problem:

But even more regrettable is the long-term damage to the credibility of the I.R.S. as an impartial arbiter of whether organizations merit tax-exempt status. This will be difficult to undo, particularly because of the secrecy required for the agency to effectively examine organizations without generating doubts about them, as well as to prevent other organizations from coming up with strategies to evade scrutiny in the future.

Here's an idea - let's get rid of the IRS as it exists today and set up a tax system that can't be manipulated and does not rely on various special provisions designed to favor one group over another (e.g. does not favor couples with children over single, unchilded people, nor does it favor homeowners over renters, etc).

The least obtrusive tax system I have read about is the Fair Tax, which replaces all the zillions of tax code provisions and regulations and the power of the IRS with a simple sales tax:

The FairTax is a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current four-million-word-plus word tax code. Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate. The FairTax rate after necessities is 23% and equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated.

What about the poor, you ask - won't a sales tax have more impact on them? That is offset by the "prebate":

Under the FairTax, all Americans consume what they see as their necessities of life free of tax. While permitting no exemptions, the FairTax (HR25/S 122) provides a monthly, universal prebate to ensure that each family unit can consume tax-free up to the poverty level, with the overall effect of making the FairTax progressive in application. This is not an entitlement, but a rebate (in advance) of taxes paid – thus the term prebate. Everyone pays taxes at the cash register.

Are there potential problems with the Fair Tax? Probably, but compare them to the mess we have now . . .  not so many.

And there would be no worries about "the long-term damage to the credibility of the I.R.S."

Except for tax lawyers, certain tax accountants and IRS employees, I'm not sure who would miss the IRS and its zillions of pages of gobbledygook. Well, maybe Congressmen, who curry favor with their constituents by "fighting" the IRS on the constituents behalf to gain financial support for re-election.

Let's face it, the unfair tax system is broken and needs a restart.

Income Taxes: Their "Fair Share"

From here, a pretty good graphic on who pays a "fair share" of the income tax:

Stupid Headline, Stupid Article

The AP has at least one economic illiterate on its staff. It's too bad they assigned that person to write this article, Super rich see federal taxes drop dramatically. To fully understand the article's lameness, read these selections:

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

So, let's get this straight - the top 400 adjusted gross incomes average $345 million and average a 17% tax rate. Let's see, that .17 x $345,000,000= An average of $58, 650,000 tax per household. The total of these income taxes is 400 x $58,650,000 or $23,460,000,000. That's $23.5 billion dollars. From 400 households.

The reported seems to feel that amount ought to be doubled.

But the kicker in the article is that line about "There are so many breaks that 45 percent of U.S. households will pay no federal income tax . . ." In fact, not only will 45% not pay taxes, many of that 45% will receive tax "rebates" (credits or whatever) on taxes they didn't pay. Yep, they will get checks from the government as part of the tax process out of tax revenue to which they contributed nothing. Nada, zip.

Which, for the benefit of the AP reporter writing this article ought to suggest that there is a large class of people who should be marked in some way - not as "pay[ing} so little in taxes" or "pay{[ing] no federal income tax" but instead, marked as receiving tax free income (as in a check) from the state often at some fairly high percentage rate of their actual earned income. Where's the part in the article about how much money that involves as a transfer payment from the wealthiest Americans to the poorest (not even counting the other government programs paid for out of tax dollars?)

Where's the part of the article about tax credits ("paid for" by other taxpayers) for people who bought certain cars, or windows or air conditioners?

You want "tax fairness." Write about it fairly.

Liberalnomics: O's Dumbination

When you buy electricity from your local power company, the amount you pay is not just for raw electric power. You pay your share of the overhead operational cost of the power provider, including: the salaries of workers, their benefits, the offices, legal fees, the vehicles, the computers, the software, the pens and pencils and screwdrivers. Oh, yes, for the cost of that power plant and the fuel it uses and so forth. Among the many things you pay for are all the taxes paid by your energy provider - federal, state and local. Oh, and lobbyists to state and federal governments. In addition, in many states, power companies are local monopolies so the state has a commission to set a reasonable profit for the power company.

How is your share of the overhead and profit charged to you? Simple. The power company more or less estimates the amount of energy units it will provide to its customers and takes all those expenses it has and divides the expenses by the units and comes out with a cost per unit. When you use a unit of electricity, the power company bills you for cost per unit. They use their profit to pay back investor you provided money to build those power plants, or as a cushion against increases in fuel fees.

But, make no mistake, in using your air conditioner or stove, the power company is providing its product for a fee that covers its expenses plus a little.

In theory, every other company you deal with is doing the same thing. Whatever price they place on goods or services includes all the company expenses and a little profit. Of course, if you are buying electricity, you usually deal directly with the power supplier, with "no middleman mark ups!" When you buy a radish in a grocery store, each and every entity in the logistics train that got that radish on the shelf (grower, shipper, supplier, grocery store) adds in the cost of his overhead (and a little profit) along the way. And every single one of those entities is including taxes it will pay to federal, state and local governments as part of the price it charges for that radish, including income, social security, unemployment, etc plus property taxes on the radish fields, taxes on trucks, and all those other taxes "built into" the system.

How does the system deal with a tax increase? It adds it into the price charged for the radish, that's how.

Now, suppose you add a "new tax" on electric companies that use coal burning power plants to generate electricity. The electric supplier will add that "new tax" into its business model and pass along the costs to its customers. Who, in the case of a radish, will include the grower, the shipper, the supplier, the grocery store and, yes, the customer of the grocery store - you. And, in addition to paying a chunk of that tax on every single item you buy, whether radish or computer, you will also pay a chunk of the "new tax" as part of your monthly electric bill.

Do you understand? Ultimately 100% of the cost of a tax increase on the utilities will be paid by you, the consumer because the businesses just pass that cost on to you.

Now, with that context, here's Power Line - He Thinks You're Stupid:

In his press conference today, President Obama talked about the cap-and-trade energy tax that the Democrats are trying to ram through Congress. Obama's nose grew a couple of inches as he uttered this howler:

At a time of great fiscal challenges, this legislation is paid for by the polluters who currently emit the dangerous carbon emissions that contaminate the water we drink and pollute the air we breathe.

The idea that the energy tax will come to rest with "polluters"--that is to say, power companies, manufacturers, agribusinesses, and so on--is absurd. The cost will be passed on to consumers, as Obama himself admitted during a moment of candor during the campaign, when he said that electricity costs would "skyrocket" under his cap-and-trade proposal.

Obama isn't dumb enough to believe that the many billions of dollars in costs that his proposal will impose on energy companies, etc., will somehow disappear thereafter. But he thinks you are.

If he had been honest, he would have said:

At a time of great fiscal challenges, this legislation is going to be paid for by you, the American people, as a new tax.

Enjoy your radishes, you evil "polluter."

UPDATE: To be fair, let me point out that, assuming that our water is contaminated, our air polluted, and so on, wouldn't this be the time to have an honest debate about how much the American people are willing to pay for what level of de-contamination, de-pollution, etc? As it is we seem to be willing to be driven to more and more extreme and expensive measures arising from the ever increasing ability of scientists to detect levels of "contamination" in parts per billion or less. How much is "good enough?"

TANSTAAFL. How much are you will to give up for a total absence of pollution?