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How to End the Income Tax Scam

Written By Geoffrey Pike

Posted August 31, 2015

irsirsirsI am not a proponent of the Fair Tax – a proposed national sales tax that would replace most other federal taxes – because it does not actually reduce federal spending. If the government keeps spending something close to $4 trillion per year, then the politicians are getting our money, regardless of how it is collected.

However, I am particularly sympathetic to the argument by Fair Tax proponents that it would drastically reduce the complications of the tax code and the cost of tax preparation. While you would still need the IRS, or some kind of equivalent, to enforce the national sales tax, it would essentially mean the end of filing taxes for the common man.

Businesses would still need to file tax forms because they would be collecting the sales tax, but it would eliminate all of the tax deductions and loopholes. It would also put an end to all of the crazy business structuring that we see for tax purposes.

Many proponents of the Fair Tax say it would eliminate the special interests, but we can’t really be certain about that because the special interests would then be pushing for exceptions and exemptions for the national sales tax.

Ironically, the argument to get rid of special interests is also the reason that it will be almost politically impossible to institute the Fair Tax. The special interests are the resistance. So if you can break that resistance, you may as well just eliminate the income tax without replacing it with a huge national sales tax.

If you don’t include payroll taxes, less than half of federal spending comes from the personal income tax.

Ironically, one area of major resistance to tax reform is coming from the tax preparers lobby. The Obama administration has proposed steps for simplifying tax forms for filers, but H&R Block and Intuit (the seller of TurboTax) are lobbying to oppose the simplification.

These companies depend on a complicated tax code for their business models of selling help for tax filers. So it is not surprising that they don’t want to see filing made easier.

People vs. the Lobbyists

In some sense, I am thankful for companies such as H&R Block and Intuit. They are attempting to meet consumer demand, although Intuit may have made a really bad decision this past year in requiring major upgrades for TurboTax for any filers going beyond the simplest of returns.

But could you imagine trying to file your taxes without the help of either software or a tax professional? Could you imagine trying to make all of the calculations and looking at tax tables and filling out all of the appropriate forms?

So while H&R Block and Intuit are in the government business, they are in business of trying to make life easier for tens of millions of people in dealing with the tax code. Of course, if these tax preparers did not exist, maybe it would lead to quick change because Americans would revolt.

It is rather disgusting though when you see these two big companies actually lobbying Congress to prevent a simplification of the tax code. Worse, it is reported that the companies have successfully lobbied some members of the Senate to support expanding the required form to collect the Earned Income Tax Credit (EITC).

Regardless of what you think of the EITC, it is quite obvious that the lobbyists of the tax preparers are not pushing for a bigger EITC form in order to prevent corruption or to make the IRS’s job easier. The reason is because it will give them more business. The more complicated the tax code is, the more tax filers will seek help from software or tax professionals.

This seems like a completely lost battle. The special interests are simply too powerful in Washington DC.

There is one way to stop the whole thing. It would require tens of millions of people to demand changes. This can’t just be a matter of saying that you would like lower taxes in a survey. It means a conviction for less government.

People say they want lower taxes. They say they want a balanced budget from Congress. But when it comes down to it, their favorite government programs tend to override these other things.

It is not a positive sign when I hear Fair Tax proponents saying they want the same level of government spending. It is even worse when I hear them calling for even greater spending on some government programs.

When the government is taking an average of about $30,000 from every American family (if you use total federal spending), it is hard to get too excited over having it collected in a different fashion. The big problem isn’t the collection tactics, but the amount being collected.

Ultimately, the people can win against the tax preparers lobby and all of the other lobbyists in Washington DC. It is a game of numbers and the intensity of public opinion.

Americans can get lower taxes and a simplified code if they feel strongly enough about it as a collective. Until then, we are stuck with all of the lobbyists.