For some time now, the IRS has been flirting with what’s called a return-free system. Instead of you having to sit down and fill out your 1040, the IRS would fill it out for you and tell you how much you owe.
It’s being touted as a time-saver. But it would also raise taxes on the poor. No matter how much personal information the IRS collects on someone, it is almost certain to miss deductions that person qualifies for.
There is also the tiny little conflict of interest that occurs when one’s tax collector is also one’s tax preparer. In an op-ed in The Hill, I explain why people of all political stripes should oppose a return-free program:
A return-free tax system has something for everyone to hate. Progressives should be up in arms over its disproportionately hurting the poor. So should privacy advocates; the IRS does quite enough snooping as it is. And conservatives should oppose return-free because, even though tax rates would remain unchanged, it is still a tax increase.
There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.
The same day President Obama called for another $50 billion to $100 billion stimulus plan (and concomitant increase in the deficit), he also appointed the chairmen of his Deficit Reduction Commission. It says a lot about Washington that almost no one got the irony of those paired announcements.
Indeed it does. Fortunately, the Commission’s job is pretty simple. There are only two ways to cut the deficit. One is to cut spending. The other is to raise taxes. Cutting spending is the right thing to do. But it is also politically difficult. There is a lot of fat to trim from the budget. But government has little incentive to put itself on a diet.
That’s why the Commission is expected to recommend a tax increase, probably in the form of a VAT. A prestigious bipartisan Commission can provide the political cover that Congress and the administration need to avoid the embarrassment of backtracking on their policies.
Wayne Crews and I recently warned why a VAT is a bad idea in Investors’ Business Daily. Hopefully some of the arguments will find themselves into the debate.
Over at Investor’s Business Daily, Wayne Crews and I make the case against a Value Added Tax. Policy makers have been flirting with the idea as a way to reduce the $1,400,000,000,000 budget deficit.
We argue that a VAT is:
-Complex; it would require roughly doubling the size of the IRS.
-Untransparent; most VATs don’t show up on receipts the way sales taxes do. Taxpayers are clueless as to how much tax they actually pay.
-Vulnerable to special-interest tinkering; politically incorrect goods are routinely penalized with higher rates. Politically favored goods are granted exemptions.
-Prone to increases; 20 out of 29 OECD countries with a VAT have increased their rates since implementing a VAT.
A point we didn’t make is that VATs affect industrial organization. VATs are applied at each stage of the production process. That gives companies an incentive to reduce the number of taxable steps. That means more vertical integration than would otherwise occur. This can decrease the efficiency of the manufacturing process. Which means higher prices and fewer goods. Plus the tax.