Eating out our substance

What is the IRS really going to do with 87,000 new employees?

One of the springtime routines I don’t look forward to is filling out taxes for the family. Yes, I use one of those tax programs to do the 1040s for the three of us, long enough so that I’m well known to one of those online providers.

Over the years I’ve had some issues with the tax collector, the worst of which was messing up my withholding for most of a year and finding out because of it that I owed several hundred dollars. There were a couple years where we didn’t have the money to pay what we owed and another time where someone writing off a bad debt unknowingly increased our income. I found out 18 months after the fact on that one when I got a friendly reminder I owed more tax for that year. Yeah, those were good times.

I don’t think my taxes are more extraordinarily complicated than anyone else’s, at least no more so than when I was more active in the stock market. My side hustles make me a 1099 employee as well as a W-2 worker, but since the Trump tax cuts increased our standard deduction, even becoming a homeowner doesn’t affect that status.

Yet the rumor has it that those new IRS agents being hired will be keeping a sharp eye out for any alleged wrongdoing on the part of me and millions of others in the rapidly-shrinking middle class. We’re a juicy target for the tax collectors because we have a lot of money and assets collectively but individually we don’t have a lot of wherewithal to fight back. Look at what government does to people who make the mistake of trying to transport or store away large wads of cash for an example: if they can abuse civil forfeiture laws to the extent they do, who knows what mischief these new agents can come up with?

What the government will tell you is that they leave billions and billions of dollars on the table that they are legally entitled to because they don’t have the personnel to catch every scofflaw, and the new agents are going to be used to combat tax fraud. That may be true, but my contention is that it’s going to be far easier to soak 1,000 defenseless middle-class people for $1,000 each than to try and chisel $1 million out of a millionaire who has the means to hire attorneys and negotiate a settlement that may only net $500,000 to the government and cost them $300,000 in legal fees. (Plus it sends a great message of intimidation to the unwashed masses.) Over thirty-five years or so of filling out tax forms, I’m sure I’ve made a couple honest mistakes along the way but those honest mistakes are going to become costly mistakes as the tax collectors swarm around to catch them.

If it were up to me, though, I would have those 87,000 people do honest work like digging ditches. I’ve long been an advocate of switching over to the FairTax because an income-based tax system pays the government first (through backup withholding, which was supposed to be temporary for World War 2, but - well, you know what happens with federal programs) and has created an incentive for government to select winners and losers through various taxation rules. (One that really sticks in my craw is handing people a $7,500 tax break for buying an electric car, because it allows carmakers to jack up those prices and make themselves the beneficiary.)

On the other hand, a consumption tax on new items would achieve several things. First of all, we would take home much more of our paychecks, depending on how they handled other federal withdrawals like Social Security and Medicare. Secondly, it would encourage saving and the reuse of items as they are taxed once but could be sold and repurchased several times.

But most important of all in my estimation, the amount of tax paid is controlled by the consumer. A frugal person who saves for a rainy day won’t take a tax hit until that rainy day comes and they need to spend their nest egg, and it’s up to them whether they buy fancy new stuff or gently used.

The other “most important” part of the FairTax is that the government wouldn’t have nearly as much ability to pick winners and losers based on the tax code. That part of government is what keeps the lobbyists busy and, if nothing else, lobbyists and government officials are about one thing and one thing only: self-preservation.

Unfortunately, since we’re not getting the FairTax anytime soon with this regime, I suppose we’ll have to take the advice of those noted experts George Harrison and John Lennon and “declare the paddings on your eyes.” One for you, nineteen for me sounds about right for this government, doesn’t it?