The tax code at sunset
Rather than abolish the IRS, phase out the current tax system
We are officially off to the 2016 races. Texas Sen. Ted Cruz was the first official candidate to enter the GOP primary contest, followed by Sens. Rand Paul and Marco Rubio. Many more will undoubtedly follow. We will soon begin hearing an endless stream of campaign plans and promises, from repealing Obamacare to securing our borders, to simplifying our tax code and yes, even abolishing the Internal Revenue Service. A lot of these proposals sound great on paper. Yet, when it comes to talking about abolishing the IRS, candidates risk looking foolish and unelectable.
Why? All of the chatter so far about tax reform has lacked seriousness and doesn’t contain the kind of gravitas the problem deserves. First, it’s easy to get applause and headlines by proposing to abolish the IRS, but by itself, it’s not a serious policy proposal. Second, candidates are proposing going from the current code to its replacement in one step. It’s just too large a task. The necessary first step, which all the competing tax reform ideas will almost certainly agree on, is that we first need to terminate, or “sunset,” the current tax code.
During his presidential announcement speech last month at Liberty University, Mr. Cruz called for the abolition of the IRS. Other potential GOP hopefuls have echoed similar sentiments, including Mr. Paul. Even prospective presidential candidate Ben Carson said earlier this year that simplifying the tax code should include eliminating the agency.
First, I commend all of those who support simplifying the tax code. There is broad agreement that our current code is just too big, too complex and fraught with loopholes and abuse. It’s inherently unfair and inefficient. In 1914, the U.S. tax code was just 400 pages long. Now, it’s ballooned to almost 74,000 pages — an 18,000 percent increase.
It is more than 300 times as long as the Bible. Almost every day we see another tax horror story making the rounds. In the last two years, more than 360,000 taxpayers were the victims of a scam involving fake IRS agents who threatened consumers and conned their victims out of over $15 million.
In February, the tax service provider H&R Block reported that more than 50 percent of Obamacare customers received subsidies that were too large, and as a result, they will have their tax refunds reduced or will need to send in additional money with their returns. These examples are just the tip of the iceberg in terms of the confusion and harm caused by our out-of-control tax code. And almost all of them are the result of the tax code’s complexity.
There are a number of proposals being offered to simplify the current tax system. Some, like Sens. Cruz and Paul, advocate an income-based flat tax. Others are calling for a consumption-based tax such as the Fair Tax. There’s no shortage of proposed solutions, yet none of them has achieved critical mass: majority support from voters.
That’s why I’m proposing a different approach to break the logjam: Sunset (or legislatively terminate) the tax code first, at a date certain far enough into the future so we don’t create uncertainty in the financial markets, yet close enough to the present to precipitate a sense of urgency. This idea would first unite the flat taxers, the fair taxers, populists and even some progressives. It would then set the stage for a robust debate on a future system that would captivate and fully engage the public.
If Congress approaches tax reform from the perspective of the current code, all we are likely to see are small, incremental changes that may end up making the code even worse. The only way to create a sense of urgency about tax reform is to, first, sunset the current code. The sunset date that I propose is Dec. 31, 2019.
One simple way for candidates to show voters that they are serious and thoughtful about tax reform is to call all of the different reform factions together and agree on eradicating the cancer: the current code. This will not only help set the stage for a national debate on a fairer, simpler and more growth-oriented system of taxation, but also will help the candidates look presidential. If just one candidate starts, the others will soon follow. The opposite argument — defending the current tax code — is simply unsustainable.
Colin Hanna is president of Let Freedom Ring USA, Inc.