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Monday, April 18, 2022

The IRS doesn't scale up well... and can be abolished

By LUDWIG VON KOOPA - The system was designed by politicians and lobbyists, not system planners or economists.

Gross. You Americans gotta deal with TAX DAY today. I know that even at this late hour, SOME people are STILL filing their taxes to the last minute, drowning under the byzantine maze of forms. It's a miserable experience—and that's because it's not designed to be anything but. Taxes are supposed to raise the needed revenue to the government to fund essential services that constituents agree are essential.

But the American tax code is purposefully complicated both as an agent of social engineering—politicians shape your behaviour by taxing some activities (perhaps more heavily than others) or giving credits to other activities to incentivise you—and because the tax preparation industry has lobbied for it to be that way. The government, if you work for an employer or do investments, could just tell you how much money you owe it and you pay them because the counterparty sends them files anyway. But... no, it's gotta be more complicated than that. Part of the reason is reportedly also because some anti-tax conservative activists WANT paying taxes to be difficult. That way, you'll resent paying taxes, and that gets you into the “get your first paycheck to Republican voter” pipeline. I'm not sure why states demand that you pay the government in order to send your tax form in, though. That's bonkers.

A big issue with republics is that politicians and interest groups run on identifying problems... and don't actually solve them, because if the problem gets fixed, then their job is done, and then there isn't a reason to re-elect them because they've served their purpose. But if a problem gets to exist forever, and you get to blame someone else as the reason for that, then you can keep running on that issue forever. Tax system broken? Keep it broken so people can vote on your single issue and you can get yummy contributions towards that. As someone who is part of a monarchy, I don't like that.

Anyway, this is all gonna get worse.

You may already know that millions of Americans still haven't received their tax refunds... back for the year 2020. That's quite likely to get even worse with this year, and worse still next year when the tax system will become even more complicated for millions more Americans with the 1099-K form. That's intended for people who do gigs and a lot of transactions—previously if you made $20,000 with a minimum of 200 transactions in a calendar year with third-party payment platforms, you'd (and the IRS would) get this 1099-K form to report. For the 2022 tax year (so when you do your taxes early 2023... or at the last minute in April 2023—unless you live in a state already doing this form, and hopefully at the time of publishing you're already aware of if you live in such a place), this form will be sent and reported for a minimum of $600, with no transaction minimum. You're supposed to report all of this income regardless of if the form is there or not, but... lots of people smartly don't.

Will the mob of IRS employees (plus the new members to be initiated into their robbery gang hired by the President Joseph Robinette Jr. administration) be able to handle all of this extra compliance? On top of their existing backlog? I doubt it. They're also too busy to engage in customer service. I wonder if they're allowed to offshore that to other countries?

The whole tax system shouldn't be designed to fall apart because the Internal Revenue Service has a staffing issue. (Or maybe they have a productivity problem with the staff they have.) But that's what happens when it's designed from the top down: the IRS commands and controls and is the central point of failure, while also being inhibited from running efficiently or even effectively.

But none of this has to be. I encourage you to look into alternate methods of taxation—some of which, by design, don't even need the IRS and in fact abolishes it. One of those systems is the FAIRtax, proposed by the non-partisan Americans For Fair Taxation. The FAIRtax was devised by economists solving for effectiveness, with minimal stress to taxpayers and would actually benefit the economy if the FAIRtax system was implemented as the new federal tax system. It's a nationwide consumption tax that replaces many of today's taxes like the personal income tax, the capital gains tax, and payroll taxes. The states would be the ones collecting the revenue from businesses, not every person—like most states already do. And I don't think you hear the kinds of problems with state treasuries that you do with the federal one. The states can also run audits. While that record-keeping isn't fun, it's still less people affected than the current system and minimises harm. With the FAIRtax, you...don't really have to do record-keeping anymore if you're just an individual. Auditing would be much easier with so many less targets, and with the audit centres (the states) being distributed throughout the system instead of being one point of failure (the IRS).

Do you live outside of the United States of America? How does the tax system work where you live? If you are an American... how did you survive your taxes? ...Or did you? Will the IRS be coming after you once they catch up with their back log of cases? (If they ever do.) KoopaTV's comments section is open to hear about it all!

Last year, Ludwig wrote about how the lack of transparency into taxation is also a feature of the tax system.
Next year, Ludwig wrote an article discussing common questions about the FAIRtax.


  1. Not a big fan of the tax process. I didn’t know the IRS had a staffing issue, but I suppose it makes sense. Your sense of morality is shattered when you shill for the IRS. Or maybe they didn’t pay their own taxes.


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