Wednesday, March 14, 2012

Why a flat tax proposal won't even see the light of congress, and why government is perceived to be necessary.

Notes to preface:

1. It's Wednesday, I've had a beer (or few) and been proselytizing to myself for the past hour. While my point may not be very well illustrated here, it's not moot.

So, amidst a conversation with a co-worker about the futility and waste of my current position within the IRS, we began discussing a flat tax. "Just institute a flat tax, and get rid of this crap" he said. This sparked a conversation and recollection of memories about people I know, arguing for the value of a flat tax in the past. To explain; What I deal with every day is the American Taxpaying Public. Most of who I talk to are simply looking for their refunds, trying to find out whether or not they can claim something, or are trying to find out how to get a tax benefit on their tax return they argue they're qualified for. - It's something that, with a flat tax system would be completely eliminated. The 27,000 call site employees you currently pay for could be eliminated (Math: 21k @ 49k per year = 1.029 billion dollars in wage payments just for phone employees alone in ideal conditions, the actual math is probably about 857 million (which btw, is only about .002189% of the federal budget.))

What I'm saying is that a flat tax would eliminate the need for federal tax returns (and all the elements associated with it, like petitioning tax courts, filing returns to claim refunds, processing payments not received through withholding, etc) for everyone except the self employed and those receiving certain federal benefits provided through the tax code, like the Earned Income Credit, Health Coverage Tax Credit, and so on.

Simple version; Flat tax rates would cut the administrative requirements for most people, as well as the administrative cost for the IRS (Note: I previously touched on the regained revenue from a cut in wages, not to include the cost of operations  like real estate, power, etc.)

The thing is, all those administrative requirements, like preparing and filing a federal tax return, give rise to the existence of another market - The Tax Return Preparation market!

Companies like H&R Block, Liberty Tax Service, and Jackson Hewitt do business by helping you with your federal tax problems. While most of the people who read this blog only deal with their personal returns, business (corporate/partnership) and trust returns are a HUGE issue for many people in this country, all of which exist only because of current tax law. Even retirement planning focuses around limiting your federal tax liability. An IRA is completely based on federal tax law that is intended to incentivise retirement saving.

Eliminating huge elements of the federal tax code in favor of a flat tax would literally destroy an entire market. It would put a few hundred thousand (Or more?) people out of a job, who are dependent on the existence of our current tax code to make a living.

So, would this kind of legislation ever see congress? Nope. No politician looking to advance their career would ever support a flat tax, knowing it would alienate a huge portion of their voter base, in addition to risking the unemployment of a massive group of people.

A flat tax is not possible because of how we have structured our society. The goal of government is to create markets that are fundamentally dependent on the existence of government. That's what is meant by politicians who talk about "Job creation." A job that does not need to exist, will not exist without government. So, Government creates jobs that need to exist because of it's own requirements. Yet they produce nothing, they accomplish nothing other than the administration of a government.

In conclusion, government exists for one reason and one reason only; To perpetuate it's self. Like a Union, those who make their lives revolve around anything seek to show the world why they are necessary, to retain their position, pay, and sense of necessity.

As I've told many and will continue to tell people - My job does not need to exist. I would vote myself  out of a job, if I had the opportunity.

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