Eliminate the IRS?

Drudge reports today that House Speaker Dennis Hastert wants to eliminate the IRS and replace the income tax with a value added tax on purchases. Basically, we'd get a national sales tax that I'm guessing would be somewhere around 20% of purchases. Hastert makes some decent points -- it's not fair that we have such a complicated tax code that people are pretty much required to hire lawyers and accountants just to file an accurate return. It's not fair that the IRS scrutinizes those returns and then makes it the tax payer's responsibility to be accurate. Certainly, we need a simpler system and I'm not sure what that would be. One could even argue that the current tax code constitutes an unfair subsidy for the entire accounting industry.

But, for all Hastert's talk of wanting to make things simpler on everyday people, I doubt that's his real motivation here. Sales taxes are the most regressive taxes out there. It means you pay an extra 20% to buy a carton of milk whether you're living just above the poverty line or living large as a millionaire. It says that whether you slave away as a waitress or sit back and live off your investment income that you should be equally responsible for funding the government. What Hastert really wants to do is to raise taxes on the poor. Those who are paying 15% a year, or are paying nothing and claiming the Earned Income Tax Credit would suddenly find themselves paying 20% of their income a year. Rich folks, paying 35% in the top bracket, would get a tax cut.

But, that's not all. If you live paycheck to paycheck, meaning that you're basically spending whatever you take in, you'll basically be paying 20% on every dollar you make. But if you make enough where you can sock money away, you won't pay anything on the money you put into banks or the stock market. Say you make $1,000 a week and spend it all. You'd lose $200 of that to taxes. Say you make $1,500 a week and spend $1,000. You'd also lose $200 to taxes. The $500 you put away wouldn't be taxed at all.

Hastert will no doubt spin his elimination of the IRS idea as an idea for the little guy and the IRS is so unpopular, the little guy might well believe it. But don't. This is a giveaway to the rich, no doubt about it.