Not many subjects create as much discussion and disagreement as the proposal to eliminate the Internal Revenue Service (IRS).
Eliminating the IRS frequently comes up in conversations about altering the tax system, such as shifting to a national retail sales tax.
Although getting rid of the IRS may seem attractive to certain people, it’s essential to grasp the possible outcomes of such an action, especially about the tax gap and the need for tax enforcement.
What is the Tax Gap?
To understand the effects of eliminating the IRS, we need first to understand the idea of the tax gap. In the United States, we have what is known as a “voluntary” tax system.
This implies that people and organizations are anticipated to willingly adhere to tax regulations by submitting precise returns, making prompt payments, and paying their owed taxes.
However, not everyone meets these responsibilities willingly, resulting in the tax gap.
The tax gap refers to the disparity between the taxes owed to the government and the taxes collected.
It consists of different types of noncompliance, like not reporting income accurately, neglecting to submit tax returns, and avoiding taxes.
The tax gap extends beyond income and includes estate and gift taxes, employment, and excise taxes.
The Importance of the IRS
Arguments for eliminating the IRS typically fail to acknowledge the importance of having some type of tax enforcement agency to ensure tax compliance.
Without an organization like the IRS, the difference between taxes owed and taxes paid would probably increase rapidly. Here is the reason:
Insufficient Willingness to Comply:
Despite being called “voluntary,” numerous individuals and organizations fail to continuously fulfill their tax responsibilities without the supervision and enforcement methods offered by the IRS.
Filing and Payment Delays:
Without the IRS overseeing and enforcing tax deadlines, individuals and businesses can delay or neglect filing returns, making payments, and preparing accurate returns.
Various Types of Taxes:
The difference in tax collection is not limited to income tax but includes different tax categories like inheritance and gift taxes, employment taxes, and excise taxes.
All of these need to be monitored and enforced.
The Function of State Organizations
Some supporters of eliminating the IRS propose that state agencies could manage a nationwide retail sales tax system. Nevertheless, this idea presents practical difficulties:
Short on staff and resources:
Numerous state tax authorities are already lacking sufficient personnel and funding in their present state. It could be too much for them to handle to oversee a nationwide sales tax system.
Varying State Sales Taxes:
Regulations for state sales taxes differ significantly, and certain states do not impose sales taxes. Enforcing a uniform nationwide sales tax in all states would be complicated.
IRS Interaction Preference:
Tax professionals who work with federal and state tax agencies generally prefer interacting with the IRS because of its administrative system.
Switching to a state-based system may not inevitably lead to a better positive experience.
The Myth of Changing Names
Changing the name of the IRS or substituting it with another organization will not eliminate the necessity for tax enforcement.
Regardless of the terminology used, someone will always be accountable for ensuring that individuals and corporations adhere to tax regulations.
Tax collection is essential to sustain the government’s income and finance vital services.
Summary: Enhancing the IRS
Instead of eliminating the IRS, the conversation should revolve around enhancing its effectiveness.
Sufficient financing and a comprehensive examination of the Taxpayer’s Bill of Rights can enhance tax enforcement, customer service, and overall efficiency.
An efficient IRS is crucial for preserving the credibility of the tax system and ensuring that taxpayers fulfill their responsibilities.
Therefore, although eliminating the IRS may seem appealing, it is essential to consider the actual outcomes and focus on improving the existing system.
Ultimately, as the famous proverb suggests, “A rose by any other name…would have the same fragrance.”
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