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Flat Tax Is Fairest of Them All


Our John Hoover weighs in how to fix the IRS.

Auditors recently revealed that the IRS paid out an estimated $1.6 billion in potentially fraudulent tax refunds during the 2006 and 2007 filing seasons. Given the track record of government agencies, that figure is probably higher - a lot higher.

This is particularly troubling, because there's nothing yet in place to fix the problem. The fraudulent refunds are typically in increments so small that the IRS doesn't deem them worthy of investigation. What's worse, the IRS lacks the investigative capacity to go after so pervasive a problem, even if they deemed it worthy of attention.

The audit concluded: "This problem is becoming unmanageable." Unless the IRS cracks down, it could issue more fraudulent refunds, burdening "honest taxpayers whose tax dollars are being used to support this criminal activity," as the audit put it.

This was all apparently due to a massive and no doubt massively expensive new IRS computer system that has yet to function properly. After a year in which the big new machine simply refused to work, the IRS reverted to the old one. Go figure. What private enterprise the size of the IRS (if there is such a thing) could go a year without functioning computers? But that's a topic for another column.

The bigger issue at hand is the wisdom of a complex tax code ostensibly designed to address economic disparity. The complexities that the computer system can't handle include progressive tax rates, shelters and deductions. Progressive tax rates exist in order to take a larger percentage from those who can ostensibly afford to pay a greater percentage of their income. Those with low incomes pay little or nothing.

It's only fair, right? "From each according to his abilities (to pay), to each according to his needs." Karl Marx also said that "Democracy is the road to socialism." The current IRS bungle is just more proof that the German philosopher was right.
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