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Eliminate, Don’t Reform, the IRS

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Yet again, a taxpayer “bill of rights” has been enacted into law. And so, after all the recent revelations of Internal Revenue Service abuse of peaceful citizens, we can all now be confident that the tax collector will respect the rights and dignity of every American.

Right. And pigs have started landing at Ronald Reagan Washington National Airport. We’ve been here before. This is the third “bill of rights” for taxpayers passed in a decade. Does that strike you as strange? Do you think they’ve got it right this time? Call me a skeptic, but I’m not convinced.

At first glance, the bill might look like it will afford some protection for taxpayers. It creates a nine-member board to oversee operations, six of whose members will be from the private sector. (Jim Bovard points out it will also include an employee-representative of the IRS.) The bill would also shift the burden of proof from the taxpayer to the IRS in court cases. Currently, the taxpayer is guilty until he proves himself innocent. Other provisions would let citizens harmed by IRS negligence sue for damages and would relieve taxpayers of liabilities of former spouses. Homes could no longer be seized without a court order. Some penalties would be reduced and some IRS deadlines tightened.

But in the world of legislation, especially IRS “reform” legislation, things, as W.S. Gilbert wrote, “are seldom what they seem.”

The oversight board and the shift in the burden of proof “are said to be the silver bullets that will end IRS abuse,” writes Daniel J. Pilla, one of the great IRS watchers, in the National Review. “They are more likely to be blank cartridges.”

Pilla writes that the oversight board is not what we have been led to believe it is. To judge by the news summaries, you’d think that this board will be able to come to the rescue of battered citizens. But that’s not the case. The new body will be involved in planning for the future and in overseeing the IRS budget and commissioner. “In other words,” writes Pilla, “the Board will function as a forum for thinking about the overall direction of the IRS.” It won’t have the power to prevent agents from treating taxpayers like child molesters. Pilla notes that the board is specifically denied authority over the agency’s law-enforcement apparatus. Don’t expect it to rectify the abuses associated with audits, seizures, and other activities designed to wring more revenue out of Americans. Pilla says the board will not be able to avert the tyrannical conduct citizens reported at Senate Finance Committee hearings on the IRS.

And what of the burden of proof? A clue to the bogus nature of the “reform” lies in the bill’s command that Americans keep records and cooperate with the IRS during investigations. In other words, the IRS may have the nominal burden of proof, but you still must furnish the records it will use against you. No pleading the Fifth Amendment. Moreover, to shift the burden to the government, a taxpayer will have to make a “reasonable” case that the IRS position is defective. In other words, the citizen has the burden of showing that the burden should be shifted! Some protection.

Even if there was a meaningful shift in the burden, it would be of no help to most taxpayers. “The problem,” Pilla writes, “is that 97 percent of everything the IRS does involves no ‘court proceeding.'” Most of the problems that citizens have with the IRS occur outside of the court. They involve, Pilla says, “its powers of lien, levy, and seizure.” In other words, the shift in the burden is moot.

The Wall Street Journal recently ran this item in its tax column:

“The change [shift of the burden] ‘is not going to do much good’ for most taxpayers battling the IRS, says N. Jerold Cohen, a lawyer at Sutherland Asbill in Atlanta and a former head of the American Bar Association tax section. “It’s a rare case that turns on the burden of proof.” Several other lawyers agree it will have mostly symbolic importance.”

I think what we have here is a public-relations coup for the IRS and its allies in Congress. Don’t expect any major breaks for the taxpayers.

Bills of rights have never restrained the IRS. We shouldn’t be surprised. It has a mandate to collect a trillion and a half dollars a year. You don’t extract that kind of money by being Mr. Nice Guy. The IRS knows it. More important, the Congress knows it. They certainly want the public-relations value of passing taxpayer-protection legislation, but they don’t really want to do anything to reduce the fear and intimidation of the American people. The moment those things are reduced, people will do what they can to protect their incomes from the taxman. It’s human nature. Tax revolts — even the quiet, private kind — are a constant feature of history. As long as there are taxmen and taxpayers, there will be tax avoidance. You’ll sooner see things fall up than see truly voluntary compliance with the tax code, even if everyone understood it.

Revealingly, throughout the congressional deliberation on the taxpayer-protection bill, there was great concern over what the legislation would cost. Taxpayers’ rights are fine as long as they aren’t too expensive. In the eyes of the government, much of the cost comes not from spending on new equipment or personnel. It results from revenue forgone. In other words, money not extracted is treated as spending. If the IRS stops collecting revenue on income earned by an ex-spouse, that is counted as an expense chalked up to the bill.

This speaks volumes. The cost associated with government activity used to mean the cost to the taxpayers. Now it means the money the government might have taken but didn’t. Notice that whenever anyone suggests a tax cut, he is asked how he plans to pay for it. I guess we can say that part of the cost of the present tax code is the 80 percent of the gross domestic product that the government doesn’t take. Any tax increase can be heralded as a reduction in the cost of government. The people who think up these things are absolute geniuses.

This view of costs demonstrates that the purpose of the tax system is not to provide “service” to Americans. We are in no way the IRS’s customers, as the commissioner likes to refer to us. We are its cash cows.

There’s no sense blaming the IRS for this attitude. It’s not the agency’s fault. The fault lies with Congress, which has charged the IRS with extracting so much from the hide of the American people. It can’t do that while being gentle.

There is one way — and only one way — to respect taxpayer rights: repeal taxes and the outrageous spending that requires them.

The torment that the IRS inflicts on individuals is horrific. People have lost their homes, businesses, and even their lives. But we must not let those terrible incidents make us forget the more general offense against the American people: the routine, day-to-day theft engaged in by government at all levels — most egregiously from income taxes.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.