The IRS Scandal and How to Fix It. Forever.

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Jason Kuznicki

Jason Kuznicki is a research fellow at the Cato Institute and contributor of Cato Unbound. He's on twitter as JasonKuznicki. His interests include political theory and history.

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  1. Avatar Plinko
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    I could not agree more.Report

  2. Avatar Tod Kelly
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    A good post, but there is one part of the equation I think you’re not addressing: Over the past couple of decades, one of the ways that we’ve eased the tax burden to enable things like, say, war efforts, has been to shift the line costs of social services to private non-profits. Most social services that look after the elderly, the mentally ill, developmentally disabled, etc, are performed by outside agencies; the government primarily provides oversight. Much of the financial burden is picked up by individuals and corporations looking to ease their own tax burden.

    What do we do with these people if Americans don’t choose to take that extra $100 a year and give it to charity?Report

    • Avatar zic in reply to Tod Kelly
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      Most social services that look after the elderly, the mentally ill, developmentally disabled, etc, are performed by outside agencies; the government primarily provides oversight. Much of the financial burden is picked up by individuals and corporations looking to ease their own tax burden.

      Beyond oversight, much of the payment for these services is also paid through the government through Medicaid, SSI, Medicare, etc. Eliminating the charitable contribution for non-profits would increase revenues enough that, in theory, well-run groups would be able to provide necessary services at rates that actually pay their costs. (This also presumes that there’s real cost comparison, at-home hospice to in-hospital terminal care, etc.)

      The exception is, perhaps mental health. Right now, we seem to deal with the mental health problems we cannot medicate away with the prison system instead of the health care system.Report

      • Avatar Jason Kuznicki in reply to zic
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        My recommendation was to do it in a revenue-neutral way, which would have the effect of allowing more middle- and lower-income people to keep more of their pre-tax income. The federal government wouldn’t get more money the way I suggested. Not directly, anyway. The good economic effects might do it, though.Report

        • Avatar zic in reply to Jason Kuznicki
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          Remember, there’s an odd teeter-totter balance here:

          charitable contributions help the rich more; services that Tod mentions help those least likely to have financial resources. Much of that cost is currently shifted, as in prisons for mental health issues. Another obvious one is ER care instead of in-office care. There’s also nursing-home care instead of at-home care.

          But I wonder about another aspect of this, Jason: do we tax endowments of rich non-profits? Should Harvard and Yale pay taxes on the income they earn from their investments?Report

          • Avatar zic in reply to zic
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            Just to clarify my first thought in this response, it’s not revenue neutral if it doesn’t include a mechanism for providing services currently provided through non-profit charitable contribution; either the service vanishes or some other funding mechanism must evolve.Report

            • Avatar Jason Kuznicki in reply to zic
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              1. I hadn’t considered income from endowments. I don’t know how I would answer.

              2. You’re working with a different definition of revenue-neutral. I was talking strictly about the federal budget, not about the budgets of private charitable entities.Report

              • Avatar zic in reply to Jason Kuznicki
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                I was talking federal budget, too, Jason. When you eliminate funding mechanism for a needed service, it often pokes through the federal budget in other places. We’ve seen that recently in the increase of SSI benefits for unemployed folk who no longer qualify for unemployment and aren’t healthy enough to do the jobs available. We’ve seen the cuts to mental-health care inflate the costs of prisons (not to mention the increase in rates of incarceration for the mentally ill).Report

              • Avatar Jason Kuznicki in reply to zic
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                While that’s true, I don’t know how great the effects would be here. I am inclined to doubt that they would be large, and to add that they would be significantly offset.Report

    • Avatar Plinko in reply to Tod Kelly
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      I think to answer that, we need to figure out the additional tax revenue overall in comparison to the expected lost donations to these groups that peform these functions.
      The most recent number I could find for the total value of the charitable tax deduction was $46 billion in 2008 – I can’t find an exact number for donations to social services organizations for the same year but I saw the NPT put out a figure of 12% of donations go to human service organizations and somewhere else than 2008 charitable contributions totalled $229B so that puts you at about $27.5B.
      In other words, from a purely social services viewpoint, the deduction seems like a loser based on these extremely rough numbers.Report

  3. Avatar Rod Engelsman
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    I like this although, as always, devils in details.

    There’s a decent argument to be made that this latest “scandal” is really an inevitable unintended consequence of the CU decision. Basically, the IRS is being tasked with making determinations that are more properly the province of the FEC.Report

    • Avatar Michael Cain in reply to Rod Engelsman
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      The problem, I think, is less the CU decision than Congress’ choice to create a class of entities with two characteristics: (1) donor identities can be concealed and (2) such entities can engage in some but not too much political speech. There is clearly a group of individuals (including corporations, no doubt) who want to exercise their political speech right anonymously. I can think of one positive reason for such a desire: to keep people who do fund raising from finding out that you can afford to and are willing to make $10M donations. The other reasons that come to mind are all negative. A message that inheritance taxes should be abolished is questioned if it’s paid for by the Walton kids who stand to benefit to the tune of a few billion dollars if that tax goes away. The executives/board of a giant corporation may not with their shareholders to know that they’ve spent $10M on political speech the shareholders may not agree with.

      I’m not a fan of the “corporations are people” decisions, but I don’t think those are the problem here. The Constitution guarantees free speech; it doesn’t say anything about anonymous free speech, and this problem is unlikely to have occurred if Congress hadn’t created (half-heartedly) a channel for anonymizing political speech.Report

      • Avatar Jason Kuznicki in reply to Michael Cain
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        “Corporations are people” isn’t just some weird court decision. It’s the only way that corporations can be subject to any laws at all.

        You want corporate environmental regulations? It’s done by legislating about what people can do. You want corporations to be subject to contract law? Same deal. Corporations couldn’t hire or employ anyone, or be subject to any regulations at all, if they were not treated as persons for those purposes.

        There are very good reasons for doing this. Chief among them is that corporations do not receive rights and privileges in excess of what individuals get.Report

        • Avatar Kimsie in reply to Jason Kuznicki
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          Can one give the corporation a death penalty? Or does this “corporations are people” only apply to civil lawsuits?Report

          • Avatar Matty in reply to Kimsie
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            I believe in most jurisdictions at least corporations *can* be disolved by a court order, which is the nearest you’ll get to a death penalty. It isn’t very common though.

            If we are talking about criminal prosecutions I suggest the correct response is what is known as ‘piercing the veil’. Looking behind the fact an act was done in the name of the corporation to find the human or humans who actually made the decision to break the law and prosecuting them.Report

        • Avatar Barry in reply to Jason Kuznicki
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          Jason Kuznicki May 17, 2013 at 11:05 am

          ” “Corporations are people” isn’t just some weird court decision. It’s the only way that corporations can be subject to any laws at all.”

          Absolutely wrong. A corporation is an entity granted limited privileges by a government for specific purposes and time periods. IIRC, this was the way things were run until some railroad lawyers in SCOTUS were told to assert otherwise in the late 1800’s.Report

          • Avatar Jason Kuznicki in reply to Barry
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            Suppose it is wrong.

            Now a certain corporation is dumping toxic waste in my backyard. I take them to court for damages.

            “We are not a person,” says the corporation, “and the laws about pollution — heck, even the laws about judicial standing — apply only to persons. This case should be dismissed.”

            Thanks to your wisdom, it is.Report

            • Avatar zic in reply to Jason Kuznicki
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              This all seems rather obtuse.

              Articles of incorporation include names of the responsible person(s). They are the ‘people,’ not the corporation itself. Many jobs come with specific legal responsibility, though I’m not certain the proper legal term for this. An example would be the person responsible for overseeing environmental procedures in a plant licensed to produce point-source pollution; that person is legally responsible in the case of violating the limits of their pollution permits, and failure to reasonably keep within those limits through negligence results in fines for the corporation and occasional prison sentences for the responsible people working for the corporation.

              Just as incorporating a company provides some protections for owners, for instance separating their private finances from the business they own, incorporating requires a structure of responsible persons within the company. Until Citizens United, the concept that the corporation itself was a person, instead being owned by persons and employing persons to bear responsibility, did not seem pertinent to any public discussion of corporations.Report

        • Avatar Rod Engelsman in reply to Jason Kuznicki
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          Sure, but there’s also a distinction between “natural persons” like you and me, and “artificial persons” such as corporations, government entities, churches, etc. The latter have legal existence so that they may own property, buy and sell stuff, pay wages and taxes, sue and be sued, etc.

          There has always existed a distinction in constitutional and positive law, with rights (speech, etc.) inuring to the former but not the latter. Until… someone noticed that the wording of the 14th amendment (likely inadvertently) referred only to “Persons.”

          Of course, the notion that Artificial Persons are the exact equivalent in law to Natural Persons is absurd on its face. For example, owning shares of stock would be the legal equivalent of slavery, as would corporations owning, buying, and selling other corporations. So now we get corporations claiming BOR privileges when it’s to their advantage while we ignore the absurd or even inconvenient ramifications.

          Of course, you know this and you likely know the details as well as or better than anyone else here. It’s just more convenient to pretend you don’t sometimes, huh?Report

          • Avatar Jason Kuznicki in reply to Rod Engelsman
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            I pretend nothing.

            I constantly hear people complaining about corporate personhood as if it conferred some huge advantage to corporations. It does no such thing, because — as you correctly point out — corporations are not natural persons. As a result, they can’t vote, can’t serve on juries, can’t run for Congress, and a whole bunch of other things.

            They are however legal persons, which means they are regulated (at least in theory) just as if they were individual human beings performing the acts in question.

            When I hear people attack corporate personhood, I know right away that they have been carried off by an appealing slogan. If they knew better, they would realize that when they attack corporate personhood, they attack the ability of the government even to regulate corporations at all: Our entire regulatory apparatus regulates persons.Report

            • Avatar MikeSchilling in reply to Jason Kuznicki
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              Our entire regulatory apparatus regulates persons.

              Which is why cows run rampant through the streets of New York.Report

            • Avatar Rod Engelsman in reply to Jason Kuznicki
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              The complaint against “corporate personhood” is leveled against the fact that corporations have increasingly–culminating in the CU decision–been granted political rights. The grant of artificial personhood was always meant to serve as an instrumental convenience to distinguish some organizational entity from the actual persons owning, directing, managing, or employed by that entity.

              A pithy meme along these lines is that Scot Dred declared people to be property whereas Citizen’s United declared property to be people.Report

              • Avatar James K in reply to Rod Engelsman
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                The purpose of a corporation is to allow a group of people to fund an activity they wouldn’t be able to manage on their own. Given how much it can cost to communicate a political idea with the general public, a corporation is indispensable for anyone who isn’t a multimillionaire.

                The first amendment rights of a corporation are a logical consequence of the first amendment rights of its owners. To block this would make it impossible for non-rich people to communicate political ideas with the public.Report

              • Avatar Stillwater in reply to James K
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                The purpose of a corporation is to allow a group of people to fund an activity they wouldn’t be able to manage on their own.

                Is that right? I thought the purpose of a corporation was to limit individual liability.Report

              • Avatar MikeSchilling in reply to Stillwater
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                The purpose of creating “Patriots for Liberty and Freedom” [1] is to hide who the donors are.

                1. Which is obviously a euphemism for something pretty evil, just like a People’s Democratic Republic.Report

              • Avatar James K in reply to Stillwater
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                The two are related. Without limited liability it would be very dangerous to be a small investor in a company, since partnerships are governed by Joint and Several Liability.

                Because of joint and several liability, you can only enter into a partnership with people who trust, which means partnerships are necessarily small, and therefore can’t raise much capital.Report

            • Avatar Jim Heffman in reply to Jason Kuznicki
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              “I constantly hear people complaining about corporate personhood as if it conferred some huge advantage to corporations.”

              The issue, I think, is that people believe that someone can do horrible awful things on behalf of (or by the direction of) a corporation; and when the victims of those awful things try to get restitution in court they find that, in a legal sense, it wasn’t Joe Jones doing awful things, but An Employee Of ConHugeCo, who are the ones that get sued. And therefore Joe Jones doesn’t actually suffer any penalty for doing those awful things.

              So it’s not so much the corporation, as it is the people who work for it and do awful things, who benefit from corporate personhood.Report

              • Avatar Mad Rocket Scientist in reply to Jim Heffman
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                Ideally, when ConHugeCo get’s sued for Seven-Umpty Billion dollars, it will note that Joe Jones was the direct cause for it’s loss & it will seek it’s pound of flesh from him, either by bringing a civil suit against him, or by providing evidence to law enforcement.

                Ideally, anyway…Report

              • Avatar James K in reply to Jim Heffman
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                1) As far as I’m aware, vicarious liability doesn’t apply to criminal acts so if Joe Jones did something illegal, they can still be charged with a crime.

                2) If you sue an individual instead of a corporation for the misdeed, the individual may not have enough money to meet the damages.

                3) A corporation is likely to fire an employee that is costing them money.Report

          • Avatar Michael Cain in reply to Rod Engelsman
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            Jason has a point, and I certainly acknowledge it. As DeLong likes to point out when he gets into certain economic-history modes, incorporation means “to give a body to”. So when the king of England had to fit the city of London into a feudal system of obligations, it needed a body. Represented by the Lord Mayor, the city swore its allegiance and acknowledged those obligations (eg, X armed men, Y pounds in taxes, etc). Ever since there have been problems with differentiating the rights/responsibilities of the corporate person versus the natural person. When I say that I’m not a fan of some of the decisions, I mean that I think the courts have gone too far in terms of the rights (political speech and such) of the legal creations. To pick an example, a CEO — a single natural person and a mere employee of the corporation — can exploit his/her position to have the corporation “speak” in ways that reflect the CEO’s opinions rather than those of all the people who hold shares.

            I find it interesting that many conservatives who support the CEO’s power to do this also work very hard to deny union leaders the same power. They introduce legislation that requires near-unanimous agreement by the union members before the leaders may speak for the group on political matters, but don’t have any problem with the CEO speaking (that is, spending the corporation’s money), even though the shareholders have not been asked their opinion(s) on a particular matter.Report

            • Avatar Art Deco in reply to Michael Cain
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              They introduce legislation that requires near-unanimous agreement by the union members before the leaders may speak for the group on political matters, but don’t have any problem with the CEO speaking (that is, spending the corporation’s money), even though the shareholders have not been asked their opinion(s) on a particular matter.

              Shares in a publicly traded corporation can be bought and sold with very little frictional cost and shareholders’ meetings are typically pro-forma and run by proxy. Union membership or agency fees are compulsory and the frictional costs of evading union membership much higher. There is also a difference in the propensity of unions to engage in political activity and the propensity to engage in it beyond the interests of the economic sector of which the unions are a part. (And for business, politicians are fungible. Not so for unions).Report

  4. Avatar Lyle
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    A smaller scope of a reform, provide that all charities must disclose their donor lists. (Universities typically do, and many others such as United way do at least above a given donation size) One of the reasons so many organizations went for the status was that they did not have to discolose their donor lists. There was fear that if donor lists were disclosed then donors might be harrassed. I go back to the old street corner, if donation is a form of speech (which it appears the courts have sort of decided), then just as if you are speaking on the street corner, if you say something, you need to expect push back. If you speak on the street corner, your identity is disclosed, so why not there.Report

  5. Avatar Damon
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    The main purpose of the IRS is to ensure that the tax laws are being followed. It’s an outgrowth of the complexity of the Tax Code, the root cause of the problem. Fix the tax code and the rest will attend to itself. That’s not going to happen though as the whole purpose of the Code is to provide political favors to various groups and now we’re back to where we started.Report

  6. Avatar Burt Likko
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    Jason can you remind me again about your opinion on replacing income tax with a national sales tax? Drag on economic development, salubrious to the economy, regressive without some modified (guaranteed minimum income or prebate?)…

    It seems to me that if we could get there from here it would do more good than harm but I’ve no good suggestions for how to get there from here.Report

    • Avatar North in reply to Burt Likko
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      It’d have to be tied to an absolutely massive amount of redistribution that’d be difficult for successive governments to easily tinker with as part of normal business in order to get the left to sign onto the idea. You’re talking about essentially eliminating progressiveness in the tax code after all.Report

      • Avatar Brandon Berg in reply to North
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        I’m confused. I keep hearing from the left that the tax code isn’t progressive anyway.Report

        • Avatar Kimsie in reply to Brandon Berg
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          It might not be progressive /enough/ but for some values, it is progressive. (not claiming to know loopholes like a millionaire. Go ask on CalculatedRisk if you want to know what they think.)Report

        • Avatar Dan Miller in reply to Brandon Berg
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          There are parts that are progressive (federal income tax), parts that are flat (most state income taxes, some others) and parts that are actually regressive (property taxes, sales taxes, tariffs I believe). The net effect is that when you consider the tax burden as a whole, it comes out to be flat or very close to it (source). This proposal would eliminate the progressive portion, and replace it with an as-yet-unspecified proposal that may or may not maintain the same level of progressivity. It’s easy to see why liberals would be wary.Report

          • Avatar trumwill mobile in reply to Dan Miller
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            That’s kind of a deceptive chart that minimizes the differences in effective tax rates. The progressivity starts slowing at the top 40%, but the top earners do paytwice the rate as do the bottom 20% and 50% more than the next bottom 20%.Report

            • Avatar Morat20 in reply to trumwill mobile
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              Effective rate? Because the top earners earn a large chunk of their income through capital gains, taxed at 15%.

              Which is why Warren Buffet’s effective rate is, famously, less than his secretary’s.Report

            • Avatar Dan Miller in reply to trumwill mobile
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              I don’t think it’s deceptive. Given the degree to which income is concentrated at the top 1%, I’d want to see them paying a higher effective rate than the top 20%, and the chart is a good way to break that out.Report

              • Avatar Will Truman in reply to Dan Miller
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                I want to see them paying a higher effective rate, too. And they are. Maybe not higher enough, but the chart you link to obscures that different. One would never know the significant differences in effective tax rates by glancing at that chart.

                I would define progressivity primarily by what percentage of one’s income goes towards taxes. In a progressive structure (the federal government) it gets progressively higher, for the most part, as you move up the economic latter. In a regressive or flatter tax system (state and local governments), it doesn’t move or goes down.Report

          • Avatar Brandon Berg in reply to Dan Miller
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            Oh, sweet Jesus, that chart is just breathtaking in its utter awfulness. Where to start? The stretching out the top quintile to cover half the chart in order to make it look much flatter than it really is? The conflation of FICA taxes, which you more or less get back, with real taxes, which you don’t? Blithely disregarding the problems with comparing income to sales tax payments on an annual basis? Considering only gross tax payments, rather than taxes net of transfers and other government benefits?

            I could literally go on for hours about the all the ignorance and disingenuity packed into that one little square.Report

    • Avatar Jason Kuznicki in reply to Burt Likko
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      I am not sure it could be attempted without some sort of compromise being reached, in which we just add a national sales tax on top of the national income tax. After which both would tend to grow independently.

      An income tax that excludes only savings and investment is an interesting idea and might be worth a try.Report

      • Avatar Kimsie in reply to Jason Kuznicki
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        An income tax that excludes only savings and investment is an interesting idea and might be worth a try.
        Didn’t we have 0% capital gains for a while there? I’m not sure I really support this, as I feel like it’s a naked giveaway to folks that don’t work.Report

      • Avatar Brandon Berg in reply to Jason Kuznicki
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        An income tax that excludes only savings and investment is an interesting idea and might be worth a try.

        This is mathematically equivalent to a consumption tax. Eliminating the caps on IRA contributions would transform the income tax into a consumption tax.Report

  7. Avatar Philip H
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    frankly, the real reform needed – and the technically easiest would be to revise this provision of the tax code to give the definitions that the IRS had to dummy up for itself to do this in the first place. I’ve heard several interviews with former IRS leaders and senior managers who all say part of the problem is that while this section has a general prohibition on a certain percentage of activity, but gives little guidance on how to collect data to make that determination. Being a fed at another agency I’m, never a fan of Congressional micro-management, but overly ambiguous legislation often leads to this.

    I’d also add that I am skeptical of revenue neutral or revenue enhancing tax “lowering” proposals. There were significant tax reductions enacted over a decade ago that were supposed to spur economic growth – and they failed miserably when confronted with two wars, and a financial market that valued short-term derivatives profit over medium term economic stability. Rate monkeying is just too dicey if you actually want to have government do things (which Cato normally doesn’t).Report

    • Avatar Lyle in reply to Philip H
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      To take a bit further, make it such that any political activity disqualifies the organization for 501c 4 status, but rather goes as a political action committee. PACs are under section 527 and are required to disclose donations over $200, with a limit per individual of $5000 per election if a federal pac. So there are really two reasons to try to get 501c4 status, no requirement to disclose donors, and no limit on donations. So the rule would be any political action means you must go under 527, even if you also have an educational purpose (since presumably the purpose of the education is to convince folks that your position is the one to take).

      BTW note that many charities do disclose donors, universities tend to be big at this if you give enough you can get a lecture hall, or indeed a building named to your specs or a professorship or scholarship.Report

  8. Avatar Barry
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    BTW, the director of the IRS during this time period was a Bush appointee; I’m not certain how the Obama adminstration was using the IRS here.

    Also, from what I’ve heard a low-level group did this, was told not to do it, and went against orders.Report

  9. Avatar Brandon Berg
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    The organizations in question were 501(c)(4) organizations, not 501(c)(3). Donations to them aren’t tax-deductible anyway. The only sense in which 501(c)(4) organizations are tax-exempt is that they don’t have to pay corporate income taxes.Report

    • Avatar Jason Kuznicki in reply to Brandon Berg
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      Either way, the IRS gets a great deal of very tempting authority.Report

      • Avatar Brandon Berg in reply to Jason Kuznicki
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        True. One of many good reasons to eliminate the corporate income tax altogether.Report

        • Avatar North in reply to Brandon Berg
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          Agreed on that. Wipe out the corporate income tax and either reduce or eliminate the capital gains tax exemption and you’d achieve multiple benefits:
          -Corporate taxation would vanish and with it the administrative burden of filing and tracking them.
          -You’d likely end up bringing in more revenue for the government than you’d loose.
          -You’d eliminate an enormous incentive for corporate lobbying.
          -You’d greatly increase the competitive appeal of America as a place to do business (I suspect this would be a short term benefit though. Other countries, if this policy worked as intended, would likely imitate it quickly.Report

          • Avatar Morat20 in reply to North
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            You’d also exempt the rich from the bulk of their tax burden, which is already lower than everyone else’s (the rich gain most of their income through capital gains, taxed at 15%).

            As for the corporate rate — please. Nobody pays the full rate. Heck, they famously don’t pay the full rate. Arguments based on a book rate nobody pays is just rhetorical masturbation.Report

            • Avatar Will Truman in reply to Morat20
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              He wants to eliminate capital gains tax exemptions, not capital gains taxes.

              You’d also exempt the rich from the bulk of their tax burden, which is already lower than everyone else’s

              Could you cite a source for this? Something that’s not “What this guy over here paid.” I’ve seen charts where they pay less than some, but not much where they pay less than all. Even the CTJ has the top earners paying more than most (more than all but the next couple groups of top earners).

              The fact that corporate rates are so difficult to college consistent amounts on is not a good argument for corporate taxes.Report

              • Avatar Morat20 in reply to Will Truman
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                Ah yes, there is a difference there. My bad.

                *shrug*. I suppose I could dig out a chart, but can you think of anyone among the ultra-rich — we’re talking Buffet, Hilton — especially the investment class and certainly inherited wealth and the trust fund set, whose salary is even a noticeable part of their income?

                Gains are taxed at 15%, which pretty much means that if Warren Buffet played absolutely no accounting games at all, his effective tax rate would be no higher than 15%. That’s if he just flat out listed his gains, didn’t shelter it, give to charities, or anything.

                Whereas the mean effective rate hits 15% somewhere around the mid 30k range in income, and that’s without considering FICA taxes. (And as FICA is capped and not considered part of effective income tax rates, that’s really a 7% to 15% bite that’s not applied to salaries over 100k or so. Forget where the cutoff currently is).

                The fact that corporate rates are so difficult to college consistent amounts on is not a good argument for corporate taxes.
                No, it isn’t. It IS a good argument against claiming it’s so high that’s why businesses flee when the rate cited it one nobody pays, and nobody seems to be running. We can discuss effective rate, but IIRC the US is pretty darn middle of the road there.

                It is a great argument for reforming corporate taxes. But then I instinctively distrust “We should abolish entire classes of taxes entirely and heaven on earth shall happen” because that sounds like a slogan, not the real world.Report

              • Avatar North in reply to Morat20
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                Morat, my entire point was that gains should be taxed at the standard rate in exchange for the elimination of the corporate tax. In other words in my desired policy world people would pay taxes on capital gains the same way they’d pay taxes on any other income.

                That the corporate tax is complicated, easily gamed and, most importantly, generates relatively little revenue but requires enormous amounts of constantly changing government regulation of pretty much every form of corporate accounting strikes me as a fundamentally concrete reason to get rid of it. It distorts our economy in multilayered destructive ways, promoted endless waves of lobbying, generates a powerful political incentive to treat capital gains specially and on top of all that doesn’t generate much revenue. That’s the definition of bad policy that is best disposed of.

                I’d note also that even if businesses can game the corporate tax rate to pay a lower rate there’s still significant incentive for them to weigh anchor for other business climes. Even if you end up paying less taxes you still are paying all the accountants and consultants to game the system, you’re still having to add this layer of tax impact complexity to all of your potential business decisions and you’re still having to pay for the cost of accounting compliance to adhere to the corporate tax rules. Those are all significant disincentives to doing business in a corporate tax environment.

                And I’d like to reiterate: corporate taxes generate very little revenue. What, then, the fish is the point of them to us liberals if they do? If they generate all these problems and generate very little revenue then why would we as liberals not be better off rid of them? It’s distinctly in our liberal interest to favor efficient and effective policy over inefficient and ineffective policy.Report

              • Avatar Brandon Berg in reply to Morat20
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                But then I instinctively distrust “We should abolish entire classes of taxes entirely and heaven on earth shall happen” because that sounds like a slogan, not the real world.

                You sure showed that strawman what for.Report

  10. Avatar Onlooker
    Ignored
    says:

    Yes. The problem is the power that a monstrous IRS has as a result of the ever-growing complexity of our tax code. This will always result in abuses of power and distortions of all kinds of markets. No matter which end of the political spectrum is in charge of it.

    The tyranny of the tax code is the problem.Report

  11. Avatar Jaybird
    Ignored
    says:

    Eh, I dunno that this would solve the IRS abuse of power thing, though. Stuff like Paula Jones being audited (something that I still cannot believe happened) will continue. Abuse of authority, acting outside of policy, and so on will continue. Sure, maybe there won’t be games played with number(letter) corporations, but the scandal isn’t about them.Report

  12. Avatar Patrick
    Ignored
    says:

    Here’s my proposal: Abolish the tax deduction for all nonprofits and nonprofit giving, political and otherwise, and lower taxes across the board to compensate. The effects of doing so will be widespread and — I think — positive.

    Every church in the country will tell their congregations to complain to their congresscritter.

    I’m all about this solution at the Federal level. If you need to fund those programs in various states, the various states have closer coupling anyway and their citizenry will raise their taxes or not to fund those services or not.

    But I think it’s politically impossible. Not just improbable.Report

  13. Avatar Lawrence
    Ignored
    says:

    Atheists use Libertarian ion cannon to knock out a star destroyer. Echo Base erupts in cheers.Report

  14. Avatar Stillwater
    Ignored
    says:

    Man, that was a surprise. I thought your solution was going to be Abolish the IRS! At least as it’s currently constructed under currently constructed tax laws.

    But I generally agree with you. This whole “non-profit” thing actually really bugs me. Here’s an anecdote: a long time ago my wife and I owned a coffee shop/food gettin place in a pretty small town. It was a pretty conservative town and the whole “coffee” thing was viewed as part of the Radical Liberal Agenda. There were lots of grumpy, old-timey conservatives who came in just to tell us what they thought. Anyway, about a year after we opened, a church in town saw how well we were doing and decided to open a coffee and food getting place of their own. But they were a “non-profit” and received all the benefits from that formal designation. They undercut our prices, took a slice of our business, competed with us, but not on a level playing field.Report

    • Avatar George Turner in reply to Stillwater
      Ignored
      says:

      I’m not sure that’s legal. A church can run a for-profit business, but I think the business itself does have to pay normal taxes, whereas its dividends (owned by the non-profit church) are untaxed. Perhaps someone here with a bit more experience in that area can weigh in on it.Report

      • Avatar Jaybird in reply to George Turner
        Ignored
        says:

        If you can get the IRS to audit your enemies and overlook the excesses of your friends, your church can run a for-profit business like a non-profit.Report

      • Avatar FridayNext in reply to George Turner
        Ignored
        says:

        I don’t know for churches. My experience is with museums which often run many earned income ventures like stores, movie theaters, restaurants, etc etc. (I’m also not an accountant, so full disclaimer) In museums there is a difference between mission related income and non-mission related income. The latter is taxed and the former isn’t. (As income. A museum store still has to charge sales-tax, regardless, as that is technically paid by the purchaser) Most museums I have worked for have tried hard to be honest about what is what and report what they need to. Of course, “mission related” is a pretty broad category. I was surprised when I learned disposable camera’s, batteries, etc qualified because taking photos supported the enjoyment of the museum. If you have ever shopped at a museum store and found tacky little cards with a paragraph or two of history? Those are called provenance cards and are only there to support the mission-relatedness of that item. Want to get a good laugh? Go to a museum with an Imax (or mega max, or Imax to the max, whatever the latest is) theater playing popular titles and see the accompanying stupidity to make something like a Harry Potter movie “educational.” If you have ever seen a popular movie at a non-porfit museum, you may have noticed some object from the movie tucked away in a corner of the lobby (like a broom from a Harry) or some craft table for kids. BINGO instant tax exempt. Some museums just create a for-profit foundation to do this work and make it a separate legal entity from the non-profit arm. These museums are not more honest. They just make so damn much money on such tangential crap, they are assured of an IRS audit.

        Now to the church. I have no doubt in my mind they can easily justify this coffee shop on mission-related grounds. (get it! grounds!) They put a lot of their literature around the joint, they play up the fact that a lot of their counseling goes on there, they may even have talks and ministries in the coffee house. This would be child’s play for any remotely competent non-profit accountant. The IRS is probably petrified of churches in general and won’t look too deeply. On the other hand, even of the church paid taxes on the income from the coffee house, Stillwater’s point stands as their overhead would be much smaller. If the coffee house was in a church owned building the coffee house would be rent free and they would be exempt from paying sales tax on any supplies and materials. That is no small thing.Report

  15. Avatar Brandon Berg
    Ignored
    says:

    Question for those above complaining about the “regressivity” of FICA taxes: Since these programs are so unfair to the poor, do you think that we should abolish them?Report

    • Avatar Michael Cain in reply to Brandon Berg
      Ignored
      says:

      Medicare taxes are flat: everyone pays the same rate on every earned dollar, and everyone gets the same benefit (although if you’re poor enough, Medicaid will cover some of your Medicare premiums). If I recall the number correctly, the Social Security taxes are regressive but the benefits are progressive, and overall what you get for what you pay is somewhat progressive.Report

      • Avatar Brandon Berg in reply to Michael Cain
        Ignored
        says:

        Right. My point exactly. Payroll taxes aren’t like regular income or sales taxes, and these programs are a significantly better deal for the lower and middle classes than for the rich. People who support these programs on the grounds that they benefit the poor need to stop with the crocodile tears about how unfair they are to the poor.Report

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