Preventing Future IRS Scandals is as Easy as Changing the Tax Code

Posted by PITHOCRATES - May 30th, 2013

Politics 101

The Tea Party was the Driving Force in returning the House of Representatives to the Republicans

The IRS is very powerful.  It can seize your property.  It can throw you in jail.  It can ruin your life.  There is no other arm of the government honest people fear more.  Because it is so powerful.  America did away with debtor’s prison.  Because it was inhuman to jail a person over a debt.  Unless you owe it to the federal government.  Then all of that compassion goes out of the window.

The recent scandal of the IRS targeting conservative groups is especially chilling.  For the Tea Party was the driving force in returning the House of Representatives to the Republicans.  Infuriating the Democrats.  As well as the Obama administration.  When President Obama ran for reelection in 2012 he had little to run on.  The economy was horrible.  No one was talking about Obamacare because the majority of Americans don’t want it.  It was so bad that the Democrat president had to highlight his single national security achievement—killing Osama bin Laden—while ignoring his domestic policy achievement.  Obamacare.

Then Benghazi threatened to ruin everything.  An attack on an American mission that killed four Americans.  Including a serving ambassador.  Making matters worse was that it was an al Qaeda affiliated terrorist group that was responsible for it.  This did not play well with the campaign message.  ‘Osama bin Laden is dead.  And General Motors is alive.’  President Obama had already won the War on Terror.  So he couldn’t have a terrorist attack during his reelection campaign.  So they hit the Sunday morning talk shows and said there was an anti-Muslim video on YouTube that created a spontaneous uprising.  Where average Libyans on the street then pulled out rocket propelled grenades and mortar launchers from their back pockets.  And launched a military assault on the American mission.

The IRS silenced the Tea Party during the 2012 Election by Harassing them and their Donors

You don’t hear much about the YouTube video anymore.  During the 2012 reelection campaign, though, both the president and the secretary of state pushed it hot and heavy.  Even apologized for it in a video to play in Pakistan.  And arresting the obscure filmmaker on some other charge.  And it worked.  Benghazi faded into the background.  Despite the Obama administration denying the American ambassador additional security.  And issuing a stand-down order for forces that could have gone to help the Americans under attack.  This order coming about 7 hours BEFORE the last two Americans died.  To this day we don’t know who gave that stand-down order.  And we don’t know where the president was when all of this was unfolding in Libya.

But it worked.  The misinformation spun from the White House won the president a second term.  And people started talking about what the Republicans had to do to start appealing to women and Hispanics.  For the early postmortem said that was why the Republicans lost.  They turned off women and Hispanics.  But something was wrong with that conclusion.  Because the conservative base didn’t turn out on Election Day.  That’s why the Republicans lost.  To explain that some said the problem was that Mitt Romney wasn’t a true conservative.  And he turned off true conservatives.  But that doesn’t make sense, either.  Because Romney may not have been the most conservative Republican to run for president but next to President Obama the man was practically Ronald Reagan.  There had to be some other reason why conservatives didn’t turn out like they did in the 2010 midterm elections that returned the House to the Republicans.

That was the million dollar question.  What happened to the Tea Party?  Who were so instrumental in turning out conservatives to vote in the 2010 midterm elections.  It’s as if they sat out the 2012 election.  For we didn’t hear their voice like we heard it in 2010.  And now we have a plausible explanation for that.  The IRS.  They delayed and made it so difficult to get their 501(c)(4) tax-exempt status that some just gave up trying.  Finding themselves and their donors getting IRS audits both for their businesses and their personal returns.  As well as other arms of the federal government auditing them from the Department of Labor to the EPA.

Everyone wins with a more Simplified Tax Code except those in Power who use it to Attack their Political Enemies

Did the White House coordinate this?  We don’t know.  Yet.  The IRS commissioner visited the White House 151 times.  While his predecessor visited the Bush White House about 1 time.  So that looks suspicious.  And silencing the Tea Party did help the president win reelection.  For silencing the Tea Party sure didn’t help Mitt Romney.  So it looks probable that the Obama administration used the nonpartisan IRS to attack their political enemies.  As they were determined not to suffer another Tea Party uprising like that which lost them the House of Representatives in 2010.  Right now the circumstantial evidence is pretty damning.

This is not what the Founding Fathers had in mind.  That was the point of limited government.  So it didn’t have this kind of power over people it perceived as political enemies.  And the source of this power is the complex and convoluted tax code.  That serves those in power better than the people they serve.  Allowing them to reward friends and punish their enemies.  One would almost have to believe the reason why the current administration ran the deficit up to record highs is to further empower the IRS.  By creating the need for ever more tax revenue.  And the need for more strenuous collection efforts.  Not to mention using the tax code to facilitate a permanent state of class warfare.  For the government needs this complex and convoluted tax code to make sure the rich pay their fair share.  As well as using it to reward their friends.  And punish their enemies.

So perhaps it’s time to revamp the tax code.  Some are talking about it.  As they always do.  But there is so much resistance because of the power the tax code gives those in power.  And those in power quickly shoot down any talk about a flat tax or a national sales tax as being unfair.  Regressive.  Hitting low-income earners harder than the rich.  But perhaps this is exactly what we need.  So everyone feels the pinch of the taxman.  So people won’t be so quick to give the taxman more powers.  Because a lot of low-income people don’t stay low-income.  And one of the quickest ways of raising low-income earners out of poverty is with a better and stronger economy.  And there is one thing that does that better than anything else in the world.  Low tax rates.  So let’s take a look at different tax plans for a married couple filing jointly.

Federal Taxes Current Brackets Flat Tax National Sales Tax

(For the national sales tax we assumed everything above a certain savings rate is spent somewhere in the economy.  Those who earn more can save more.  In our example the saving rates are 1%, 8%, 15%, 20%, 25% and 30 %.)

Those earning only $15,000 will pay more under a flat tax or a national sales tax.  But the IRS becomes far less intrusive and far less powerful.  Because it will be so much simpler.  Giving honest people less to fear about.  And giving those in power less power to attack their political enemies.  Making it harder for them to cheat during elections.

Also, lower tax rates will bring money sheltered outside of the country back home. Which those rich people will invest here.  To get even richer.  And probably end up paying more taxes than they were before.  Because they won’t have any need to shelter it.  While all the new jobs they create will increase tax revenue further.  Because there will be more people working and paying taxes.  So everyone will win with a more simplified tax code.  Except, of course, those in power who use the tax code to attack their political enemies.


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Japanese Government Spending so High that they are going to Double the National Sales Tax

Posted by PITHOCRATES - January 1st, 2012

Week in Review

And we thought our government debt was high (see Japan PM’s Sales Tax Plan Hits Another Snag by George Nishiyama, Dow Jones Newswires, posted 12/27/2011 on NASDAQ).

Japanese Prime Minister Yoshihiko Noda’s plan to double the sales tax by the middle of the decade suffered another setback Tuesday as lawmakers bolted from his ruling party in protest over the proposed tax hike to 10%.

In addition to opposition from lawmakers, sliding public support is making it difficult for Noda to push ahead with the politically precarious task, but one that is badly needed to address Japan’s debt load, the largest among the world’s rich nations at more than twice economic output…

Noda’s DPJ, which came to power in the summer of 2009, has so far failed to meet many of its promises to slash unnecessary spending, such as cutting the number of lawmakers and the wages of government officials.

Instead, Noda’s Cabinet last week approved funding for the resumption of a dam project, which had come to symbolize unwanted public works and which the DPJ had initially put on hold…

“But we need to watch the issue going forward as if the administration backs down from hiking the consumption tax further, non-Japanese investors may start selling the bonds.”

With domestic investors holding almost all of its government debt, a Greek- style debt crisis is unlikely in Japan. But Tokyo is under increased scrutiny to lessen its debt, and credit rating agencies have threatened to downgrade its rating if Japan fails to proceed with the sales tax hike.

Japan’s debt as a percentage of GDP is over 200%.  America’s is about 100%.  So some think that American debt is not a problem.  However, domestic investors don’t hold almost all of America’s government debt.  The Chinese hold a big chunk of U.S. debt.  So a Greek- style debt crisis is more likely in the United States.  I mean, Standard and Poor’s has already downgraded U.S. sovereign debt.  So we’ve already started down that road.

Worse, those in government have been talking about a consumption tax for years.  Such as the Value Added Tax (VAT).  Which will become a reality if debt approaches Japan’s levels as a percentage of GDP.  And without entitlement reform, it will.

So this is our future.  A 5-10% national sales tax.  Which will hit rich and poor alike.  On top of all our other taxes.  This is the consequence of too much federal spending.  Which answers the question “are there consequences to too much federal spending?”  And the answer is, of course, yes.  Taxes.  More and more taxes.  That is the consequence of too much federal spending.  Because the federal government can only spend what it takes from us.


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Internet Sales under Assault

Posted by PITHOCRATES - June 19th, 2011

The Public Sector against the Consumer

According to some, hates teachers.  And children.  Because their Internet sales are shorting tax coffers everywhere that pay for teachers and child welfare (see States look to Internet taxes to close budget gaps by Chris Tomlinson posted 6/19/2011 on the Associated Press).

State governments across the country are laying off teachers, closing public libraries and parks, and reducing health care services, but there is one place they could get $23 billion if they could only agree how to do it: Internet retailers such as

That’s enough to pay for the salaries of more than 46,000 teachers, according to the U.S. Bureau of Labor Statistics. In California, the amount of uncollected taxes from Amazon sales alone is roughly the same amount cut from child welfare services in the current state budget.

So they want to tax the Internet.  So they can keep 46,000 teachers on the payroll.  And if my math is correct ($23 billion/46,000) that comes to $500,000 per teacher.  Wow.  We do pay teachers well.  Maybe that’s the problem.  The cost of the public sector.  I’m willing to guess that most teachers are not quite making $500,000 per year.  If you were listening to the news during that Scott Walker episode in Madison, Wisconsin, you’re more under the impression that a ‘typical’ teacher makes less than $100,000.  So if that is true, where is all of that money going?  And should we even be trying to sustain such a grossly inept and mismanaged system where one teacher costs on average $500,000 per year?

Internet retailers are required to collect sales tax only when they sell to customers living in a state where they have a physical presence, such as a store or office. When consumers order from out-of-state retailers, they are required under state law to pay the tax. But it’s difficult to enforce and rarely happens.

What?  Do you mean people are not reporting their out of state purchases so they can pay their use tax?  Why, that’s preposterous.  Why would anyone do that?  We’re not overtaxed.  Then again, maybe we are.  Perhaps the people are speaking.  And that’s what they’re telling us.

With sales tax revenue slumping more than 30 percent in most states between 2007 and 2010, lawmakers across the country are grasping for ways to collect those unpaid taxes. Retailers and lawmakers in several states have proposed ways to solve the problem, some with more support than others.

“The problem is that some out-of-state e-retailers openly flaunt the law, arguing that it doesn’t apply to them,” said Texas state Democratic Rep. Elliot Naishtat, who has offered a bill to require more Internet sellers to collect Texas sales tax. “It’s about potentially generating hundreds of millions of dollars for our state.”

But it’s not a simple matter of getting them to collect out of state sales taxes.  These Internet retailers will have to hire an army of people just to process all these extra taxes.  For example, New York state has a sales tax.  So does New York City.  Over in Illinois, Cook Country has their own county tax.  State taxes.  County taxes.  City taxes.  It can get pretty complex.  I mean, the brick and mortar store doesn’t have a problem.  Every sale has the same tax.  It’s a bit different selling nationally.

“There are over 8,000 taxing jurisdictions in the United States,” said Jonathan Johnson, president of, which has offices only in Utah. “We think it’s wrong that states are trying to cause out-of-state retailers to be their tax collectors.”

After all, Johnson said, these retailers do not use any state services where they don’t have offices.

The added cost would be huge.  And ultimately passed on to the consumer.  Sure, they’re trying to shake down the big Internet sellers, but all that money will be coming out of our wallets.  And purses.

Traditional retailers are complaining loudly to their elected officials, saying the current structure creates an unfair playing field…

“We get people all the time who come in, talk to a salesman for 15 minutes to half an hour … and then go, and we know they are going to buy it online because they can save money. In theory, they are stealing our time,” Burger said. “We’re losing at least 15 percent to online, out-of-state, so we’re losing anywhere between $3 million and $5 million a year in business.”

As it always is when a consumer finds a bargain.  It’s the competition that complains.  Not the consumer.  They attack anyone who can give the consumer the same value for less.  But they do have a point.  They are losing sales because of their physical location.  And the high taxes that they can’t escape.  Owed to an out of control public sector that can never collect enough taxes to satiate their desire to spend.  I mean, when was the last time any government jurisdiction ever lowed their tax rate?

“Local retailers complained that the big-box stores were coming in and taking their business, and the Wal-Marts of the world said they had a better business model and the world has changed,” Johnson said. “Today, the business model has changed and we can take cost out of the supply chain by doing business the way we do on the Internet. And for Wal-Mart, of all people, to be saying it’s not fair that Amazon and Overstock can’t be forced to be tax collectors is ironic.”

Talk about the pot calling the kettle black.  Stomping out their competition was one thing.  But having the shoe on the other foot is just unfair.

Traditional retailers have lobbied for the Main Street Fairness Act, which was reintroduced in Congress this spring by Sen. Dick Durbin, D-Illinois. The act would be “a helping hand to state and local governments at a time that they need it the most,” he said.

To help state and local governments?!?  This should be our concern?  Helping those people who can’t control their spending?  While Americans suffer through record long-term unemployment during the worst recession since the Great Depression?  We want to figure out how to take more money away from consumers so we can afford more $500,000 teachers?  All the while further stifling economic activity?  Just so we can help the more important people?  Those in the public sector?  Our servants?  Yeah, right.

A component of the proposed federal law is a requirement for states to adopt the Streamlined Sales and Use Tax Agreement, which would standardize sales tax laws and filing requirements for Internet retailers. To sweeten the pot, states would reimburse companies for any additional costs involved in collecting it…

Overstock’s Johnson and Paul Misener, vice president for global public policy at Amazon, said they would support a national standard using the Streamlined Sales and Use Tax Agreement.

“We’ve long supported a truly simple, national approach, evenhandedly applied,” Misener said. “This is federalism at work, and many states are making the right decision to seek a federal solution.”

Federalism at work?  Thomas Jefferson would beg to differ.  Consolidating more power into the federal government is not federalism.  It’s consolidation.  It’s a weakening of the states.  And a weakening of federalism.  A national sales tax?  Everyone knows the federal government has always wanted this.  And once they get it that will be another tax rate that they will never lower.  With a federal debt already over $14 trillion dollars, do we really want to give them a new tax that can justify even more spending?

Pulling more Money out of the Private Sector during a Recession is a Bad Idea

Government has a spending problem.  At the federal, state, county and local level.  The IMF has warned that we are playing with fire with our budget deficits.  And S&P may downgrade our credit rating.  Perhaps this is a good time to cut some of that spending.  To eliminate some of that spending that’s giving us those deficits.  Instead of pulling more money out of the private economy which will only make a bad situation worse.


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