The Trade-offs of IRS Expansion and Tax Code Simplification: Is a Better Solution Looming?

If the US Senate's Inflation Reduction Act's addition of 87,000 IRS agents means anything, it is that the financial security of the nation depends on a robust tax enforcement structure. But would it be more valuable, more productive, and more equitable to instead simplify the tax code and redirect IRS resources towards law enforcement against tax evasion? Let's delve into the complexities of tax reform and explore potential solutions.

The Dilemma: IRS Agents vs. Simplified Tax Code

The argument that simplifying the tax code would suffice for addressing the myriad of issues with tax enforcement is simplistic. While a simplified tax code might appear to be a straightforward solution, it would not transition the focus away from resource allocation towards tax cheats, nor would it resolve underlying inequities. According to Lifchitz, merely adding more IRS agents demonstrates that the leadership prioritizes addressing tax evaders, thereby reducing the burden on average and low-income taxpayers.

History of Tax Code Amendments

Since 1945, every time the tax code has undergone significant amendments, it has disproportionately benefited the wealthy at the expense of the middle and working class. For instance, during the 1981 Economic Recovery Act under Reagan, successful job training programs like CETA were eliminated, and care for illnesses, particularly mental health, deteriorated. In 1993, Bill Clinton introduced the negative tax, aiming to address income disparities. George W. Bush's 2001 tax cuts and the 2017 Tax Cuts and Jobs Act further exacerbated these imbalances, capping the deductibility of state and local taxes and slashing capital gains rates.

A New Approach: The Financial Transaction Tax

The Financial Transaction Tax (FTT) offers a novel and strategic approach to reforming the tax code. Unlike a flat tax, which is economically unsustainable and unfair, an FTT levies a minimal tax (

Why an FTT Promises a More Equitable Future

Opponents of the FTT argue that simplification alone would be insufficient, and legal challenges could further complicate the tax code. However, implementing an FTT addresses multiple objectives simultaneously:

Revenue Generation: The FTT would produce substantial revenue for public services without imposing additional burdens on middle and low-income citizens. Economic Stabilization: By reducing speculative trading, the FTT would create a more stable financial environment, benefiting the broader economy. Incorporating Justice: The FTT would ensure that those who benefit most from the current financial system contribute more, thereby addressing inequities.

Conclusion

While the IRS expansion under the Inflation Reduction Act signifies a sharp increase in tax enforcement, simplifying the tax code is not the panacea for tax reform. Instead, implementing an FTT presents a more nuanced and equitable solution. By redirecting resources towards law enforcement and introducing a tax mechanism that targets those who can afford to comply, we can create a more robust and just tax system for everyone.

Keywords: tax code simplification, IRS expansion, Financial Transaction Tax, tax reform, tax equity