The Observer: Let’s talk about taxes, taxes, taxes

“In this world nothing can be said to be certain,” Benjamin Franklin wrote in 1789, “except death and taxes.” So far, he’s been 100% right about death but as far as taxes are concerned, I’m afraid Mr. Franklin missed the mark. Everyone dies but apparently, not everyone pays their taxes.

If you have a criminal mind and can hire a shifty financial manager or an unscrupulous tax accountant, you may be able to slip out from under the full weight of the taxes you owe.  Clearly, some folks don’t pay what they should although a subset of these scofflaws do get caught: Al Capone and Martha Stewart spring to mind.  I suspect that tax evasion is more common than might be implied from my short list of dodgers.

There is an important distinction to be made between tax avoidance (a legal method of reducing the taxes you owe) and tax evasion (an illegal way of minimizing your tax liability).  So, how common is tax evasion?

According to a 2018 Brookings report: “About one out of every six dollars owed in federal taxes is not paid.”  If this estimate is accurate then the annual amount of unpaid taxes would be about three-quarters the size of the annual federal budget deficit.  You want to solve the budget deficit problem?  Go after scofflaws and chase down tax dodgers.

The U.S. has not always imposed income taxes, of course.  From 1873-1893 and from 1895 to 1912, for example, there was no national income tax.  And when taxes have been collected, different tax rates have applied to different income brackets.  The brackets have varied in number over the years.  In 1862, there were just two brackets (3% and 5%) but we’ve also seen years with as many as 56 different brackets (e.g., 1918-1920).  This year there are seven tax brackets.

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The history of tax brackets in the United States is interesting if a little dizzying.  According to the Tax Foundation, in 1944 the top tax bracket (for those married, filing jointly and earning over $200,000) was 94.0%. There was a war on, remember.

Tax rates within the brackets have been on a roller coaster ride since then; mostly heading downhill.  The rate for the highest bracket dropped after the war to the low 90% range and stayed there until the mid-1960s when it fell to 70%. It dropped further in the 1980s to 50% and in 1987 it was 38.5%.  After 1987, rates bounced up and down narrowly and currently sit at 37.0% for married couples earning over $628,301 and filing jointly.

I don’t object to paying taxes to live in this great country but apparently not everyone feels the same.  Some seem to prefer a “don’t ask/don’t tell” policy when it comes to investigating tax evasion.  The task of ferreting out the cheats and fraudsters, would seem to require an increase in IRS investigators and you’d think people in government would want to make the IRS work better.

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In January 2023, however, House Republicans, delivering on campaign promises passed their Fair Tax Act along party lines.  The vote was 221 to 210.  The bill (HR-25) would gut the IRS, eliminating all individual and corporate federal income taxes along with payroll, estate and gift taxes.  It would replace the income tax with a standardized national sales tax.

The 2023 Fair Tax Act drastically cuts funding for the Internal Revenue Service by the fiscal year 2027, relying on the states to administer what is essentially a 23% national VAT.  This legislation could never pass the Democrat-controlled Senate and would surely be vetoed by President Biden even if it did.   Taxes are one of the core ideological distinctions between the two major parties.  Republicans rail against them while Democrats accept their necessity.

I’m not sure what HR-25 would do about tax cheats.  Maybe it would eliminate some of them, but it also would make the tax system more regressive — increasing the proportional burden on lower-income people and reducing the burden on wealthier people.

Radically shrinking the IRS is an impractical, short-sighted and simpleminded idea.  Decentralizing tax collection to the state level would solve nothing.  In a global world, governments need reliable sources of revenue and a fair income tax is the best way to achieve that.

Remember the extended 2023 tax deadline is April 18.

Ron McAllister is a sociologist and writer who lives in York.  

This article originally appeared on Portsmouth Herald: The Observer: Let’s talk about taxes, taxes, taxes