Monday, May 20, 2013

Abolish the IRS (and the Income Tax With It)

Abolish the IRS (and the Income Tax With It):
The Internal Revenue Service has been caught engaging in
political profiling while processing applications for tax-exempt
status. In this case it was against organizations with “tea-party”
or “patriot ” in their names and other right-wing groups. Next time
it could be libertarian or left-wing antiwar and
pro-civil-liberties groups. No dissenter can ever rest assured he
is safe from the arbitrary power of the IRS.
Nothing will have been learned from this scandal if all that
happens is the firing of some IRS administrators and the issuance
of new guidelines on 501(c)(4) applications. That is not nearly
Obviously, tax exemptions exist only because individuals and
some organizations are subject to income and other forms of
taxation. Congress levies a tax on incomes, then in its “wisdom”
chooses to exempt certain activities but not others. This is social
engineering, with Congress seeking to encourage some kinds of
organizations — while not forgoing more revenue than necessary. The
IRS then writes rules to carry out the directions of Congress.
Where possible, people will naturally strive to qualify for
exemption by pushing the boundaries of the regulations. That
incentive will always be strong because a nonprofit organization
that is exempt from taxation will have more resources with which to
pursue its mission. Since the language of statutes and regulations
is inevitably vague, the IRS will have room to interpret when
ruling on who qualifies and who doesn’t qualify for exemption. The
line between vigilance and harassment is not bright, and the
potential for abuse is great.
It should be apparent that this power, which is inherently
arbitrary, ill suits a society that sees itself as free.
Take the current controversy. The IRS says
that to qualify for 501(c)(4) tax-exempt status, a nonprofit
organization must “be operated exclusively to promote social
welfare.” To do that the “organization must operate primarily to
further the common good and general welfare of the people of the
community (such as by bringing about civic betterment and social
What exactly constitutes the common good and general welfare of
the people of the community, or civic betterment and social
improvements? The IRS will let you know. What does “primarily” mean
and how does it relate to the seemingly contradictory exclusivity
requirement? This is subject to a “facts and circumstances” test —
that is, the IRS will decide. Approved activities are generally
regarded as educational, but how broadly or narrowly that term is
interpreted is left to the IRS and, if challenged, to the courts.
Lobbying for “legislation germane to the organization’s programs is
a permissible means of attaining social welfare purposes.” However,
direct or indirect participation in political campaigns is not
regarded as promotion of social welfare — although an organization
“may engage in some political activities, so long as that is not
its primary activity. However, any expenditure it makes for
political activities may be subject to tax.”
As this demonstrates, once government undertakes to tax income,
it acquires even more power through its authority to define
“income,” “taxable income,” subsidiary terms, and the rules of
exemption. There is no escape from arbitrariness and caprice.
One might propose to remove the government’s arbitrary power by
ending tax exemption. But that would make the tax burden worse. And
besides, politicians aren’t likely to agree, because they would be
giving up the power to dispense favors that manipulation of today’s
tax code affords.
There’s a better way to go that’s demanded by liberty and
justice. Since taxation is nothing less than the confiscation,
under threat of force, of what belongs to productive individuals,
it has no place in a free society. In other
words, everyone should be exempt from income and
other taxation. (Americans lived without income taxation for more
than 125 years.) If something can’t be accomplished through
consent, contract, and cooperation — without aggressive force — we
should ask whether it is worth doing.
When the income tax was first proposed in America years ago,
opponents always had the same word of warning: inquisitorial. How
right they were.
This column
originally appeared
at the Future of Freedom