Recent scandals have exposed for all to see what many have long suspected: the IRS is a corrupt organization that engages in bullying American taxpayers. With this fresh reminder, there have come new calls for eliminating the IRS altogether. This would require a reforming of the tax code. The two most discussed models for a new tax system are the flat tax or a consumption-based Fair Tax. While either would be preferable to the current system, tax reform is not in itself a panacea to cure our national ills.
While either the most popular tax reform models could stimulate the economy and make paying taxes simpler and less cumbersome, they do nothing to address the problems of runaway Federal spending or the vast expansion of Federal power over individuals. Even if real tax reform was considered, it would quickly be dismissed unless it was revenue neutral. In short, revenue neutrality means the new tax model must continue to bring in the same amount of money as the old system. In other words, the new tax system must continue to feed the insatiable behemoth that is our Federal government.
I propose an alternative. There is a tax reform model that would not only rid us of the IRS, but it would also be an effective first step in reducing government spending and government power. This tax model is so radical; it is prescribed by the Founders in the Constitution. It is called State Apportionment. This model would push the responsibility for collecting taxes back down to each state, which would in turn pay the appropriate amount to the Federal government for the national government to continue to function.
The real power of this model is how it changes the relationship between the states and the federal government. The Founders intended for the states to have a stake in how big and powerful the Federal government became. The expectation was that states would rein in federal growth and power, preferring to keep those responsibilities and powers for themselves.
Near the beginning of the 20th Century, that changed. States began to cede responsibility to the federal government in exchange for federal largesse. The 16th Amendment and the income tax made that paradigm shift possible and inescapable. If the states have to resume the responsibility (and catch the heat) for collecting taxes, then they will be less sanguine about a bloated federal budget. Indeed, they will begin to clamor for a smaller federal government and greater oversight.
The result will be a return to a Constitutional approach to government and taxation. States will resume their duties rather than shirking them off to the federal government.
It’s more than either a flat tax or a Fair tax can deliver on their own.