IRS IT Modernization Efforts

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on IRS Information Technology Modernization Efforts

Wednesday, October 4, 2017, 9:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Buchanan and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the Oversight Subcommittee.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
•  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

We will let the Administration witnesses address the current state of IRS IT, the challenges faced as the IRS seeks to modernize its IT infrastructure, and areas where the IRS could further improve its efforts. Our aim in submitting these comments is to illustrate the IT needs in the tax reform we propose.

Both the value added and net business receipts taxes will collect tax identification numbers at the transaction level. For the NBRT only, Social Security Numbers will also be collected for payroll, contractor reimbursement (assuming that sole proprietor consultants are not given employee status, which is recommended), distribution of the child tax credit, with payroll. Income taxes will require SSNs at distribution of dividends and stock sales, either directly or through a fund or holding company (wage information would already be collected for the NBRT). Charitable contribution data would also be sent to IRS if this deduction is retained.

VAT and NBRT information would be collected at the state level and used by State agencies to assure compliance (to check that receipts claimed in lieu of tax were authentic). Aside from consumption tax verification, there is the verification of child tax credit payments to assure that the employer payment equals what was reported and to assure that households were paid the correct amount by all employers, especially when both parents work or one or both have more than one job.

All income and investment information, including distributions from interest or dividends and sales of stock from an estate (100% taxable) or normal investment (capital gain taxable), as well as sales to a qualified Employee Stock Ownership Program (untaxed) will be forwarded to national IRS and aggregated by SSN.

State, regional and national IRS data will have t0 be compatible and likely processed in the same distributed system. As automation proceeds, compatibility with cash registers and corporate accounting systems will eventually evolve, allowing more frequent VAT payment and reconciliation, eliminating the requirement for annual returns except at the household level, and then only for wealthier households that still pay the income surtax.

It is conceivable that all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy.

As NBRT obligations and deductions and credits for non-governmental performance of social services begin to coincide, decreases in the defense budget and law enforcement (which will be converted largely to the mental health system) and privatizing certain functions, like NASA and drug research and approval eliminate the need for a VAT and debt repayment eliminates the need for an income surtax, federal finance may evolve into a simple spreadsheet that can fit on a pad computer small enough to short out in a bathtub. Our plan gets there much quicker than Grover Norquist ever could.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.