IRS Modernization

 WM Oversight: IRS Return on Investment and the Need for Modernization, February 11, 2025

Please see the first attachment for the latest version of our tax reform proposals, beginning with how the proposed rates are synergistic. Note that we propose ending corporate income taxes and reporting of business income on personal income taxes. We replace these with consumer paid goods and services and employer paid subtraction value added taxes. 

The income tax for individuals with wage, dividend and salary income under $100,000 would be eliminated. A surtax on employer paid subtraction value added taxes would be paid by employers, but filing of individual income tax would not occur until $500,000 of salary, interest paid and dividend income. Spousal income would not be included in this levy.

We propose ending the capital gains tax on short and long term income and full repeal of the inheritance (death) tax with an asset value added tax. There are two debates in tax policy: how we tax salaries and how we tax assets (returns, gains and inheritances). Shoving too much into the Personal Income Tax mainly benefits the wealthy because it subsidizes losses by allowing investors to not pay tax on higher salaries with malice aforethought. TAX TRANSACTIONS, NOT PEOPLE!

Ending the machinery of self-reporting of asset returns  also puts an end to the Quixotic campaign to enact a wealth tax. To replace revenue loss due to the ending of the personal income tax (for all but the wealthiest workers and celebrities), enact a Goods and Services Tax. A GST is inescapable. Those escapees who are of most concern are not waiters or those who receive refundable tax subsidies. It is those who use tax loopholes and borrowing against their paper wealth to avoid paying taxes. 

For example, if an unnamed billionaire or billionaires borrow against their wealth to go into space, creating such assets would be taxable under a GST or an asset VAT. When the Masters of the Universe on Wall Street borrow against their assets to avoid taxation, having to pay a consumption tax on their spending ends the tax advantage of gaming the system. 

This also applies to inheritors.  No “Death Tax” is necessary beyond marking the sale of inherited assets to market value (with sales to qualified ESOPs tax free). Those who inherit large cash fortunes will pay the GST when they spend the money or Asset VAT when they invest it. No special estate tax is required and no life insurance policy or retirement account inheritance rules will be of any use in tax avoidance.

Tax avoidance is a myth sold by insurance and investment brokers. In reality, explicit and implicit value added taxes are already in force. Individuals and firms that collect retail sales taxes receive a rebate for taxes paid in their federal income taxes.  This is an intergovernmental VAT. Tax withheld by employers for the income and payroll taxes of their labor force is an implicit VAT. A goods and services tax simply makes these taxes visible.

Should the tax reform proposed here pass, there is no need for an IRS to exist, save to do data matching integrity. States and the Customs Service would collect credit invoice taxes, states would collect subtraction VAT, the SEC would collect the asset VAT and the Bureau of the Public Debt would collect income taxes or sell tax-prepayment bonds. See the second attachment for details on this.

Until tax reform occurs, IRS Statistics on Income tax tables  should be adjusted for inflation to get a better idea of the distribution of income. Between $50,000 and $100,000, there should be five groups. Between $100,000 and $200,000, there should at least be four so that the border between the fourth and fifth quintiles can be more adequately expressed. Every tax wonk in the nation will appreciate this.

Attachment: Tax Reform Videos included

Attachment: Tax Administration Video