From the July 2013 issue of Research Magazine • Subscribe!

July 1, 2013

Judging the IRS

A wave of scandal has enveloped the U.S. government. The administration—at what level of seniority is not yet known—appears to have used the IRS to suppress its political opponents, in this case Tea Party conservatives and pro-Israel groups.

In investigating cases, the Roman jurist Lucius Cassius famously asked “Cui bono?”—who benefits. His insight was that the wrongdoer is someone who had something to gain. Given that every IRS victim was on the opposite end of administration policy, we can probably dispense with the notion this was just a rogue operation.

We saw abuse of this kind a generation ago by the Nixon White House. If an administration of whatever ideological persuasion uses intimidation tactics to suppress views with which it disagrees, then a basic guarantee of the Constitution has been violated.

But, while the IRS is under scrutiny, an economic dimension also bears consideration.

Our first chief justice of the United States, John Marshall, famously stated (and I paraphrase) that the power to tax is the power to destroy. If the government doesn’t like something or someone, it might try to tax it out of existence.

The economy is improving of late, but in a way that should worry us: expanding but with fewer people working. Amid high unemployment, we should be loath to destroy jobs by taxing people’s production (via their income).

I don’t believe the administration hates entrepreneurs as it may the Tea Party. Its advocacy for higher taxes stems from a vision of social justice: rich paying more than poor.

But such a vision can be pursued in other ways. A tax on consumption (excluding necessities like food and shelter) would ensure that Warren Buffett pays more taxes than his secretary.

We must stop the bleeding of jobs. When tens of millions of Americans are ­denied the opportunity to feel they are contributing to society, we are slow-cooking a future social explosion.

Some have expressed alarm at record high use of food stamps and disability benefits. These critics imply that fraud and waste are involved.

But even if every such expenditure were just, we have an enormous problem on our hands. People who are poor or disabled feel a sense of humiliation. As financial advisors, you know that your retired clients often experience depression and a lack of self-worth because they are not working.

Whether looked at from the perspective of Lucius Cassius or John Marshall, the IRS is in a business that no longer makes sense.

In an era when the IRS is used not just to collect income taxes but to administer our health care system, maybe it’s time we restrain the IRS before it restrains us.

* * *

Longtime readers know they can always count on original and insightful analysis from economist Alexei Bayer’s monthly columns. What you may not know is that Bayer is the author of magnificent fiction as well, including stories published in prestigious literary journals such as the Kenyon Review. I am pleased to note the debut of Alex’s first novel, published in English and Russian, called Murder at the Dacha. The page-turning whodunit, set in the Soviet-era 1960s, will surely be a highlight of your summer. An independent producer has already optioned the TV rights, so you’ll be glad you read it (you can order on Amazon) before it hits the screen.

Reprints Discuss this story
This is where the comments go.