Commentary: Abolish the IRS – The Ohio Star

by Steve Dewey

The American public has long held an unfavorable view of the Internal Revenue Service, as evidenced by several historical surveys. A Gallup poll taken more than 25 years ago in October 1997 found that 69 percent of the American public held the opinion that the IRS “frequently abuse[d] its powers.” Fast forward to October 2022, when another Gallup poll was taken on the American public’s job-performance rating of 11 federal agencies. The poll ranked the IRS dead last, with only 34 percent of Americans regarding the job performance of the IRS as “excellent/good.”

Another poll released by the Pew Research Center in March 2015 on the “complexity of the tax system” indicated that 72 percent of the American public were at least somewhat bothered by the complexity, and 44 percent were a lot bothered by it. Public concern over the complexity of the federal tax code is certainly understandable when you consider that the body of law that codifies all federal tax laws, the Internal Revenue Code (U.S. Code Title 26), comprised 6,979 pages as of year-end 2022.

Aside from the American public’s unfavorable view of the tax system, there is a real economic reason for addressing its complexity: the enormous cost of compliance for the American taxpayer, both individual and corporate. The Tax Foundation issued a report in August 2022 estimating that “Americans [would] spend over 6.5 billion hours complying with IRS tax filing and reporting requirements in 2022.” This equates to approximately 3.1 million full-time workers focused entirely on federal tax compliance.

The Tax Foundation estimates that the monetary cost of compliance based on its estimated 6.5 billion work hours would at minimum amount to $313 billion in 2022 — nearly 25 times greater than the IRS’s $12.6 billion 2022 budget with a workforce of approximately 80,000 employees.

An additional unknown cost of significant size is the time spent by American taxpayers in calling the IRS for tax-filing assistance. Based on information from the IRS’s Taxpayer Advocate Service, Americans made 72.8 million calls to the IRS in 2022 seeking help. Only 7.4 million calls were answered — just over 10 percent — and these had an average wait time of 28 minutes.

The Taxpayer Advocate Service, an independent organization within the IRS established in 1996 to help Americans address federal tax problems, issues an annual report to Congress every January with an assessment of the IRS’s prior-year operations and some legislative recommendations. The recommendations typically include more amendments to the Internal Revenue Code, more IRS rules and rule revisions, more funding from Congress, expanding jurisdiction of the U.S. Tax Court, and more mandates on the private sector, such as establishing new IRS competency standards for tax preparers. Hence, these ongoing annual recommendations, while well-intentioned, only serve to tinker with a massive system already fundamentally broken and beyond repair.

The current American tax system is clearly a dysfunctional labyrinth and an oppressive cost burden on American citizens and businesses. So, how did the United States, a nation founded on liberty and limited government, get to this point? A historical look at the evolution of the American tax system provides the necessary context for understanding the problem and achieving a sensible solution.

The 16th Amendment: A Brief History

Despite a national history predominantly void of income taxes for more than a century, the experience of an income tax being put into actual practice from 1862 through 1872, and again briefly in 1894, caused the American public and its legislative representatives to at least become accustomed to the idea of a federal income tax. But more importantly, the narrow Supreme Court decision in Pollock v. Farmers’ Loan & Trust Co. energized a growing populist and progressive political movement in the United States to push for a graduated federal income tax in the late 1890s and early 1900s.

When Republican President William Howard Taft succeeded progressive Republican President Theodore Roosevelt in 1909, he was under immediate pressure to support a new graduated income tax law. Not only was there widespread bipartisan support for a new income tax on high-income Americans, but Taft’s predecessor Roosevelt had also advocated for it. Taft was lukewarm, at best, about reviving the tax, but he realized it was an issue that he had to face as aggressive efforts by congressional Democrats to legislate new taxes on corporations and wealthy Americans mounted. These efforts included a new income tax proposed by Sen. Joseph Bailey Sr. (D-Texas) that was likely to pass in Congress, as well as proposals by Sen. Norris Brown (R-Neb.) for a new income tax amendment to the Constitution.

Taft was stuck in the middle with conservative Republicans opposing an income tax. He was concerned about its imminent passage in Congress, but he also feared that any new income tax law would meet the same fate as that which was ruled unconstitutional by the Supreme Court in Pollock in 1895. Therefore, Taft strategized with powerful Senate leader Nelson Aldrich (R-R.I.) to propose a new income tax constitutional amendment to stop the pending legislation in Congress. Their plan worked —Congress put the proposed amendment up to vote, and it easily passed on July 12, 1909, by 77–0 vote in the Senate and 318–14 in the House.

It is important to note that Taft, Aldrich, and most conservative Republicans supported the amendment only because they were convinced that it would never be ratified by the states and would, therefore, permanently end the debate over the constitutionality of an income tax. Instead, they watched in dismay as it was ratified by state after state over the next 3.5 years until the required 36th state (three-fourths of the then-48 states) ratified it on Feb. 13, 1913. The 16th Amendment was officially certified as part of the Constitution on Feb. 25, 1913.

Since the politics of a graduated income tax at the time were based on the idea that the wealthiest Americans should share more of their income for the greater good of the nation, the surprising ratification of the 16th Amendment was likely due to the prevailing view among the states that a federal income tax would only be paid by the highest-income Americans.

A Radical Transformation

The language adopted in the 16th Amendment reads as follows:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

In contrast, the original foundation for taxation in the United States was set forth in Article I, Sections 2 and 8 of the Constitution as follows:

Article I, Section 2: Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers.

Article I, Section 8: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

The two key changes in the Constitution’s original language are as follows:

• The words “direct Taxes” were replaced with “taxes on incomes, from whatever source derived”;
• The words “shall be apportioned among the several States” were replaced with “without apportionment among the several States.”

The change from “direct Taxes” to “taxes on incomes, from whatever source derived” opened the door to unlimited taxing authority by Congress. As a consequence, the 16th Amendment radically transformed the United States from a nation founded on personal liberty and property rights to a nation governed by a central power restricted far less by the Constitution — as became apparent very quickly in the years following the adoption of the 16th Amendment.

Less than eight months after the amendment was ratified, Congress passed a new income tax bill that was signed into law by President Woodrow Wilson on Oct. 3, 1913, the Revenue Act of 1913 (the Underwood Tariff Act). The new law imposed seven graduated income tax brackets ranging from a bottom 1 percent rate on a $20,000 income to a top rate of 7 percent on incomes above $500,000. Three years later, in 1916, the number of tax brackets increased from seven to 14 and the top tax rate from 7 percent to 15 percent. By 1918, during the height of the United States’ involvement in World War I, the number of tax brackets had increased to 56 with a top rate of 77 percent.

After the war ended, the federal tax code was little changed from 1919 to 1921 — the 56 tax brackets remained, and the top tax rate only lowered from 77 percent to 73 percent. It is astounding how…