From the archives


My plot to eliminate IRS

April 14, 2001

If you're one of the thousands of taxpayers who are frantically trying to complete your Form 1040 before tomorrow night's midnight deadline, here's some helpful advice. Quit reading this column! Get to your local post office for the fifteen different forms you'll need to send your checking account balance to Washington. Simpler yet, just send them your checkbook.

Actually, that display of tax forms at your local post office is just the tip of the IRS iceberg—there are over 1,000 forms, schedules, and publications!

For instance, if you made any money this year, start out with the 1040. If you made that money farming you'll need 1040 Schedule F for profit and losses or perhaps 1049 Schedule J for farm income averaging. If you used ethanol fuel for your tractor, you should file Form 6478 for "Credit For Alcohol Used As Fuel." But if your old John Deere is a gas-guzzler, you'll need Form 6197 to report your "Gas Guzzler Tax." (I'm not making these up. Just go to for a 50-page list of forms including the 1040-C for "Departing Aliens.")

If you worked for tips, you'll need to file Form 4136 for any unreported tip income. Did you make some money gambling? You'll need to fill out Form 5754 and a W-26. If you made that money on the French Riviera, you'll also need to file Form 2555 for foreign income but you may get some of your lost money back by filing a 1099 Form 730 to report "gambling taxes."

And speaking of gambling, if you contributed to an Individual Retirement Account, you'll need to file a Form 5304-SIMPLE, 5305, 5305-A, 5304-E, 5304-EA, 5305-R, 5305-RA, or 5305-SEP depending on what kind of account you have. If your checking accounts earned interest, you'll also need the 1040-A (Schedule 1) and/or Form 1099-INT.

And don't think that just because no money exchanged hands, you don't have to file. If you bartered, brokered, or other wise exchanged any good or services, you'll need to fill out Form 1099-B. (Our post office didn't have a 1099-B, but I assume it reads something like "List number of chickens of Line 38A, then subtract bags of grain from Table G, then multiply by the fair market value of poultry on Line 76B of Table K divided by the square root of commodity index.)

If you know there's no way in Washington you'll make tonight's deadline (we all get an extra day this year!), you can always file for an extension with the 2350, and then extend that extension with a 2678.

Although the government is promising to cut taxes and paperwork, my guess is that they will claim a 50 percent reduction by simply changing the name of Form 1040 to Form 520. But, it's not that some legislators haven't tried.

The National Retail Sales Tax Act of 1999 (H.R. 2001) was introduced in the House for the "repeal of the income tax, estate and gift taxes, and certain excise taxes. There is hereby imposed a tax of 15 percent on the gross payments for the use, consumption or enjoyment in the United States of any taxable property or service, whether produced or rendered within or without the United States." (Fifteen percent is actually a reduction in the 18.9 percent that the average American is currently paying for federal taxes.)

A national sales tax would first of all eliminate the 3,458-page IRS Code (which is twice as thick as the Bible and harder to understand than the book of Revelation). It would also eliminate 100,000 IRS employees at a savings of $8,560,000,000.

Federal income taxes would no longer be withheld from your paycheck. In fact, the money you make would not be taxed at all. Put it in the bank or invest it in the stock market. You wouldn't be taxed a dime--until you spent it. You would pay your taxes directly to the cash register of every store you shop in. Best of all, there would be absolutely no forms to fill out!

This way, everyone would pay their fair share of taxes, including the millions of illegal aliens and tax cheats. Edgar Feige, of the University of Wisconsin, estimates $800,000,000,000 (that's eleven zeros or eight hundred billion dollars!) goes unreported! So everyone who gets paid in cash, from the junior-high babysitter to the big-time drug dealer, would be paying taxes on the latest Britney Spears CD or luxury auto.

Unfortunately, such a change would require a two-thirds of the House and Senate, and three-fourths of the states vote to repeal the 16th Amendment that created the Income Tax. (Congress cannot create a new national taxing authority without abolishing the existing one.)

But if they would take the vote tonight around 11 pm, as millions of tax payers are trying to understand what adjusted figure to multiply from what table on what line of what form, I think there would be a very good chance of tax reform passing!

See you at the Post Office.

Copyright © 2001 James N. Watkins

Note (April 2005): A national sales tax would need to have some kind of provision for those in the poverty bracket. (Perhaps the sales tax could exclude food and housing up to a certain dollar amount.) I'm still working out the details.


Are you saying that for everything I purchased I'd be paying a 15% tax on it? Sounds outrageous. For the average American spender just how much would that add up to? I did a quick calculation for families who average $1000/mo (seems logical given food, gas, and rent, cell phone, Internet) and it comes to $1800/yr. in taxes (if my math is correct). For me, that's $1800 too much. I'll concede the fact that I must help fund the military (after all, I am a veteran), though I'm hard pressed to fund Congress given their track record. To really sell this, people would need to see real figures and comparisons. I can see one really good side affect of this idea--people would stop spending and start saving. (April 2011)

    What's outrageous is that tax payers are currently paying between 25 and 30 percent in taxes! Under the Watkins plan, every tax payer would suddenly receive a 10-15 percent increase in income! And, as noted, most food and rent would be exempt from sales tax. So, do I have your vote?

I have come to the conclusion over time that this might be the very best of solutions. Not that people won't find ways to cheat, because that is a given. But I do think that would be fairer and simpler than the convoluted mess we now have. However, what you didn't mention as to reasons it won't happen is the amount of government vesting in the present system. Those 100,000 government employees (if that is the correct number), not to mention all the tax lawyers, would howl! Shalom, (April 2008)

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