Over the last week, the FBI indicated that it was not going to bring criminal charges in the matter of the IRS allegedly targeting Tea Party and other conservative groups. It appears that this determination was made without even interviewing any of the alleged victims. Whatever the truth of the harassment allegations (and the actions of the government since the story broke gives the impression of some sort of a cover-up), the fact that there is now serious doubt about the impartiality of the IRS in political fights serves to undermine our system of voluntary tax compliance on which our entire governing apparatus depends.

In addition to this, it is also worth noting that America spends over $100 billion dollars per year on compliance with the byzantine tax code. When one considers that the ultimate goal of taxation is to move money from one place (the populace) to another place (government coffers), this is an extremely inefficient way of doing it. This $100 billion is a dead-weight loss (in economist-speak) to the economy.

Replacing the current income tax code with a national sales tax would have a couple of benefits. Firstly, it would allow us to collect the same amount of revenue as we currently do (the rate could be set to ensure this outcome), without effectively torching $100 billion dollars in economic output to do it. Since America’s companies would be collecting the revenue, tax compliance rates would tend to approach 100%. This system would be able to be administered for a fraction of the cost of the current system.

Secondly, it would prevent the government from using the tax code to micro-manage the economy, as well as remove the appearance of using the tax code to suppress political opponents. This perception, if allowed to continue, could eventually grow to the point where massive non-compliance with tax law could become a problem. An agency that comes to be seen as a partisan political actor, will cease to be seen as legitimate by a certain fraction of the population. A government that allows these activities to continue will also cease to be seen as legitimate. While one might suppose that harsh sanctions and jail time might deter would-be tax cheats (and currently it seems to be doing an okay job as of this writing), a situation where 10 million taxpayers felt put upon, suppressed and decided not to file taxes would not be one that the IRS could cope with. Just as the U.S. isn’t going to round up 10 million illegal aliens and deport them, it would simply not be logistically (or likely politically) feasible to jail 10 million otherwise law-abiding taxpayers.  By basically removing much of the IRS’ power, you remove the danger that the other side decides the use the agency to settle political scores when its’ turn in power comes (and in a democracy split 50/50, the other side’s turn always comes eventually).

For all of these reasons, it is time to start considering an alternate tax system; one that doesn’t have a large role for the current IRS.