The IRS Strives to Be Above the Law

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A deeper question that arises from John Vecchione and James Valvo’s recent op-ed in the Wall Street Journal is whether the creation of an income tax makes this sort of corruption inevitable:

Congress has passed several laws, including the Regulatory Flexibility Act and the Congressional Review Act, that require agencies to report on their rules’ economic impact to lawmakers and the public. The president also conducts oversight of agency rules through the White House Office of Information and Regulatory Affairs. These good-government measures are meant to ensure unelected bureaucrats can be checked by the public.

Crucially, they are all triggered by an initial determination by the agency of whether its new rule will have a “significant economic impact.” But as our report shows, the IRS has made up a series of exemptions that allow it to avoid basic scrutiny. The agency takes the position that its rules have no economic effect because any impact is attributable to the underlying law that authorized the rule, not the agency’s decision to issue or alter the rule.

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A healthy understanding of government process proves this reasoning to be circular:  Agencies aren’t supposed to make rules that aren’t authorized by statute, so every effect of every rule could be said to originate with legislators.  A rule with effects that are not attributable to the enabling legislation is a rule that should not be implemented in the first place.

In authorizing an income tax, however, the government created an agency capable of entering into our lives and manipulating, even dictating, our use of our own resources.  Every rule of such an agency will affect the economy, and therefore every rule ought to trigger a review.

When we’ve discussed tax changes purely from the perspective of revenue and economic effect, I’ve argued that Rhode Island’s circumstances suggest that the state would be better off keeping the income tax and eliminating the sales tax.  From a philosophical point of view, however, it’s hard to argue that a free people can really tolerate an income tax — at least one that isn’t more like a sales tax on labor, meaning simple, flat, and easy to calculate.



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