This country was founded because some thug wanted to impose a minimal excise tax on sugar. So why is it so hard to believe that some day, after witnessing a hyper-regulated IRS, and seeing targets on political opponents, that this country can't rise up again and overthrow this tyranny? After all these outrages, heck, why should a reasonable man not be heating up a cauldron of tar for feathers?
Fighting a giant
Here's a question:
Are there great, honorable, competent, brilliant people who work at the IRS? Yes. But their numbers are dwindling, as uber political hacks like the lizard person John Koskinen are promoted and their days become worse. The people who should be promoted aren't, and contempt for a contemptible agency will only increase.
On one hand, we have hyper-regulation of foreign bank accounts with FATCA and FBARs, and on the other hand, we have negative regulation of the IRS helping illegal aliens using stolen social security numbers.Yet despite all the contempt this horrible agency causes, the tools it has are formidable.
One is mandatory withholding that can put employers and other payors on the hook for taxes they fail to withhold. Someone has to file a return to get money back. The IRS wins.
Second is third party reporting. 1099s are ubiquitous and even with FATCA, the IRS may be able to file a SFR (substitute for return) for you; not just on your domestic income but on your worldwide income. For many people you don't need to file a return — the IRS can easily do one for you.
Third, is that the IRS does not need a court order to levy your bank accounts or wages or accounts receivables. All it needs to do is send a few notices. So after filing their SFR, they can simply take your money.
Fourth, while the government ability to prosecute tax evasion is somewhat limited, when it does prosecute, it does so mercilessly. And it has the added benefit of having the federal government judges decide the limits of federal power. Do you see the conflict of interest? Why would a federal judge want to handicap the agency that is responsible for getting them the money behind their direct deposit? If you don't believe me, consider this — it wasn't until 1934 (or thereabouts) that federal judges reluctantly decided that the 16th Amendment applied to them. Paraphrasing the brilliant trader Larry Summers, one-time radical tax protestor, quoting an African folks saying, "a taxpayer expecting justice from a federal court is like corn expecting justice from chickens."
Painting a tax revolt picture
For a tax revolt to work, these fundamentals must be addressed. It is possible, and it would have to go something like this: We'd need alternative currencies for trade, and would need a place to store value in private secure systems.
Perhaps because their assets couldn't be seized payors who are responsible for withholding could stop withholding without fear of having taxes assessed and assets seized. Payors could stop third party reporting as well, with same reasoning. Then, the only reason to file a return would be to pay taxes, not to claim a refund… so the incentive goes way down.
I would not imagine this happening at once, but rather a slow move from compliance to non-compliance.
However, the biggest issue is that very few large players could ever try this strategy. Corporations could be hit with a shareholder's derivative suit and lawsuits by employees. Certainly very small businesses could get away with not withholding, but medium and large business could not. So how could you ever get a critical mass of non-compliance when the largest players have limited ability to be non-compliant?
If I could only pass a law that would guarantee the destruction of the IRS (and might have a hope of of sneaking through Congress), then we could see the end of employee withholding. We would see a revolt much faster if tax day became not a great day where the majority of taxpayers get a "refund" but a rather crappy day when they, like the self-employed, had to hand over a huge chunk of cash to the terrible spending power of Congress.
