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Chairman's Report - April 6, 2018

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Chairman's Report - April 6, 2018


This was the title of an article by Laura Saunders published last week in the Wall Street Journal. It is certainly information that will bring a smile to almost all Americans. Remember, there are two kinds of people that don’t like the income tax and the IRS—men and women.

The article stated:

  • The IRS audited 1 in about 160 individual tax returns in 2017, the lowest since 2002 and the sixth consecutive year that audits have declined, as budget cuts have reduced the number of staff at the federal agency.
  • The Internal Revenue Service—which has lost nearly a third of its enforcement employees since a 2010 peak, when it audited 1 in 90 individual returns—audited 0.62% of individual returns in the fiscal year that ended Sept. 30.
  • In 2017, the IRS audited 4.37% of returns with income of $1 million and higher, less than half the 9.55% audit rate for such returns in 2015. It marked the lowest rate of audits for that income group since 2004, when the data were first released. In late 2015, the Treasury inspector general said that high earners should be an enforcement priority for the IRS.
  • In 2017, IRS funding was $11.2 billion, down nearly 8% from its high in 2010, although the number of individual returns grew nearly 5% over the same period. For fiscal 2018, the IRS’s funding rises slightly, to $11.4 billion.
  • Business audits declined in 2017 for the second consecutive year. The audit rate for all businesses dropped to 0.44% in 2017 from 0.71% in 2012, the peak for the decade, according to the IRS.


The lower audit rates are welcome news for the growing group of people who are gleefully evading the present income/payroll tax. While their likelihood of being discovered, if they are at all careful, was very low, this information will likely encourage more of their friends to join them in evading taxes. Evasion will likely exceed even the $9 trillion over the next ten years estimated in Dr. Cebula’s study.

Some people say that increasing the standard deduction for joint filers to $24,000 will decrease evasion. However, the standard deduction does not affect how much Social Security tax, which starts from the first dollar of earnings, is paid or the state and local taxes.

These tax evaders are not only evading federal income taxes but also Social Security and state and local income taxes. This means that even if their federal income tax rate is only 15%, they are also paying 15.3% in Social Security taxes, as most of them are self-employed, and an average of 5% in state and local taxes for a total of 35% in taxes.

If you take the example of someone who is evading tax on $20,000 of their $60,000 of income, they are keeping $7,000 which can then be spent on their family or themselves. Because of the lower audit rate and the fact that much of the evasion is created by people taking improper deductions like deducting their apartment rent as “business rent”, their chances of being caught are incredibly small.


Those of us who have worked with the IRS over the years know that almost all of the agents and other IRS personnel with whom we have interacted are decent people tasked with doing an impossible job. In all groups of people, there are those who delight in using their power in offensive ways but this, in my experience, is a small minority in the IRS.

Most of the IRS problems are not caused by abusive agents but by IRS personnel trying to enforce a very general and often incomprehensible Internal Revenue Code which Congress just made even more complex with the tortured provisions of the recently enacted tax plan.

Members of Congress and the IRS know that the only way to slow down evasion is to dramatically increase the number of people audited and increase the penalties for evasion so much that people will not contemplate it.

Members of Congress have a real problem. They know:
  • Abraham Lincoln’s statement, "The best way toget a bad law repealed is to enforce it strictly," applies to the income tax law.
  • If they reduce enforcement, evasion will rapidly increase and federal revenue will continue to drop.
  • In order to make up for the reduced collections, they will have to increase the size of the national debt.
  • Only about 20% of the federal income tax payers are actually evading federal taxes but since they don’t have a different appearance from the honest income tax payers, all tax payers will be subjected to the more rigorous audits.
  • They know that stricter enforcement will lead to innocent people, who were not evading federal taxes, being punished because of the vagueness and often contradictory aspects of the Internal Revenue Code and the assumption by many IRS personnel that “everyone” is evading.
  • Because the great majority of taxpayers subjected to this increased enforcement are not willfully evading taxes, they will be outraged.
  • The only way that they can keep the income tax system that rewards them and their friends so richly is to reduce enforcement—not increase it.
None of these Members want to confront angry voters who have been harassed by the IRS. They hope that the voters will ignore the fact that they are borrowing money to “cover up” the growing evasion of the income/payroll tax.

These Members also don’t want to explain why they have ignored the real solution—the FAIRtax. This plan eliminates the need for the income tax, the payroll tax and for the filing of hundreds of millions of tax returns.

The only way Members of Congress will give up their lucrative deal with the devil that is destroying our country is if enough of us demand it. It is up to us, the people who elect these Members to say, “Enough is Enough!” Only then will sanity return and we will have the right way of funding our government.

The truth is the truth. Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”


Call up the local or D.C. offices of your House Member and two Senators and you can use the following script:
  • I am sure that Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws.
  • After they assure you that their boss is not in favor of anyone breaking the law, ask if they are aware of the Cebula study showing $9 trillion of evaded income/payroll taxes over the next ten years.
  • Since most will say they don’t believe their boss has seen the study, either drop off a copy or get an email address and send a copy to them for their boss.
  • Say you are going to call back in a week and ask what the Representative or Senator is going to do to stop this evasion.
  • In a week, call back and ask specifically what the Representative or Senator is going to do to enforce the law.
  • They probably will say their boss believes that simplifying the income tax will handle the problem.
  • Explain that when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax.  So it is unlikely that they are going to pay 30% or 40% when they were paying 0% because they have already decided it is okay to cheat.
  • Say that the only way to reduce evasion is to increase by tens or hundreds of thousands the number of comprehensive IRS audits done each year.
  • Point out that Evaders do not self-identify by putting an “E” on their income tax return.
  • 80% of the people likely to be audited are trying to comply, but they will be forced to endure these IRS audits as well.
  • Ask if the Member is in favor of this?
  • If they say no, then ask again how the Member proposes to stop people breaking the income tax laws.
  • Then explain that the way to handle evasion without unleashing the IRS audits is the FAIRtax.  

If you can see your Member or attend a town hall and ask these questions, you can be even more effective.



The FAIRtax Guys use TurboTax to demonstrate just how intrusive the income tax is in our daily lives.  Americans have become used to the invasion of privacy brought about by the current income tax.  We should ask ourselves while completing our tax returns “Would we care to share all this personal information with our neighbors? Our own children?”  Probably not.  The FAIRtax Guys remind us that while we are obeying the tax laws, we are surrendering a great deal of private and personal information.  They also remind us that all of this will go away and we will once again have our privacy restored when the FAIRtax becomes law. The Guys give us more reasons to support and promote the FAIRtax. 

In their previous episode, The FAIRtax Guys talked about Tiger Woods, golf, the income tax, a deadly disease, a rogue federal agency and tied it all together with the FAIRtax.  They discussed how the current income tax permeates through almost every aspect of our personal and business affairs, and sometimes dominates our attention.  But then The FAIRtax Guys showed us the way to bring common sense back to the tax system and sanity to our personal and business lives.  There is only one plan that puts the federal government in its rightful place which is away from our daily personal business.  Listen in and share in the hope that the FAIRtax provides for the future. 


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