IRS to Increase 'Pre-Crime' Enforcement

by Simon Black

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Did you ever see Minority Report? It’s one of Steven Spielberg’s often forgotten about movies based on the short story by Philip K. Dick. In the movie, pre-couch Tom Cruise plays a police officer in the year 2054 who works for the highly specialized ‘pre-crime’ division.

Using a bizarre array of technology and metaphysics, the pre-crime division sees into the future and stops criminals in their tracks, arresting them before they commit a crime… sometimes before they even think about committing a crime.

This very elaborate and morally ambiguous law enforcement system is predicated on the government determining what your actions and intentions will be, often before you do. It’s not all science fiction.

A number of politicians and bureaucrats in Washington D.C. are seeking to step up the Internal Revenue Service’s powers, and technology, to essentially audit taxpayers before returns are even filed.

In remarks to the National Press Club last week, an IRS spokesman unveiled the agency’s vision for the “look forward” model in which most of the pertinent reporting information for the average taxpayer (W2, 1099, mortgage interest etc.) would be submitted to the IRS well in advance of the individual deadline.

After a massive upgrade in technology, the IRS would be able to pre-calculate what it expects to receive in taxes and instantly reject any return that doesn’t comply with its determination.

This may work fine and well for some wage earners… but start throwing in a few investment accounts, small business income, private partnerships, etc. and things can quickly diverge from the IRS estimates.

Imagine you start a new business on the side of your usual employment this year and take an initial loss due to ancillary startup costs. This wouldn’t factor into the machine’s pre-calculations of your tax liability, so you would be immediately rejected and flagged for additional scrutiny.

Makes you want to run out and start a business, or invest your capital in someone else’s, right? Not exactly.

Deep down, I think these people simply want to try and make things more efficient. Pre-crime is not the way to go. There are a number of countries that have incredibly successful tax codes, and there are common themes in all of them:

1) Keep it short. The Baltic countries are a great example of this – the entire Estonian tax code is about 70 pages, roughly 1/1000th the size of the US tax code (which is still prone to so much interpretation). It takes about 15 minutes to fill out an Estonian return, and you can do it online. In the Maldives, it’s even easier.

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April 14, 2011

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