After completing law school a long time ago, I went back to the school for three years at night to learn about tax law and receive an LLM in tax. There were two things I learned from this experience that have stuck.
First, do not do your own taxes. The law is too complicated.
Second, the essence of the American tax collection system is that it is to a large degree voluntary. Its success is therefore dependent upon the people who are paying knowing that the people who are collecting -— the Internal Revenue Service (IRS) — are independent, apolitical, fair and objective.
This second point is one of the most critical foundation stones of how our system of revenue collection, and therefore our system of funding our federal government, works.
Without it, people will lose confidence that they are being honestly treated by the tax collectors.
This will inevitably lead to a culture where instead of being willing to pay taxes, no matter how onerous they may be, the population at large will systematically try to avoid paying taxes.
In a system that depends on voluntary compliance for most of its collection activity, this shift will be disastrous. Revenues will fall, and a massive, new autocratic bureaucracy will have to be created to guarantee the federal government gets the revenues it needs to function.
Today, of course, the threat of the breakdown of the entire system of revenue collection is very real. More and more cases are coming to light of the IRS acting in an extremely biased way against certain taxpayers and groups that hold conservative views. The act of targeting people, presumably because some in the IRS did not like their politics, is the kind of previously-unimaginable event that does massive damage to the confidence all taxpayers must have in tax collectors.
What should be done to fix this problem before it undermines our nation’s well-being? We run the risk of becoming like some other countries where the population makes tax avoidance a part of the basic fabric of the economy. If such a culture arises, our federal government would be dramatically handicapped in its ability to function.
First, anyone who participated in this violation of trust should have his or her actions reviewed not as a matter of personnel policy but as a potential violation of the law. The IRS itself should simply shut down for a week or so and have all its members participate in an intense education program on the issues of honesty and integrity. This program should be repeated regularly until there is no question that this is the way the service is to function and that any transgression from it will not be tolerated.
More important, Congress must lead in investigating this action.
Obviously, the House is well down the road on this path. But that is not the best way. The leadership should actually come from the Democratic-led Senate.
The damage that has been done here is so fundamental to the entire structure of our national government that it is critical that its investigation, review and determination of how to correct the problem be done by the party that technically controls the IRS as part of the administration.
Also, in the Senate it would be clear that the investigation is to a large extent bipartisan. This is important as the central issue is the need to restore the American people’s belief that the IRS is not only independent but fair.
America has had a great advantage in having had for years a tax collection system led by the IRS that was viewed as an honest broker of the tax laws. This has allowed our government to focus on governing not on collecting taxes.
Of course, many people have not found dealing with the IRS to be pleasant. But for most people, it has always been viewed as an agency where, so long as you followed the law and tried to pay what you owed, you were treated with respect and fairness.
It is critical that we return to that approach … and soon.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and the new CEO of SIFMA, a financial industry lobbying group. He also is an international adviser to Goldman Sachs.