It’s tax time again. Pundits everywhere will be talking about how to “reform” the current tax system. I say, the current tax system is broke beyond reforming. Let’s throw it out completely and get something that works. We can half the amount of paperwork involved in filling out taxes very simply: get the federal government out of the business of taxing individuals. The federal government was never supposed to get that close to individual’s pocketbooks. The federal government is supposed to be a federation of states. So let the feds tax state incomes rather than individual incomes.

Very simply, this removes one entire set of tax forms for every individual and business; it removes the incredible wastefulness of having two completely separate taxing institutions for each individual; it vastly simplifies the job of the IRS. Your taxes won’t change. But the money and time you spend preparing them will.

First of all, the federal government was not designed to have to keep data on every single American citizen. That’s too much of a job to ask any one entity to handle. The federal government was designed to work with the states. This is an especially good time to make this change: the IRS has already spent billions of dollars trying unsuccessfully to overhaul its computer system. It is about to spend billions more. Of course it takes an unwieldy amount of money just to keep track of 250 million people. That’s too much to ask of the federal government. Let the IRS handle just 50 individuals—the state governments—and their job is much easier.

States already have the apparatus in place to tax their citizens. Why duplicate this on the federal level as well?

For taxpayers, paying only the states means having to prepare only one set of tax forms instead of two.

In the short run, this would not reduce taxes: states would have to increase their taxes to make up for what the federal government is taking from them. However, in the long run, we would save money (a) at the IRS, (b) filling out forms, and (c) through a stronger voice in our tax laws.

The IRS is probably the largest federal agency we have. We’re already talking about four billion dollars just to begin to fix their computer system, and probably another twelve or more billion to complete the fix. If we reduce their workload from 250 million individuals to 50 states, they could run that off of a $3,000 Macintosh and FileMaker Pro. No Year 2,000 problems whatsoever. The modernization savings alone would run $20 to $80 per person. Add in the eight billion dollar yearly budget that the IRS would no longer need and you begin to see money worth saving.

Think about it: no new bureaucracy is needed to implement this. The states already have everything they need to tax us. The federal government would be reduced to taxing only the fifty states, a relatively trivial matter compared to taxing 250 million people and more businesses. And because our taxes are going to our local state government rather than the federal government, we’ll have a stronger say in how those taxes are collected.

How would the states be taxed? That would of course be up to the federal government, but I’d like to see a “flat rate” tax based on a state’s income. If a state heavily taxes its citizens, it pays more in federal taxes. A lean, efficient state that requires few taxes from its citizens pays proportionally fewer federal taxes. But the tax rate could be based just as easily on population, or it could be as convoluted and open to loopholes as the current federal tax scheme is. Regardless, it would still be at least five million times easier than it is today.

That’s a pretty big chunk, five million times easier. How often do we get the opportunity to make a change that useful? Of course, we lose a lot under a state-taxation system. The biggest loss is the ability to crack down on people we don’t like. The IRS can no longer be used as a tool to silence political dissent. We also lose the ability to blackmail states: states will be less likely to give in to blackmail when all the tax moneys are going through them anyway. We most especially lose the overriding need to keep track of every American citizen’s monetary habits. States may want to continue doing this, but the federal government no longer would have any reasonable need.

Today, the IRS is used as a tool by the sitting president to harass organizations they disagree with. Since Bill Clinton is in office as I write this, the IRS is used to harass right-wing organizations such as the NRA. If there were a republican in office, the IRS would be focusing on left-wing organizations. They do this by forcing organizations or businesses to house IRS agents and provide IRS agents with deeply probing membership data, some of which should be private, under the guise of checking tax compliance and tax status.

Paradoxically, extending ‘tax exempt’ status to an organization under first amendment concerns can also remove the right of free speech! A tax-exempt organization cannot make political statements with regards to elections. I don’t know if this has ever been challenged in court, but it seems mighty silly to me. But, under a state taxation system, there will be no federally tax exempt organizations because there will be no federal taxes on organizations. Organizations will be free to say whatever their members want them to say, at least on the federal level.

Congress blackmails states on any number of issues: they pass laws that, rather than requiring the states to do something congress wants them to do (which would be illegal), suggests that they do this thing… and then withholds federal tax dollars if they don’t do it. That’s how we got the 55 mph speed limit. Congress doesn’t have the power to impose a speed limit, that’s the realm of the states. So they threatened to withhold highway funds from any state that didn’t enact a 55 mph speed limit. That kind of blackmail becomes less likely when the states are collecting all tax dollars.

Privacy gains. We have given every American citizen a unique number identifying them, and to this number we attach information about their income, their spending habits, where they live, and other matters of family. It’s the social security number. When the only need that the federal government has is to keep track of voters, rather than taxpayers, most of that information is unnecessary. (Most voter information is already handled by states anyway.) So a state-taxation scheme not only increases freedom of speech, it also increases privacy. Think of it! You can be pro-freedom and pro-privacy without having to support radicals and criminals. And you might even save a few bucks in the process.

The industry that has built up around tax preparation will take a hit, of course. When taxes are half as difficult to prepare, more taxpayers will decide to handle it on their own. And even those who continue to hire tax consultants will still only spend half their time with these consultants.

Who is going to dislike it? Politicians who like power, of course. One of their pet tools will go down the drain. Bureaucrats in the IRS who stand to lose their job or standing will most likely fight it. Expect the Secretary of the Treasury to oppose any such measure. And, of course, businesses that thrive on convoluted tax codes will certainly lose money on such a system, although it may be an embarrassment to say so directly. Expect them to funnel money to the politicians who like power and withhold money from politicians who support the measure—for unrelated reasons, of course.

Of course, any change in the federal tax system will have to originate from the politicians who like being in charge, so I’m not going to lose any sleep waiting for state-based taxation.