The Framers recognized this when the established the Federalist system of dividing power between national and state governments; however, over the 224 years since our system of government was established, particularly within the past eighty years or so, this separation of powers has been steadily eroded. With this erosion has come an increase in government involvement and regulation in everyday life of every citizen, more wasteful spending, and less and less effectual services (most notably education, which seems to become worse, not better, with each additional federal program). Also increasing, however, is the opportunity for corruption. It is not that corruption did not exist or was not prevalent in previous generations; one justification for the direct election of US senators, established by the Seventeenth Amendment in 1913, was that state legislatures, who were originally responsible for appointing each state’s senators, were granting the seats to the highest bidders. However, while corruption at the state or local level is difficult enough to root out, it is that much more difficult at the national level. For example, as Tiebout points out, one can ultimately “vote with their feet” and move to another city/county/state (if the abuse is egregious enough, at least in theory, the mass emigration could force reform by the state or local government). But the options are more limited if the abuse is at the national level.
With this in mind, is a national agency that monitors, keeps track of, and taxes every single American really necessary? In fact, every state, without exception, has its own agencies and laws to collect taxes, be it sales tax, income tax, or a combination of the two. Why should these existing state-level structures not be utilized? The best option is for states to be allowed to determine for themselves how they collect tax revenue, but since there have been competing plans for reforming the federal tax code for some time, including the Flat Tax and the Fair (national sales) Tax, I will focus on these two options. Either of these options could be enacted at the federal level, then each state could collect the tax using its existing apparatus; for those states who do not have the necessary structure (for example, if the Flat Tax were enacted, a state that does not currently levy an income tax) could be given a block grant to set up the necessary mechanism. At the federal level, the only tax collection agency necessary would literally be an office of a handful of people responsible for receiving tax payments from the fifty states.
Given that we are so accustomed to the burgeoning IRS, it may sound unprecedented to decentralize its function to the states. However, prior to passage of the Sixteenth Amendment in 1913, the federal government in fact did tax through the states with very little direct taxation of individual citizens. Under the original constitutional structure, the national government would tax each state according to its population and the states would raise the tax revenue for the federal government along with its normal tax collections. This was changed in 1913 because it failed to take into account state income levels (so that a poor state with a large population could wind up paying more taxes than a smaller but much wealthier state). However, the system suggested here would resolve this issue without the need for individuals’ incomes and very lives being under the scrutiny of an intrusive federal agency. And while no system is immune to abuse, any that arises can be dealt with relatively more effectively than is possible when all power is centralized in one national agency.
This change is long overdue; the recent revelations of abuse only highlight the need. Now is the time to move on this and address the underlying disease, not to merely treat the symptoms.
