I vote for the latter.
When tax laws are written to obfuscate and confuse and play favorites, you are just asking for those charged with enforcing it to play political power games.
This whole Tea Party episode is just one more reason to simplify the tax code. Even if there is more than one bracket, we have to get rid of all deductions, exemptions, and credits. All of them. The mortgage interest deduction is a sacred cow that supposedly encourages home ownership. Except if you actually OWN YOUR HOME you get ZERO deduction — it’s only by OWING a BANK huge sums that you are “rewarded” with a reduction in taxes. Pay off your mortgage and you get ZIP tax benefit.
Likewise these “not-for-profit” and “non-profit” and “charitable” organizations give the IRS enormous power to dictate how they operate. Why ? To avoid a 10% tax on revenues ? They have to pay payroll taxes just like a business, so why not just bite the bullet, pay an income tax, and avoid government dictates ?
The Tax Revenue numbers for the first five months of the tax year were announced yesterday. The personal income tax collected works out to almost EXACTLY 10% of gross individual income. After all the gyrations of tax planning, deductions, child tax credits, IRAs, etc. a flat 10% income tax with none of those would have collected the same revenue. Or if we really MUST allow the poor to be subsidized by the wealthy, 5% on the first $25K, 10% on the next $100K, and 15% above $150K would also collect the same revenue. Either way, we need to take away the IRS power for discretionary enforcement and intentional confusion.