"Eliminate the Loopholes!"

I often recommend that everyone in the world read Barlett & Steele's "America: Who Really Pays the Taxes?"  You may be interested to know that the book is not anti-income tax - it is a non-partisan, very enlightening look at our current tax system.

It is a testament to the power of habit that even the authors, esteemed investigative journalists who grew up under this system and have known nothing else, missed a critical piece to the problems that plague the income tax.  The information contained in this important book helped me understand that it is a very naive position to talk of eliminating the loopholes in the income tax, the loopholes that allow the wealthiest Americans to avoid the tax altogether.  It is naive when you understand that the income tax system is ITSELF the loophole.

Read the book.

What We Need Around Here Is An Income Tax!

Check out this recent story on income inequality.  It's worth noting that a drastic rise in income inequality through America's Gilded Age is what stoked the push for the income tax over a hundred years ago.  This incredible plan to redistribute wealth was set up to affect only the richest 1% of the population - only they were to pay an income tax when it first went into effect in 1913, certainly not the average working man or woman.

The people who actually put this plan in place were the richest 1% (red flag?).  The people who believed that this plan would be some sort of equalizer were the 99% (surprise!).  Time for our hundred-year reality check:

In 2011 (I don't yet have numbers for 2012), over 100,000 of the wealthiest Americans dutifully filed their tax returns and paid zero income tax.

In 2012, I earned income at well below the poverty line.  I filed my return and had to pay over $400 in income tax or face fines, confiscation of property or rights to property, or imprisonment.

Equalizer my ass.

Tax Man Assumes, Makes An Ass Only Of Himself

I'm a bald eagle!  I pay my taxes!
Chirp, chirp!

So, I filed my 2012 federal income taxes, and I have to say I remain highly unimpressed with this system of taxation.  It makes some very broad assumptions and makes one particular judgment that I find to be hopelessly unfair and infuriating.

First, I will remind the reader that 2012 was my first year back from a deployment which took me away from my business for a year.  This was a year of rebuilding.  Fortunately, but unbeknownst to the Tax Man (not that I was hiding it), I was able to bring a large portion of what I made overseas home – a cushion to help make ends meet as I went about the task of rebuilding my piano tuning business.

As I filled out the forms for 2012, it was clear that the IRS was not interested in what I did or did not bring home from my deployment.  The IRS was not interested in the state of my business, whether it was steady over the last few years or being built up again after a year away.  None of those questions came up on the 1040, the SE, or the C-EZ.  The only thing they wanted to know about 2012 is how much money I made.

Technically, I file as a single individual.  For all practical purposes, I am also helping to support two children – materially, emotionally, developmentally.  Note that I included materially.  However, due to how things went down for me during the divorce, not having the benefit of a lawyer, I technically have to file as a single person.

I say this because for 2012, my total income fell below the poverty line for a single individual, and well below for a household of three which, again, for all practical purposes, is much closer to the reality based on how much time my kids spend with me.  At this point, what is left from the deployment, that cushion, will cover one month’s rent plus one month’s child support.  That’s all that is left.  What the Tax Man compelled me to fork over two days ago is a relatively small amount to most people.  However, relative to me and my situation, it wasn’t a small amount.  The assumption has been made that I didn’t need it.  But I did.  I do.

The IRS judges that the amount they squeezed from me is needed by the government.  Isn’t that what taxation is all about?  The government needs it.  And if they don’t get it, they can seize the working man's bank account and everything in it to settle the bill, and tack on interest and penalties to boot. But bless their bureaucratic hearts, over 100,000 individuals and families that made more than $250,000 last year will pay zero taxes on their income (if the figures from 2011 are any indication), and the IRS has judged that the tens or hundreds of millions of dollars that represents is somehow not needed.  Why?  Because an expensive CPA or tax attorney crossed some t's and dotted some i's, keeping tens of millions of dollars from the Tax Man’s grasp.  Oh, and those are the Tax Man’s own forms those guys are filling out, printed up in his own office.  It’s as if the Tax Man is telling these wealthy people, “Here, fill this out.  This form is for you.  I don’t even want your millions.  But Henning over there has something I need desperately, and count on me to threaten his property and even his rights to property to get it.  And if that low-life fails to report his paltry income, into the slammer he goes!  Bwah, ha, ha, haaaaaa!!”

Yes, the judgment I find so infuriating: the government needs the little it can get from me (money it assumes I don’t need) to the point that it will threaten my property and very freedom, but it doesn’t need the millions from those who, by the stroke of a pen, are let off the hook.

Some of you may have heard me interviewed recently on a friend's podcast about taxation, and you may have thought something along the lines of: Well, he just needs to be a better business man, or, He needs to do a better job finding those deductions for his business, or things to that effect.  I would just say that, as a working man trying to feed myself and my kids, which is perhaps my highest responsibility to society, I don’t need the arrogant and uninformed assumptions of bureaucrats and legislators as to what money I need or don’t need (especially money I've earned), and I don’t need to be judged by my fellow citizens as to my business acumen or the dexterity with which I handle a tax form.  I shouldn’t have to have an MBA or be a CPA to go out and earn my living.  I define success in business as not having to ask for handouts to support me and my kids, and in that light, I am successful.  I'm out there making it happen.  At least I was smart enough to know I’d need that cushion coming home from deployment, and smart enough to not blow it on a brand new car or think I can afford that two-bedroom now.  And I’m smart enough to have stopped using credit cards years ago.  Everything I buy is paid for right there and then; no looking back, no interest.  I’m a "credit" to myself – I don’t need some faceless banker’s approval as a measure of my success.  Want to measure something?  Measure this.  [crude gesture]

Save your platitudes on fairness.  This system was put in place by the rich, for the rich (see: history).  The better we understand this connection, the clearer it will become as to why the millions who are in my situation have to put up with this crap.  And all this crap goes away without a tax on our earned income: the assumptions, the judgments, the inquisition, the squeezing, and the threats of fines, confiscation of property, and prison being unceremoniously and unapologetically shackled to earning an honest living - a fundamental human right.  There is a better way.  I’m looking for it.  I am convinced that part of the answer lies in our past (obviously, pre-income tax), and part of it lies with the creativity of those in the present.  If I find it, I’ll let you know.  You might help by looking around yourself.

Keeping the Uppity In Their Place Since 1913

This man was torn from
his family and imprisoned
for trying to keep
the money he earned.

Actor Wesley Snipes has been released from prison, having served a three-year sentence for tax evasion.  There is no reason anyone should have to face such harsh punishments in connection with earning a living (no matter how much you make) unless the earning of that living violates the rights of other people.

For future reference, Mr. Snipes, if you want to avoid the income tax, take a page from the Louis B. Mayer tax avoidance playbook:

Section 329 of the Revenue Act of 1951 applied to one person in the country: Louis B. Mayer, head of Metro-Goldwyn-Mayer studios (MGM).  Mayer is never mentioned by name.  His lawyer, Ellsworth Alvord, simply described a unique situation of Mayer's, and anyone who could show that the description pertained to them would receive the benefits of Section 329.  Alvord had close connections with the Senate Finance Committee and used these connections to have Section 329 inserted into the Revenue Act of 1951, saving Mayer nearly $2 million in federal income tax.  (What would that amount to in today's money?)

I am connected. Hear me roar.

Bleeding Hearts and Patriots

This Onion article is funny, yet, as you read about the potential havoc that is about to be wreaked on this fictional young man by the IRS, I hope you will consider how very real and dark and unnecessary it all is.

A self-employed person.  Leave him alone
and let him earn his living.

Liberals, as much as you portray yourselves as caring about how people are treated - or left alone - by government, why the averted eye when it comes to how revenue is collected? The IRS and state revenue agencies have destroyed lives through the enforcement of the income tax, but that's okay, I guess.  Ever read about people owing tens of thousands in back taxes on the sales tax or any kind of consumption tax?  Ever?  Ever read about people having to pay late fees and interest on missed sales taxes?  Ever read of someone having their car or home or bank accounts seized to collect on consumption taxes from three years ago?  Ever hear of someone going to prison - having their family ripped apart - for sales tax evasion?  Nope.  And you likely never will.

Conservatives, did you know there is no valid connection between patriotism and the income tax?  Sure, a lot of companies like Liberty Tax use good ol' American icons in their logos and advertising, like bald eagles and the Flag and the Statue of Liberty and portraits of Ben Franklin, but does putting a picture and an idea together necessarily mean that those two things are connected?

9/11

If you suddenly find yourself wanting to throw Flipper into Guantanamo, well, let's just say you're not a very deep thinker.

So, I hope you enjoyed the Onion article, but I hope you will give the issue of taxing our earned income some thought beyond what you might be accustomed to.

They Don’t Want You To Feel What I Feel

The title of this post assumes that you are not self-employed and never have been.  The self-employed have felt what I’m feeling, but even some of them – most of them – have not.

For five years (’07 – ’11), I stopped filing my federal income taxes as an act of civil disobedience.  During that time, I wrote letters to the IRS and my state and federal representatives, including the President.  I wanted to know how a tax on my earned income does not reduce my fundamental right to work to a privilege.  No one could tell me it does not.

I have recently filed returns for all of those missed years and am now considered as being “in compliance” with the IRS.  The alternative, of course, is to be torn away from my children and thrown into prison.  Another way to look at that is my children having a parent taken from them.  The point being that my compliance is not based on a change of heart or perspective – it is based on being coerced; it is compulsory compliance.  You are in compliance for the same reason, though you don’t feel the coercion as I do because you’ve never tried to buck the system.

Now that I’m in “compliance,” I have a right pretty tax bill that has accumulated over those five years, and the IRS is wasting no time in using their draconian measures to squeeze the blood from this turnip.  But, as my previous post noted, I’m using some free legal aid to try to get into a non-collectible status (based on my current low income) to stop collection activities.  This process has required the attorney working on my case to ask a lot of questions pertaining to my personal and business affairs, and through this I have been made more keenly aware of how it felt having nothing to do with the income tax for those five years.  You need to know how it felt.

First, during those five years, I was conscious of feeling free, independent, and most interestingly, responsible.  You might think I'd have been feeling irresponsible, knowing that I was not obeying the law.  No, I never felt irresponsible in any way.  I felt a new and deep sense of being responsible for myself, my kids, my life – a sense of ownership.  Of course, I was also conscious of the fact that I was paying taxes every day as a consumer, renter, and user of utilities.  I felt like my own man, but not in the sense that those on the political left might assume: self-centered, isolated, aloof.  I felt like a man living and moving and freely participating in society; like a man who has something to offer society – my talents, my services, my abilities.  I felt proud and I walked tall, and I earned every penny I made.  I also received every penny I earned, and it felt right.

My pride and sense of freedom did not come from a feeling that I was “stickin’ it to the Man.”  Those feelings came from a noble and pure place, not from a place where I rise at the expense of someone or something else.  I never felt ugly, or wrong, or sneaky, or conniving, or low, or worthy of contempt.  I certainly never felt that I deserved to have my property seized or to be thrown into prison, not by a long shot.

Now that I’m back in the system, I’m being asked what the name of my bank is, asked to add up my income over the last three months and give the average.  What’s the make/model/year of your car, and is it paid off?  When was it paid off?  What's the mileage?  We need documentation of your court-ordered child support.  Do you have any other bank accounts?  Savings?  What percentage of your phone usage is personal and business?  Any other sources of income?  And on and on...

Now I feel like I’ve moved back in with my parents.  I don’t feel independent; I don’t feel trusted.  I find myself wondering (literally) if I’ll have to justify eating lunch at a restaurant instead of going home and fixing a PB& J because it’s cheaper.  As the attorney gathers information, I find myself hoping I am struggling “enough” for the IRS to leave me alone.  And if that isn’t the definition of the American Dream, I don’t know what is.

I don’t feel like a man; I feel small, like a kid.  I feel watched; I feel like someone who must justify his existence to a bureaucratic machine, like when I had to beg for the use of my own money when they seized everything in my bank account in October, money I earned and that I was using to live on.  I feel this sick need to point out to them that I don’t have cable and I’m not a member of my local public radio station because they want me to give my money to them, right?  Aren’t you proud of me?  Am I pleasing to the Great and Powerful Internal Revenue Service?

I feel used, like a much-squeezed teat being milked by cold bureaucratic hands.  The paying of income tax does not conjure up in my mind anything like Patriotic Duty or Good Citizen any more than looking at the obedience and cooperative behavior of concentration camp prisoners makes me suspect that they must have been good Nazis.  No “good” behavior that is coerced is anything to brag about.  Let’s drop the pretensions about “dutifully” paying our taxes this April.  You do it so they can’t flush your life down the toilet.  What’s noble about that?  How does that earn you the title of Good Citizen?  Connecting the payment of income taxes to patriotism or good citizenship is laughable.  You’re just obedient – that’s all you are.  That's all we are.

I have done what relatively few Americans have done.  I have lived in mindless, unquestioning obedience to income taxation.  I have been burned by it as only the self-employed can be.  I have stepped back and questioned its existence.  I have researched its beginnings and its transformation into what it has become.  I have disagreed with its premise and reason for being.  I deliberately stopped filing and paying for a number of years in protest, and sought to have an open discussion with relevant government officials regarding it.  Faced with its ultimate punishments, I have felt compelled to capitulate and come back into compliance, but only technically, not in my heart.  I know what it feels like to live outside of the income tax, and it feels right.  That’s probably the best word I can use: right.

But you don’t know how it feels, because you’ve never been there.  And, unless we change the laws, you probably never will.  And that makes me feel sorry for you as I’d feel sorry for anyone who’s never walked on a quiet mountain trail.  You can’t know what you’re missing if you’ve never been there.

This is how the income tax system is set up, to prevent as many as possible from feeling what I’ve felt.  Gross income, net income, take a little out with every paycheck.  It’s all you know.  It’s normal.  It’s necessary.  It’s fair.

It’s no big deal.  Yes, just stay right there.  It’s no big deal.

Severe Chastisement - That's What's Needed!

[All paragraphs in quotes, except for the one quoting the IRS, come from Runaway Slaves: Rebels On the Plantation, by John Hope Franklin and Loren Schweninger.  Oxford University Press, 1999.]

“It is true that some slaves eagerly awaited being hired out [to employers other than their masters] because they were given special privileges or permitted to keep a portion of their earnings…[H]owever, there was displeasure.  They were in a better position than other slaves to see the direct connection between work and wages.  Those who collected their own earnings and turned them over to their owners must have felt a special pain to see the value of their labor going to their owner’s comfort.  As a consequence, hirelings, including some of the most talented and skilled, ran away…Although whites were often unsure why hired slaves ran away, blacks were more certain: Why should their earnings be expropriated?  Why were they not permitted to keep a portion of their wages?  If they were permitted to keep a part of their earnings, why were they not allowed to keep enough to provide more for their families?”

So, those of you who were reading this blog back in October/November know that I put up the white flag so the IRS couldn’t throw me in prison and rip my family apart.  I brought myself into “compliance” by filing the returns I had missed.  My lone exercise in civil disobedience came to a quiet end.  The IRS reviewed my rather dismal earnings from the past year and asked (sheepishly, I would add) if I could maybe try to pay $50 a month toward my arrearages, which add up to a year’s worth of middle-income wages.  I agreed to start paying in December, and awaited the letter in the mail that would formally spell out our agreement.  In November, I received letters from the IRS stating that my past due taxes were due, in full, in 30 days.  Recently, I received letters containing language that should make the heart of any proud American beat a little faster, that should make citizens of the Land of the Free stand a little taller:

“Intent to seize your property or rights to property.  Amount due immediately.  As we notified you before, our records show you have unpaid taxes…If you don’t call us immediately or pay the amount by [such-and-so date], we may seize (‘levy’) any state tax refund to which you’re entitled and apply it to the amount you owe.  If you still have an outstanding balance after we seize any state tax refund, we may take possession of your other property or your rights to property…Property includes: wages, real estate commissions, and other income; bank accounts; business assets; personal assets (including your car and home); Social Security benefits…If you don’t pay your tax debt, we have the right to seize (‘levy’) your property.”

Honestly, does this sound like something the working and poor classes, people who live week-to-week and month-to-month, drafted and voted to subject themselves to?  Or does this sound like something the powerful elite put in place to milk, oh, I don’t know…who do you think?  Who told the slave whether or not he could keep some of his earnings?  Other slaves?  Or did he voluntarily fork over all or some of his earnings for the sake of his master’s “general welfare”?  Pull your head out.

“…[M]any planters and farmers felt that severe chastisement, especially for running away [running toward freedom], was the best deterrent.  That would teach slaves to be humble and obedient.”

Taking your property or even your rights to property; taking your car or home; throwing you in prison (read: tearing you away from your family) if you fail to file returns – that’s some pretty severe chastisement they’ve got lined up for us, wouldn’t you say?  Does it work?  Does it keep you humble and obedient?  As much as I hate to say it, they got me back in line.

I made so little money this first year back from deployment that I actually qualify for free legal aid.  I am taking advantage of this help to try to get into what is called “non-collectible status” with the IRS.  This will mean the end of collection activities until my financial situation has improved.  Then, when it has improved, they’ll be back to make sure it doesn’t improve too much.  “My God,” they must say to themselves, “what will become of this country if Henning is allowed to breathe a little easier?”

All this money they want to collect from me, that they seem so desperate for – the assumption is that I didn’t actually need it for myself and my kids.  If that is the case, then where is all the unneeded stuff I bought with it?  I spent every penny.  Where is the surplus food and gas I bought?  Where is the second apartment I’m paying rent on?  Where are the closets and dressers full of clothes whose tags have yet to be removed?  Where is my savings account?  I rent a one-bedroom apartment in a lower-middle class neighborhood.  I can’t afford a two-bedroom, or even a one-bedroom with a balcony (which I’d love).  Meanwhile, over 100,000 high and very high income families paid zero income taxes in 2011, yet the IRS doesn’t seem to miss the millions of dollars that represents because those people and their CPA’s and lawyers knew which t’s to cross and i’s to dot.  Free pass, no problem.  The IRS will pass on millions and millions of dollars to come after my tens of thousands (a drop in the bucket) like a hound after a fox.  And yet we revere the income tax because it means “everyone will pay their fair share” (er...with some exceptions, so strike “everyone”…oh, and “fair”).

So, I point out the problem without offering solutions.  I believe that a consumption tax of some kind is the answer.  I do not right now wholeheartedly endorse the Fair Tax or a VAT tax or whatever.  If my lack of solutions disappoints you, if you think I should be coming up with the answers since I’ve bothered to say that something needs fixing, then I have a confession and a proposal for you.

I confess that I am not the smartest person in the world.  There are many people on this earth far more intelligent than me.  And, so, I propose that if you (the average American) took half of the time you spend watching TV and spent that time trying to come up with solutions to this problem, you might be the very person who figures it out!  And why not?  But we’ll never know if you don’t apply yourself.  If I see there is something wrong with my home’s electrical system, must I be the one to fix it?  Why not call on people who are smarter than me and avoid setting my apartment building on fire?  No, I’m perfectly comfortable pointing out a problem without knowing the fix.

I’m also quite comfortable with being looked down upon by the “true believers” of the income tax.  I am used to people asking me how I’d like to see our civilization crumble before my eyes if the income tax were to go away.  How would I like it if we had no more police, firefighters, a military, schools, roads, etc.?  Oh, you mean all those things we had before we had the income tax?  How would I like it if the poor had to carry more of the burden through a consumption tax?  First, show me how the federal consumption taxes created the lower class over a hundred years ago.  Second, explain to me how the poor were being forced to purchase foreign goods and certain items produced here such as tobacco and whiskey.  There were very few things being taxed in order to supply what was a very full U.S. Treasury over a century ago, and the poor could choose whether or not to buy those items without imperiling their lives.  Why couldn’t some type of modern consumption tax follow or even improve upon that model?

“Again and again, slave owners used the same word to describe runaways: ungrateful.  They had been treated well and humanely; they had been given proper food and clothing; they had been well housed and provided with other necessities; their families had been kept together.  Yet, at the first opportunity they had set out on their own.”

Let’s all learn to be ungrateful for the income tax.  Let’s stop believing that we must have threats of the severest punishments hanging over us as soon as we – what, infringe on someone else’s rights?  No, as soon as we step out to earn our living.  Let’s stop believing that we can only support the “Land of the Free” by having the money we sweat for taken by force, like a hired out slave.  Let’s learn to abandon the propaganda regarding the income tax that has been pounded into our heads since we can remember.  Let.  It.  Go.

“‘Every measure that may lessen the dependence of a Slave on his master ought to be opposed, as tending toward dangerous consequences,’ a group of South Carolina slaveholders declared in 1816.”