Thursday, March 26, 2009

“Making the World 'Safe' for Tax Increases?”

“The task of those who genuinely care about deficits is to make the world safe for tax increases.” E.J. Dionne, Washington Post, 3/26/09

This statement, quite honestly, is one of the more inane comments by anyone who has ever written about, covered or thought about the U.S. federal budget.

And E.J. Dionne is supposedly a great guy and a smart and diligent writer for the Washington Post.

It comes across as a statement from someone who has never read the entire federal budget stem-to-stern; has never sat in hundreds of budget hearings; has not listened to or read testimony or seen any long-term charts; and someone who clearly has a bent to never cut any spending program and would rather raise taxes because “it is so much easier to do.”

Raising taxes is not easier to do than cut spending and it won’t solve any of the deficit-spending problem.

The truth of the matter, ladies and gentlemen, is as follows:

1. You could take a very sharp ax and chop the 1500-page federal budget book in half and keep the top part, throw away the bottom half and run the government pretty effectively. It would still be a $1.75 Trillion budget for FY2010.

2. We are never going to collect any more than an average of 18.3% of GDP in all taxes paid to Washington, D.C. In some good economic years, it might approach 20.5%; in bad economic times like today, we are going to be lucky to collect 16% of GDP in all forms of taxes: income, payroll, excise and capital gains (not many of those this time around, now is there?)

What the Big Government/Nanny State crowd always forgets is this very important and critical fact: The U.S. of A. basically has a “volunteer” tax code, not unlike the ‘volunteer’ army and navy we now have in place.

If you don’t want to serve in the military, you don’t have to.

If you don’t want to pay taxes to the extent Mr. Dionne or President Obama or Vice President Joe Biden thinks you should, bottom line is that you really don’t have to.

The truth of the matter is that we have over 140 million tax returns filed each year. Close to 50 million of those do not pay any federal income tax any more so 90 million actually do. Out of those 90 million income tax-paying returns, less than 1% of them are audited each year, mostly from very high net income wage-earners who file by themselves without the aid of a professional tax accountant (how they do it, I do not know)

The IRS can never, repeat NEVER!, have enough people and resources to audit every single tax return every single year. Maybe 900,000 people will be audited this year and a small percentage of them will be socked with a major fine or tax hit when all is said and done.

The only question every taxpayer would then have to answer each year would come from Clint Eastwood’s character, Harry Callahan, who memorably said in the movie, “Dirty Harry”: "You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya, punk?"

So, basically, the US government is dependent upon the faith, trust or fear of every taxpayer to pay what the government has decided is their “fair share”. Most of the US citizenry is compliant and docile enough to just let their companies quietly claim their withholding every other week from their paychecks and surreptiously deduct the onerous-sounding “FICA” taxes with nary a thought of fear of being audited by the dreaded IRS.

What would happen if every American decided to increase their deductions to say, 50, and then choose to make a one-time, lump-sum tax payment on April 15 each year? The government could never make sure everyone paid what they thought was owed to Washington.

But a person who is making over $100,000, $250,000 per year, and most certainly over $1 million per year in earned income and investments, these people basically can “choose” how much they want to send to the government each year, regardless of what President Obama and Veep Joe Biden think they “should” be sending to Washington. These people can afford to pay very well-trained and excellent tax attorneys and accountants sufficiently high fees to help minimize their tax exposure to a level they consider ‘fair’ to pay, not the federal government.

The top 1% of the individual income wage-earners already pay over 40% of the entire income tax as it is now. If someone who is very wealthy does not want to hide or shelter any income and just wants to pay the whole tariff without question, they are free to do that. But they won't get any credit from anyone for doing it either....they are just 'lazy, rich people' in the minds of many.

My father knew a guy who made $10 million selling a company that made railroad cars back in the 1970s and when he asked this guy what he did with all that money, which was really big at the time, he said:: “It is all in municipal bonds, earning tax-free interest”. When my dad asked him why, he said: “Because that way I know that the federal government will never be able to get their hands on any of my money ever again!”

So there is a very simple way for the wealthy to shield their income from Messrs. Dionne, Obama and Biden, assuming anyone can find a safe municipal bond to invest in nowadays with rumors abounding that they are the next shoe to drop in this economic downdraft.

The takeaway point is this: Even if the dreamy-eyed apologists for the Nanny State such as Mr. Dionne want to “make the world safe for tax increases (from you!)”, it will not solve our spending problems! We are spending money right and left that we do not have!

To solve our spending problems, we have to stop spending more money! How much more simply can it be stated?

2 comments:

  1. I get your point about there never being enough people in the IRS to make 100% sure everyone pays their taxes. However, I still would not call federal taxes voluntary. The threat of using force against me if I do not surrender my money is the only reason I pay taxes. If this threat were gone, I doubt anyone would "donate" their money to government.

    This is a long quote but it sums up what I think is the entire moral truth behind taxation. The author is the great Lysander Spooner:

    "The fact is that the government, like a highwayman, says to a man: 'Your money, or your life.' And many, if not most, taxes are paid under the compulsion of that threat. The government does not, indeed, waylay a man in a lonely place, spring upon him from the roadside, and, holding a pistol to his head, proceed to rifle his pockets. But the robbery is none the less a robbery on that account; and it is far more dastardly and shameful. The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber. He has not acquired impudence enough to profess to be merely a 'protector,' and that he takes men's money against their will, merely to enable him to 'protect' those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these. Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful 'sovereign,' on account of the 'protection' he affords you. He does not keep 'protecting' you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy, if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villanies as these. In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave."

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  2. Touche to Anonymous for a well-reasoned statement. The main point I was trying to convey is that should the entire US taxpaying population one day decide not to pay their taxes, there is very little that the IRS could do about it due to extremely limited resources and manpower. it is sort of amazing we collect as much tax revenue as it is right now.

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