Archive for the ‘federal tax’ Category

Rude Awakening

December 3, 2010

I slept a little late this morning. What woke me was the news on the radio. Specifically, what woke me was the news, in two closely adjacent pieces, that Congress (1) would not extend the unemployment compensation benefits for the long-term jobless, and (2) that God’s Own Party does want to extend the Bush tax cuts, not only for lower- and middle-income taxpayers, but for those making more than $250K per year. They don’t want to extend unemployment benefits ( which would put a $65B dent in the budget) unless they can be “paid for” by cuts in some other area. They are not the least bit interested in demonstrating how the tax cuts for billionaires (roughly a $700B addition to the deficit) can be “paid for.” With great difficulty I restrained myself from leaping out of bed shouting “this is bullsh*t,” which would have painfully startled Mr. Wired and the cat out of their sound sleep.

Let’s break this down a bit. Those losing their unemployment compensation benefits number roughly 800,000 human beings, most of them with families. The average weekly benefit for each member of this unfortunate group is $300.00. That’s a total annual income of $15,000.00 per person, or more likely, per family. Keeping the Bush tax rates for all taxpayers would mean that the something like 225,000 households in the highest tax bracket (up in the $300,000s per year, or 20 times the average annual unemployment benefit) would be taxed at a maximum marginal rate of 35% instead of 38.6%. Crunch the numbers for yourself.

But, the party of Teddy Roosevelt and Abraham Lincoln tells us, the upper bracket tax cuts are different from the pittance we give unemployed workers. If we give the unemployed their weekly $300.00, they’ll just use it to buy food and pay rent and put gas in their cars so they can keep looking for jobs. If we give the rich more money, they will use it to create jobs. (I love the word “create” in this context. It well-nigh apotheosizes Big Business. One can see Donald Trump leaning out over the heavens, his fingertip outstretched to a Walmart sales clerk… Moro, can you draw this? Anybody else?)

Just as they have created jobs over the 9 years during which the Bush tax cuts have already been in effect, right? The nine years in which corporations have repeatedly demonstrated that they will do almost anything rather than hire American workers to work in the United States at full-time permanent jobs with health insurance and retirement benefits. If the Bush tax cuts had created jobs, there wouldn’t be 800,000 people out of work now for more than a year. Why should we expect the tax cuts to do now what they didn’t do last year or the year before?

And why, pray tell, do we accept the Republican double standard on deficit reduction? That standard dictates that all government spending for ordinary people and their families must be “paid for,” and paid for not by tax increases on anybody else, but by spending cuts on other government services to the same ordinary people. But it also dictates that tax cuts on the richest Americans do not need to be “paid for” at all, because they will by some magical process pay for themselves in jobs to be “created” from the same inanimate matter that used to create organic life in the theories of Aristotle. In short, they would have us keep two sets of books, one for the rich and one for everybody else. Each set must balance within itself, but the two need have no interaction whatever with each other, except across the celestial spark gap (see above) in which the superrich “create” jobs. My father the CPA would be aghast at this maneuver.

But there seems to be a bipartisan push to extend jobless benefits in exchange for extending the Bush tax cuts for even the richest taxpayers, and to hell with the deficit for this week anyway. Republicans and Democrats, the pro-life corporate party and the pro-choice corporate party, shoulder to shoulder against financial sanity.

Well, I gotta go. The sovereign state of Illinois has just passed a bill legitimizing civil unions for same-sex couples. The Catholic Church says this is an assault on the sacred covenant of marriage between a man and a woman, and that means I probably ought to cook dinner for Mr. Wired before our marriage falls apart altogether.

Red Emma

The Home Mortgage Deduction

November 24, 2010

Boon or Boondoggle?

The Simpson-Bowles proposal strikes me as the outcome of a joint bipartisan fit of pique. “Take that, you free-lunchitarians of both parties!” It’s hard to blame the authors. I feel that way myself quite a lot these days. But the proposal to eliminate the home mortgage deduction strikes me as really ill-conceived, or at least ill-timed. The Wired family is surely not alone in residing in a property that would be worth a whole lot less than a rental if it were not for the home mortgage deduction. We refinanced some years ago; it might have been a really frivolous and bad idea except that, as it turned out, we consummated the deal shortly after I spent a month under bed arrest after major emergency surgery, unable to work and not yet on Social Security or Medicare. Without the proceeds of the refi, we would have been in real trouble. But as a result, most of what we are paying for our mortgage these days is interest. And, since we live in a condo, the monthly assessment for which is only slightly less than the rent on an apartment of similar vintage, if we weren’t getting the deduction, we would be a lot better off renting. Except, of course, that, without the deduction, a lot of other people would have much less incentive to buy our place, so we would have a hard time selling it. This would create a whole new housing market crisis, even if we were not currently in one.

Like most of us, I am familiar with the arguments against the home mortgage deduction, and agree with many of them. But I feel roughly the same way about it that many “centrists” feel about the wars in Afghanistan and Iraq and used to feel about the Vietnam war: it was a bad idea getting into them, but getting out is going to hurt a whole lot of innocent people. At the moment, it would probably be the equivalent of a nuclear bomb going off in our economic system.

If I thought there were any chance of Simpson-Bowles being legislated in its entirety, I would be really worried. But I think what the authors really did was just list all the “third rails” of our current polity and crunch the numbers, knowing—and probably intending– all the while that this was a purely theoretical exercise, or maybe a wish list.

Jane Grey

Selective Tax Resistance

March 17, 2010

As I follow the blow-by-blow narrative of the Battle for Health Care Reform, I am overwhelmed by nostalgia sometimes. The spectre of “socialized medicine” and “government takeover,” for instance, has been around since well before Harry Truman made his deal with John L. Lewis that first set up the link between health insurance and employment. OTOH, the AMA’s position has shifted in interesting ways. And the role of the Catholic Church and the Right-to-Birth movement are brand new. But they are raising an issue that actually goes back (within living memory) to the Vietnam War, and arguably to the origins of our nation—conscientious objection to tax payments for certain purposes.

For the benefit of those of you who were too young, or too politically uninvolved, at the time, a lot of people objected to the Vietnam War. The presence of the military draft may have been a catalyst for those objections, but ultimately a lot of people who were not subject to it found other ways to put their objections into action. Many of them refused to pay federal taxes, or that part of their federal tax burden that they deemed payable for the expenses of the Vietnam War.

For more info, see http://en.wikipedia.org/wiki/History_of_tax_resistance#Vietnam_War.2C_1968.E2.80.9372. Various friends of mine refused to pay their phone tax, or deliberately worked for wages below the taxable level, or refused to file their tax returns, or filed but did not pay, or paid some specified amount less which they called the war tax deduction, or made out their tax checks to some non-military arm of government such as the Department of Health, Education, and Welfare (as it was then.) [I tried several of these methods at one time or another. But as the daughter of a super-ethical CPA, I could not bring myself not to file.] I also did a fair amount of legal work for tax resisters later on in my career.

Many tax resisters and their sympathizers also supported things like an alternative war tax fund—a way for tax resisters to contribute their tax money to non-military purposes. Sometimes they proposed to make this alternative available to people who could demonstrate their opposition to war in more or less the same way conscientious objectors to actual service in the military could demonstrate their opposition to the Selective Service System.

All these varied branches of the tax resistance movement had two things in common: they were a noble effort based on serious thinking about the role of taxpaying citizens vis-à-vis the military activities of their government; and they didn’t have a chance in hell of succeeding.

Or at least that was what we all thought then. Now I think maybe we should take a new look at tax resistance. Because the Religious Right, the Catholic Church and its various agencies, the GOP, and many of the Tea Partiers, have not only raised the issue of refusal to allow their taxes to fund what they view as the taking of innocent life, but have actually succeeded in legalizing it. They have rammed it through Congress, first in the form of the Hyde Amendment (first attached to appropriations bills for funding what was then the Department of Health and Human Services and, in particular, Medicaid, in 1975, and routinely attached to those appropriations bills every year since then), and more recently in the form of the Stupak Amendment to Obama’s Health Care Reform proposals.

The parallels to war tax resistance are compelling. Like war, abortion is a legal activity. Like war, it is essentially destructive. Like war, nobody is really comfortable with it, but most people reconcile themselves to it in certain limited instances. And, like war, abortion can be, and in many other countries is, financed by the taxpayer.

But, unlike war, abortion can legally be conducted without federal financing. (When a war is run entirely on private money, it ceases to be a war, and becomes privateering or criminal gang activity.)

So the American polity has essentially accepted the legitimacy of refusing to pay taxes to support certain legal activities which are morally offensive to some but not all of the citizenry. Indeed, we have extended it well beyond the boundaries respected by Vietnam War opponents, who merely asked that their own particular tax monies be kept out of the war chest. Hyde and Stupak have demanded, and gained, the right to keep anybody’s tax money from paying for abortions, even the money contributed by pro-choice taxpayers. Why do we apply that approach only to abortion? Are the civilians of Iraq and Afghanistan any less innocent than American unborn children? It is a statistical certainty that some of the “collateral damage” casualties in those countries are pregnant women and their unborn children. Why are we willing to legalize tax resistance to protect American fetuses and not Iraqi and Afghan embryos? (BTW, I can’t even take credit for originating this idea. Philip Roth–not ordinarily one of my favorite authors– does a wonderful riff on it in Our Gang, published in 1971!!!, far beyond my poor power to add or detract.)

Now is the time, obviously, for opponents of the war in Iraq and Afghanistan to demand for ourselves the rights won by the Pro-Birth movement. There is nothing so powerful as an idea whose time has come again.

Red Emma

Be Kind to Bureaucrats

August 31, 2008

 

These days, the two nastiest things you can call somebody are not “thief” and “murderer”, but “politician” and “bureaucrat.”  “Bureaucracy” has become a synonym for delay, obfuscation, and obsession with procedural detail at the expense of substantial justice.  Virtually anyone who works for a governmental agency–except perhaps a police officer or a firefighter–is vulnerable to charges of being a bureaucrat.  A few astute observers have even noticed that private business and industry have bureacracies, some of them more intricate than anything ever invented by a government in the U.S. 

 

Most of us do not even realize where the idea of bureaucracy came from, what it was meant to accomplish, and, perhaps most important, what the alternatives to it may be.  It all started with the government of the German state of Prussia in the eighteenth century, which originated the idea of government agencies whose purpose was  to get the governmental job done, whatever it might be–rather than to make a particular person richer and more powerful. The Prussians developed the idea of setting standards for the governmental job, so that anyone (inside or outside the agency) could tell when it had been done properly.  They originated the revolutionary idea that such an agency was supposed to do the job the same way for anyone who requested it and was entitled to it, regardless of whether the individual government worker liked the requester, and regardless of whom the requester had voted for or otherwise supported.  The Prussians first invented the notion that a governmental agency must not only do its job, but be able to prove that they had done so—also known as documentation, accountability, or red tape.  And they invented the idea of civil service–hiring people based on objective testing for merit and aptitude, and guaranteeing them continued employment so long as they served honestly and competently, regardless of which politicians might be running the government. 

 

Most people who complain about “waste, fraud, and abuse” at the hands of “bureaucrats” are actually calling our attention to governmental employees who have failed at being bureaucrats,  They have given worse service to some patrons than to others, or failed to give any patron the service required by the applicable regulations, or lost track of a case because of poor documentation. 

 

Other complaints about “bureaucracy” come from a dislike of the ideas behind it.  Some people, for instance, think no employee can be trusted to give competent and honest service except under the constant threat of arbitrary firing.  Job security of any kind, they think, is bad for the employer, even when the employer is the taxpayer.  Others favor patronage because they believe that government workers should respond immediately to any change in political administration–or resign in favor of the new administration’s flunkies–even if this makes long-range planning of governmental programs impossible. 

 

And some of those who complain about bureaucracy are complaining because they believe they personally should be getting better service from a governmental agency than its ordinary patrons.  Most of us, at heart, really want two systems of governmental service–one for ourselves and our friends, and one for everybody else.  We object to bureaucracy precisely because it treats all of us alike.

 

But the real alternative to bureaucracy is government by corruption, patronage, cronyism, guesswork, or intimidation; government which owes nothing to those who pay for it–not even a receipt for taxes.   Of course bureaucracies can be corrupted, or filled by incompetents.  Generally that happens in societies where corruption or incompetence are endemic everywhere–not just in governmental service–and would show up in any system of governmental service. And generally, the cure for a flawed bureaucracy is not the abolition of bureaucracy, but the creation of a better bureaucracy. 

 

Jane Grey

Tax Simplification and Over-Simplification

August 31, 2008

 

Americans have no patience for complexities.  Americans hate taxes, not so much because they think they’re paying too much (though they do–and they aren’t, compared to citizens of industrialized nations), but because they hate the 1040 long form and the Schedule C and the other auxiliary forms, and were even sufficiently unhappy with the 1040 X (short form) to force IRS to come out with the postcard-sized 1040 EZ.

 

Lately, several of the people I correspond with on various computer bulletin boards have been asking things like “Why should we have to file returns at all? Why don’t they just take out the withholding all year, calculated so that everybody comes out exactly even?”  In point of fact, that is the whole idea behind the withholding system–to make everything come out exactly even.  The need for filing a return–and its accompanying complexities–arise out of two different problems.  One, which has always been us, is that we have decided we want to make certain kinds of expenses deductible, either for the sake of fairness (like medical expenses or casualty losses) or to encourage certain kinds of behavior we have decided are desirable (like buying homes, contributing to charity, and saving for retirement.)  Since not everybody has these expenses or engages in these activities, or spends equal amounts on doing so, people have to file returns to claim those deductions.  It’s easy to simplify the system, if we tax all income, including medical expenses, casualty losses, home mortgage  interest, etc., at the same rate.  But the average taxpayer might lose money in the process, at least in a bad year.

 

And the other side of the problem is that an increasing number of taxpayers are getting some or all of their income, not from a single employer who regularly withholds taxes and sends them on to Uncle, but from a multitude of private clients, as independent contractors or consultants.  That trend is likely to get a lot worse before it gets any better. It may never get better, if corporate employers have their way.  In another ten years, we may all be independent contractors. Trying to require every one of the contractor’s private clients–anyone who pays the kid next door to mow the lawn or babysit, anybody who gets his house painted or his car repaired–to deduct taxes and do the paperwork necessary to send them to Uncle on the contractor’s behalf–would merely shift the complexity from the employee to the employer, while turning virtually everybody into an employer.

 

If the complexophobes have their way, presumably the next federal income tax return form (the 1040 BS, for “Bumper Sticker”, which is what it will be printed on) will be entirely blank. The IRS will fill it in with the figures they consider appropriate. Letting the guy with the biggest gun have things his way is the simplest system there is, but rarely is that simplicity enough to compensate us for what he will then be free to take away.

 

Bureaucratic complexity, in short, is almost always the result of two opposing forces–the demand of some powerful entity for money or power over the individual, and the individual’s wish to have that power exerted fairly and/or at minimal cost to the individual.  The complexities of the tax code mostly have to do with reasons we think people should not have to pay taxes on income earned or expended in certain ways–charitable contributions, for instance, or child care.  A simple tax code would just take 20% (or whatever) of everything, including the change in the beggar’s cup. We have decided, as a society, that fairness is more important than simplicity.  Now, for some reason, we have lost sight of the reason why.  Let’s just let the guy with the biggest gun take what he wants, so long as we don’t have to do any simple arithmetic.

 

But, says the local chapter of the Timothy McVeigh Fan Club, who says the government has to be the guy with the biggest gun?  Who says government should get a gun–or our taxes–at all?  They don’t have to, of course.  But if we get rid of them, there are plenty of other people, with far bigger guns than we have, anyway, out there, equally eager to take our money and a lot less interested than the government in providing any kind of goods or services in return.  And they’ll be the first to say, as thugs have said for thousands of years, “Don’t make things complicated. Just give me everything I want.” No deductions, no exemptions.  Just 100% taxation.

 

(Remember the old story about the man who threw his buddy into the lake, after a disagreement over the rules of poker?  The buddy came up, gasping for air, and his pal hit him on the head with a board.   The buddy sank, came up, got hit again, sank, and so on for about five or six go-arounds before he finally drowned.  His pal told the police later “He shore was a fool to keep coming up.”)

 

(Remember the sexist dictionary that defines the difference between seduction and rape as depending on how much effort the woman is willing to expend to postpone the inevitable?)

 

Everybody’s proposing alternatives to the income tax.  Dick Armey is proposing a flat tax, by which he means a simple flat percentage of income, applied to all income from all taxpayers, with no deductions.  Bill Archer (R. Tx) is talking about eliminating income taxes altogether and catching us at the other end, with a consumption tax. 

 

Americans hate all taxes.  After all, the only reason we are the U.S. of A. is that we rebelled against taxation without representation.  We have since discovered we don’t much like taxation with representation either.  According to the Lutheran Brotherhood Insurance Company’s recent study, Americans actually hate sales and real estate taxes even more than federal income taxes–but we’re not too fond of any of them.

 

Rep. Archer’s consumption tax is a fancy name for a sales tax. (The taxes in honor of which the American Revolution was fought were consumption taxes and what we now call user fees.) It is also, by the way, the main revenue-raising method used by the government of the USSR–remember them?  The very model of a successful economy every American would love to imitate?

 

Personally, I think all those guys are barking up the wrong tree.  The simplest, fairest kind of tax we could possibly have isn’t a flat percentage tax–after all, most Americans these days can’t do percentages any more. It’s a flat amount tax.  The first $6,000 (or whatever) of every American’s gross income from any source. No deductions, no percentages.  Most of us still know how to subtract.  The same six grand from the ex-steelworker on the corner selling papers, and from his billionaire ex-boss in the suburbs.  What could be fairer?

 

Oh, yeah.  You want to know what happens to people who don’t make six grand a year, or make just barely that much.  And what about children who aren’t old enough to make any money?  Don’t bother me with that stuff.  Those are complexities.  Ignore them and they’ll go away–that’s the spirit that made this country great. 

 

Or let’s try another simple solution.  The Gingrichites seem to be taking the position that the way to end poverty is to end all government programs that make poverty endurable.  Why not take this position one step further, and pass a law that, after a stated date, anybody with an income too low to pay the flat amount tax will be taken out and shot?  Now we’ve not only simplified the tax system, we’ve turned it into a screening system to get rid of the deadwood.  That should be a great incentive to get poor people on their feet. Oh, yeah. What about amputees and other people who don’t have any feet?  Are you suggesting some sort of complex exemptions for people with disabilities?    You mean they have to fill out a form that says “I have [1, 2, 0] feet.”?  Yeccccch. No way.

 

 

Red Emma

WHO GETS THE REBATE?

January 29, 2008

Our Glorious Leader has decided to stimulate the economy by giving tax rebates to ordinary working taxpayers.  And seniors on Social Security.  And people getting the Earned Income Tax Credit.  And…sorry, I’m losing track.  But I’m pretty sure that none of the people on the list are independent contractors or entrepreneurs.  None of them, that is, are the people whose income mostly shows up on the Schedule C. 

 The Schedule C is the IRS form that people submit with their 1040 to report “profit or loss” from a business.  In the political realm, it is the form people love to ignore.  The only presidential candidate who is proposing anything that will affect Schedule C filers is Mike Huckabee, who wants to abolish the IRS and the income tax altogether.  By implication, that means the Schedule C gets abolished too.  This is as close as anybody has come to mentioning it in what passes for political discourse since 1960 or so. 

Why on earth should that matter?  People talk about the income tax system only to denounce it, or occasionally to protest excessive denunciation.  Why should we care about one particular obscure tax form?

Because Schedule C is what our economy increasingly runs on, that’s why.  Schedule C is how entrepreneurs, and small business owners, and independent professionals, and contractors, and odd-job men (and women) report their income (or lack of it.) 

 Lots of people who get most of their income from a job, reported on a W-2 form, also file a Schedule C for doing various odd jobs on the side.  And some people who report most of their income on a Schedule C also file W-2s for various part-time job income as well.  But the people whose income shows up entirely or mostly on a Schedule C are, arguably, the people our country and our economy are built on. We are the people who make most of the new jobs. (Last I heard, the Fortune 500 had not created a single net new job in the last thirty years.)  We are the people who work without a net, outside the corporate welfare state. We provide our own health care, our own retirement, our own office space and equipment, our own training and education, our own unemployment compensation.  When we succeed, we may get famous.  When we fail, if we’re lucky, we can get welfare.  When we just muddle along, we get from one day to the next.

In the meantime, the politicians look out for corporate employees and major business owners.  The Small Business Administration, which you might expect to be helpful to the sole proprietor, defines “small business” as including any operation grossing less than $750,000.00.  Even in these days of galloping inflation, I find that unhelpful. 

Back when “tax simplification” was the mantra (about three elections back), all the “simplifiers” talked about was the 1040 Form.  They managed to get it down to the size of a postcard, at least for some filers.  I’m still waiting for the Form 1040 BS (standing, not for the obvious barnyard epithet, but for Bumper Sticker, the ultimate simplification), but sooner or later it has to happen.  That does absolutely nothing for the increasing number of people who have to file Schedule C.

And why is that number increasing?  Well, maybe some of it is the Baby Boomers and their progeny, who are just too individualistic and ornery to make it as employees.  But most of it is the result of one round after another of job cuts in one segment of the economy after another, while the erstwhile “safety net” that was supposed to catch workers as they fell out of those industries tatters and shreds.  If those of us who have been declared “redundant” (in the elegant British word) stubbornly insist not only on living but on having families to support, the only place most of us can go is into self-employment of one sort or another.

There are different kinds of “self-employment”, some of which are purely fictive.  Every now and then the federal government actually sues some large employer for representing that certain of its workers are “independent contractors” (and therefore responsible for paying their own income and Social Security taxes), when in fact they are employees and their employers have that obligation.  But most of the time, employees and “contractors” work side by side in the same companies, doing the same work, and nobody knows the difference except the payroll office. 

Some “self-employed” people are actually farmed out to employers by “temporary” agencies. Their “temporary” status may be fictive as well. Some “human resources” specialists use charmingly oxymoronic terms like “permanent temporary” and “full-time part-time” to describe workers who do precisely the same work as their fully employed colleagues, but have been arbitrarily defined as “temporary” or “part-time” so that they don’t have to be given the same pay and benefits.  Indeed, it is fairly common for a full-time employee to be fired and then allowed to come back to exactly the same job as a “temp” or a “part-timer” or a “contractor” so that the employer can skimp on the worker’s pay and withdraw benefits altogether.

That’s different from the real independent contractors, who at least get compensated for their low pay and total absence of benefits by not having a boss.  Or, depending on how you look at it, having lots of bosses, but not being dependent on any one of them for their entire livelihood.  That’s basically my situation.  I get hired and fired all the time, by one client or another. Sometimes I quit, too.  That has its attractions.

It almost makes up for the fact that, so far as I can tell, we “independent” workers are not going to collect one cent in rebates in this upcoming economic stimulus.  It’s bad planning on the part of the government, though.  If Uncle Sam sends a rebate to an ordinary employee, it will eventually get spent, probably on personal consumption items.  But if that same rebate gets sent to an “independent contractor,” that money may very well get spent hiring another independent contractor to do some subcontract work, thereby going through two families rather than one–twice as much stimulus for the same buck.  Give it a thought, George.

Jane Grey