[In light of the current discussion about makers and takers prompted by Mitt Romney’s candid and arrogant remarks at a fund-raiser, I thought I would republish this post from March of this year. Besides, I don’t have anything else ready to go right now. – CHC]
Some thoughts about obligations, such as those described by Warren Buffet and Bill Gates, and taxes, such as those paid by Gov. 13.9 Percent, Mitt Romney, and Ms. 35.8 Percent, Debbie Bosanek, Warren Buffet’s secretary.
• • •
Taxes are what provide the funds for the fundamentals of our government: to establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity. This constitutes a rather broad mandate for taxation, one that by all rights should be hard for Tea Party advocates to counter, being that it comes from the Preamble to our Constitution.
Let’s start by making a distinction between taxes and spending. We don’t say much about spending that benefits ourselves, but we are sure to complain about spending we disagree with, whether by our government or our local United Way. For those whose mantra is to cut spending, let that debate take place in a separate arena from the legitimacy of taxes. No matter how much our government spends or where we spend it, that money has to come from somewhere.
• • •
Granted, our current tax laws are a mess — I know, because I have been volunteering as a tax preparer at our local financial counseling agency. I get headaches trying to figure out what the ordinary well-meaning people who wander into our office, armed with (some of) the financial particulars of the everyday dealings of their lives, are entitled to receive (or are obliged to pay) in this bizarre annual reckoning we engage in.
My very first client this year needed three visits to our office to straighten out her taxes. The 1098-T form her school provided was no help at all in explaining her scholarship and educational expenses. Her situation reminded me of the plight of being hospitalized: the patient (or advocate) is all too often put in the position of coordinating his or her own care while knowing nothing about it. In this case, the tax client (whose financial life could not have been simpler save for the educational expenses) was handed the responsibility to file her taxes without being given either the understanding or the documents she would need for an accurate return.
Minus documents, tax preparers are at a loss — ethically, we can’t make guesses, though in practice we wind up doing something that smells the same. Guesses are wrong as often as right and put the taxpayer at risk if wrong. But guesses can be turned into estimates by the simple but magic act of multiplication. How much did you earn in your undocumented job this year? No idea? OK. How much do you usually earn in a week, and how many weeks did you work this year? Presto, a good-faith estimate.
On our third visit, my student-taxpayer eventually got the story straight and we were able to put numbers where they belonged. Getting to that point was unnecessarily complicated to me, not to mention the client. The system has not been designed to make things simple. Tax law makes rocket science look like fun.
• • •
There has got to be an easier, fairer, less expensive, less time-consuming way to fund our government. That said, I do not support the so-called “flat tax” that modern conservatives love to tout. We already know that the main thing that conservatives want to conserve is their own money — they blithely ignore that fluff about “promoting the general welfare” in the Preamble to our Constitution. I maintain that taxes should be paid largely by those who can afford to pay them. My ability to pay taxes is a good indication that I have reaped the benefits of our economy, whose very health depends on a well-regulated marketplace. I have no patience with the arguments made by the one-percenters that their fortunes were self-made and so somehow rise above the indignity of taxation. I see nothing illogical in asking the well-off to pay a larger share of their wealth than others to fund government. And Warren Buffet agrees with me.
I have a few basic principles when it comes to who should pay and how much:
• A dollar is a dollar, whether it is made by cutting hair, running a machine, growing wheat or trading stocks. Every dollar of income should count the same. Our government should neither promote nor punish any particular way an individual makes a living. Believe it or not, Ronald Reagan subscribed to this (to an extent) in his 1986 tax reforms.
• These basic necessities of life should not be taxed: food, clothing, rent, utilities, education and communication. This implies that the first x thousand dollars that the average family would spend on such needs should not be subject to income taxes or sales taxes. I am not sure what the value of x should be, but it has to be more than the $11,600 that a married couple now gets as their standard deduction.
• Itemized deductions from taxable income (like mortgage interest and real estate taxes) should be capped so that any deduction primarily benefits taxpayers below the median household income of $50,000. The one-percenters (and ten-percenters for that matter) don’t need most deductions, because they have the means to weather the storms of life. Deductions from income should be about the storms of life. If we cap deductions for the better-than-average earners, then we can lower the tax rates for everyone.
• Corporate profits mean nothing. Taxing fake profits is a flawed exercise. Corporations can trim their reported profits and taxes by all kinds of accounting tricks: taking special “restructuring” charges against earnings (after laying off workers), deferring profits to the following year, or avoiding “repatriating” any profits earned overseas, to name just a few. To counter this, I would replace the current corporate income tax with a “privilege tax” based on domestic sales. Any foreign or domestic company selling goods and services to American consumers would have to pay a percentage of its domestic sales revenue to the U.S. government for the privilege of doing business here. The privilege tax can be made progressive, so that the typical small business would have a lower tax burden than today, while mega-corporations would pay a larger, fairer share. That’s what makes my idea different from a national sales tax or VAT, regressive proposals I do not support.
• Payroll taxes, i.e., Social Security and Medicare taxes — gone. I would drop the artifice of the “trust fund” and simply pay for these programs from general revenues. There would be no corporate contributions on behalf of its employees and no self-employment taxes for independent contractors. That was easy.
• • •
Being that humans share 99% of their DNA with chimpanzees, and Democrats share 99.9% of their DNA with Republicans, there has to be some other explanation beside genetics for the stark difference in mindsets of the two groups. (Democrats and Republicans, I mean.) My theory is that children whose parents once read “Lowly Worm” stories to them turned into Democrats, while kids who were read the Aesop fable “The Ant and the Grasshopper” or “The Little Red Hen” evolved into Republicans. There certainly is a wheelbarrow-load of right-wing interest in Ants and Grasshoppers, with sentiments clearly favoring the Ant. If you need a reminder, here again is the essence of the fable:
The Ant and the Grasshopper
An Aesop Fable retold by Rose Owens
One summer day a Grasshopper was singing and chirping and hopping about. He was having a wonderful time. He saw an Ant who was busy gathering and storing grain for the winter.
“Stop and talk to me,” said the Grasshopper. “We can sing some songs and dance a while.”
“Oh no,” said the Ant. “Winter is coming. I am storing up food for the winter. I think you should do the same.”
“Oh, I can’t be bothered,” said the Grasshopper. “Winter is a long time off. There is plenty of food.” So the Grasshopper continued to dance and sing and the Ant continued to work.
When winter came the Grasshopper had no food and was starving. He went to the Ant’s house and asked, “Can I have some wheat or maybe a few kernels of corn? Without it I will starve,” whined the Grasshopper.
“You danced last summer,” said the Ants in disgust. “You can continue to dance.” And they gave him no food.
As you see, the justification for holding onto one’s hoard — to the extent of letting others suffer rather than share it — has a long history, one that predates Dickens and Scrooge. The congenital resentment of Grasshoppers by Ants, based on the fear that some people are getting something they don’t deserve (as opposed to what Deserving People deserve), pervades our politics and finances. In the current narrative, Greeks = Grasshoppers and Germans = Ants. Liberals? Grasshoppers with a capital G! Recklessly giving away the hard-earned stores of the Ants.
Most people like to think of themselves as Ants: I deserve because I earn. And they don’t because they don’t.
• • •
Which brings me to the Earned Income Tax Credit. EITC has been a provision in U.S. tax law since 1975, designed to provide incentives to our working poor and lift some of them above the poverty level. If you earn (low) wages and file a return, the IRS may refund not only your income tax but some of your payroll taxes. And if you have kids, you could get a few hundred dollars on top of that. Some taxpayers count on the EITC refund as a kind of Springtime Stimulus. They file their returns as soon as they can, because they have bills that are not only due but past due. In the tax office, I have had expectant mothers asking when the refund would arrive, because for them it needed to arrive sooner than the baby.
Conservatives generally dislike the EITC and want to reduce it or repeal it, in spite of the fact that poverty among children would be one-third higher without the EITC. But Ants tend to see nothing but Grasshoppers. Ants are constitutionally unable to be charitable to those who (in their Ant minds) don’t merit it. Ants need to know something about you before they help you. This is the Ant Litmus Test. Ants want reassurance that you are one of them, maybe an Ant who has fallen on hard times. But never, never a Grasshopper. A Grasshopper gets the door slammed in its face.
• • •
I don’t have a problem with the EITC but I do have some discomfort doing tax returns for the public. I like to color inside the lines. I’m not the kind of person who cuts corners or ventures into gray areas. I like to sleep at night. Doing my own taxes, there is no conflict. But preparing someone else’s taxes, differences in values and attitudes can and do arise.
Last year, I prepared a return for a client who reported only unemployment payments as her income. As I was completing her return, I informed her she would not be eligble for the Earned Income Tax Credit, since unemployment is not treated as “earned income.” Only then did the client decide to tell me about her self-employment income, from the business she had on the side. After she reported this income, she came out ahead.
Our tax system is gamed by rich and poor alike. The working poor can game the EITC, and the well-to-do can game everything else. Though Wall Street may be a-hopping with Grasshoppers, pointing fingers at Wall Street is a big mistake. The desire to shave $100, $1000, $10000 from one’s tax return knows no socio-economic bounds, in my experience. Lack of character is an equal-opportunity failing. The well-to-do simply add more zeroes.
• • •
Every system can be gamed. Here is a local example (from Asheville Citizen-Times):
A former postal worker who faked injuries to get disability benefits has been sentenced to seven months in prison. Video evidence presented at Robin Knight Smith’s trial showed that she sat on a stool gambling for hours at Harrah’s Cherokee Casino after claiming she couldn’t work because sitting was painful.
Smith, 46, who worked at mail processing facility in Asheville, also used a walker or stroller before or during an appointment with a doctor but usually walked without aid while shopping, according to court records.
U.S. District Court Judge Martin Reidinger also sentenced Smith last week to three years of supervised probation on her release and ordered the Waynesville resident to pay $46,000 in restitution and perform 100 hours of community services, according to court records.
Reidinger said the sentence should serve as a warning to workers seeking a “free ride” at the expense of taxpayers and that Smith had engaged in a “pattern of conduct to defraud the government.”
According to testimony presented during [their] trial, the Smiths sought workers’ compensation and other benefits for injuries they claimed they suffered on the job. They claimed the injuries prevented them from returning to their jobs or less strenuous work assignments.
Robin Smith said she tripped over a plastic tub and fell. Charles Smith said he suffered a lower back injury while lifting sacks from a bulk mail container. No one saw either accident, according to court documents.
“The result of this important work is that the government will save over a million dollars in payments to a person who tried to defraud the disability system,” U.S. Attorney Anne Tompkins said. The prosecution “serves as a warning to anyone who might believe that the government is not carefully watching, pursuing and punishing such frauds.”
Let’s do a little math. The sentence of $46,000 and 100 hours of community service was purported to save “over a million dollars” in fraudulent disability payments. This implies that the convicted Robin Knight Smith’s time was worth $9,540 an hour. Was she a lawyer in her spare time, when she wasn’t at the Post Office or Harrah’s Casino?
If you want to game the system, what better place to do it than in a casino? Like Harrah’s. Or Wall Street.
• • •
Here’s the real difference between Ants and Grasshoppers. Ants are the ones who built the system, according to Ant rules. Grasshoppers are everyone else. Grasshoppers can’t be trusted to adhere to the rules of a game they never agreed to play. In Game Theory, they would be considered defectors (by Ants who subscribe to Game Theory.)
When you have players who not only disagree on the rules of the game but whether in fact there is a game being played, it is natural that conflicts will arise.
• • •
Ants envy Grasshoppers at the same time they resent them. Ants wish that art and music were larger parts of their own lives, instead of all the crumb-carrying they do all day. God, how we hate Grasshoppers for enjoying themselves, while we carry crumbs and dig holes! Ants never quite get it that they could be making music too. Should one’s whole existence revolve around surviving winter? Ants avoid this question. Easier to blame Grasshoppers. And taxes. Easier to view one’s societal obligations as an objectionable burden on oneself, rather than the contribution one makes so we can all live less brutal, more fulfilling lives.
[In light of the current discussion about makers and takers prompted by Mitt Romney’s candid and arrogant remarks at a fund-raiser, I thought I would republish this post from March of this year. Besides, I don’t have anything else ready to go right now. – CHC]
Some thoughts about obligations, such as those described by Warren Buffet and Bill Gates, and taxes, such as those paid by Gov. 13.9 Percent, Mitt Romney, and Ms. 35.8 Percent, Debbie Bosanek, Warren Buffet’s secretary.
• • •
Taxes are what provide the funds for the fundamentals of our government: to establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity. This constitutes a rather broad mandate for taxation, one that by all rights should be hard for Tea Party advocates to counter, being that it comes from the Preamble to our Constitution.
Let’s start by making a distinction between taxes and spending. We don’t say much about spending that benefits ourselves, but we are sure to complain about spending we disagree with, whether by our government or our local United Way. For those whose mantra is to cut spending, let that debate take place in a separate arena from the legitimacy of taxes. No matter how much our government spends or where we spend it, that money has to come from somewhere.
• • •
Granted, our current tax laws are a mess — I know, because I have been volunteering as a tax preparer at our local financial counseling agency. I get headaches trying to figure out what the ordinary well-meaning people who wander into our office, armed with (some of) the financial particulars of the everyday dealings of their lives, are entitled to receive (or are obliged to pay) in this bizarre annual reckoning we engage in.
My very first client this year needed three visits to our office to straighten out her taxes. The 1098-T form her school provided was no help at all in explaining her scholarship and educational expenses. Her situation reminded me of the plight of being hospitalized: the patient (or advocate) is all too often put in the position of coordinating his or her own care while knowing nothing about it. In this case, the tax client (whose financial life could not have been simpler save for the educational expenses) was handed the responsibility to file her taxes without being given either the understanding or the documents she would need for an accurate return.
Minus documents, tax preparers are at a loss — ethically, we can’t make guesses, though in practice we wind up doing something that smells the same. Guesses are wrong as often as right and put the taxpayer at risk if wrong. But guesses can be turned into estimates by the simple but magic act of multiplication. How much did you earn in your undocumented job this year? No idea? OK. How much do you usually earn in a week, and how many weeks did you work this year? Presto, a good-faith estimate.
On our third visit, my student-taxpayer eventually got the story straight and we were able to put numbers where they belonged. Getting to that point was unnecessarily complicated to me, not to mention the client. The system has not been designed to make things simple. Tax law makes rocket science look like fun.
• • •
There has got to be an easier, fairer, less expensive, less time-consuming way to fund our government. That said, I do not support the so-called “flat tax” that modern conservatives love to tout. We already know that the main thing that conservatives want to conserve is their own money — they blithely ignore that fluff about “promoting the general welfare” in the Preamble to our Constitution. I maintain that taxes should be paid largely by those who can afford to pay them. My ability to pay taxes is a good indication that I have reaped the benefits of our economy, whose very health depends on a well-regulated marketplace. I have no patience with the arguments made by the one-percenters that their fortunes were self-made and so somehow rise above the indignity of taxation. I see nothing illogical in asking the well-off to pay a larger share of their wealth than others to fund government. And Warren Buffet agrees with me.
I have a few basic principles when it comes to who should pay and how much:
• A dollar is a dollar, whether it is made by cutting hair, running a machine, growing wheat or trading stocks. Every dollar of income should count the same. Our government should neither promote nor punish any particular way an individual makes a living. Believe it or not, Ronald Reagan subscribed to this (to an extent) in his 1986 tax reforms.
• These basic necessities of life should not be taxed: food, clothing, rent, utilities, education and communication. This implies that the first x thousand dollars that the average family would spend on such needs should not be subject to income taxes or sales taxes. I am not sure what the value of x should be, but it has to be more than the $11,600 that a married couple now gets as their standard deduction.
• Itemized deductions from taxable income (like mortgage interest and real estate taxes) should be capped so that any deduction primarily benefits taxpayers below the median household income of $50,000. The one-percenters (and ten-percenters for that matter) don’t need most deductions, because they have the means to weather the storms of life. Deductions from income should be about the storms of life. If we cap deductions for the better-than-average earners, then we can lower the tax rates for everyone.
• Corporate profits mean nothing. Taxing fake profits is a flawed exercise. Corporations can trim their reported profits and taxes by all kinds of accounting tricks: taking special “restructuring” charges against earnings (after laying off workers), deferring profits to the following year, or avoiding “repatriating” any profits earned overseas, to name just a few. To counter this, I would replace the current corporate income tax with a “privilege tax” based on domestic sales. Any foreign or domestic company selling goods and services to American consumers would have to pay a percentage of its domestic sales revenue to the U.S. government for the privilege of doing business here. The privilege tax can be made progressive, so that the typical small business would have a lower tax burden than today, while mega-corporations would pay a larger, fairer share. That’s what makes my idea different from a national sales tax or VAT, regressive proposals I do not support.
• Payroll taxes, i.e., Social Security and Medicare taxes — gone. I would drop the artifice of the “trust fund” and simply pay for these programs from general revenues. There would be no corporate contributions on behalf of its employees and no self-employment taxes for independent contractors. That was easy.
• • •
Being that humans share 99% of their DNA with chimpanzees, and Democrats share 99.9% of their DNA with Republicans, there has to be some other explanation beside genetics for the stark difference in mindsets of the two groups. (Democrats and Republicans, I mean.) My theory is that children whose parents once read “Lowly Worm” stories to them turned into Democrats, while kids who were read the Aesop fable “The Ant and the Grasshopper” or “The Little Red Hen” evolved into Republicans. There certainly is a wheelbarrow-load of right-wing interest in Ants and Grasshoppers, with sentiments clearly favoring the Ant. If you need a reminder, here again is the essence of the fable:
The Ant and the Grasshopper
An Aesop Fable retold by Rose Owens
As you see, the justification for holding onto one’s hoard — to the extent of letting others suffer rather than share it — has a long history, one that predates Dickens and Scrooge. The congenital resentment of Grasshoppers by Ants, based on the fear that some people are getting something they don’t deserve (as opposed to what Deserving People deserve), pervades our politics and finances. In the current narrative, Greeks = Grasshoppers and Germans = Ants. Liberals? Grasshoppers with a capital G! Recklessly giving away the hard-earned stores of the Ants.
Most people like to think of themselves as Ants: I deserve because I earn. And they don’t because they don’t.
• • •
Which brings me to the Earned Income Tax Credit. EITC has been a provision in U.S. tax law since 1975, designed to provide incentives to our working poor and lift some of them above the poverty level. If you earn (low) wages and file a return, the IRS may refund not only your income tax but some of your payroll taxes. And if you have kids, you could get a few hundred dollars on top of that. Some taxpayers count on the EITC refund as a kind of Springtime Stimulus. They file their returns as soon as they can, because they have bills that are not only due but past due. In the tax office, I have had expectant mothers asking when the refund would arrive, because for them it needed to arrive sooner than the baby.
Conservatives generally dislike the EITC and want to reduce it or repeal it, in spite of the fact that poverty among children would be one-third higher without the EITC. But Ants tend to see nothing but Grasshoppers. Ants are constitutionally unable to be charitable to those who (in their Ant minds) don’t merit it. Ants need to know something about you before they help you. This is the Ant Litmus Test. Ants want reassurance that you are one of them, maybe an Ant who has fallen on hard times. But never, never a Grasshopper. A Grasshopper gets the door slammed in its face.
• • •
I don’t have a problem with the EITC but I do have some discomfort doing tax returns for the public. I like to color inside the lines. I’m not the kind of person who cuts corners or ventures into gray areas. I like to sleep at night. Doing my own taxes, there is no conflict. But preparing someone else’s taxes, differences in values and attitudes can and do arise.
Last year, I prepared a return for a client who reported only unemployment payments as her income. As I was completing her return, I informed her she would not be eligble for the Earned Income Tax Credit, since unemployment is not treated as “earned income.” Only then did the client decide to tell me about her self-employment income, from the business she had on the side. After she reported this income, she came out ahead.
Our tax system is gamed by rich and poor alike. The working poor can game the EITC, and the well-to-do can game everything else. Though Wall Street may be a-hopping with Grasshoppers, pointing fingers at Wall Street is a big mistake. The desire to shave $100, $1000, $10000 from one’s tax return knows no socio-economic bounds, in my experience. Lack of character is an equal-opportunity failing. The well-to-do simply add more zeroes.
• • •
Every system can be gamed. Here is a local example (from Asheville Citizen-Times):
A former postal worker who faked injuries to get disability benefits has been sentenced to seven months in prison. Video evidence presented at Robin Knight Smith’s trial showed that she sat on a stool gambling for hours at Harrah’s Cherokee Casino after claiming she couldn’t work because sitting was painful.
Smith, 46, who worked at mail processing facility in Asheville, also used a walker or stroller before or during an appointment with a doctor but usually walked without aid while shopping, according to court records.
U.S. District Court Judge Martin Reidinger also sentenced Smith last week to three years of supervised probation on her release and ordered the Waynesville resident to pay $46,000 in restitution and perform 100 hours of community services, according to court records.
Reidinger said the sentence should serve as a warning to workers seeking a “free ride” at the expense of taxpayers and that Smith had engaged in a “pattern of conduct to defraud the government.”
According to testimony presented during [their] trial, the Smiths sought workers’ compensation and other benefits for injuries they claimed they suffered on the job. They claimed the injuries prevented them from returning to their jobs or less strenuous work assignments.
Robin Smith said she tripped over a plastic tub and fell. Charles Smith said he suffered a lower back injury while lifting sacks from a bulk mail container. No one saw either accident, according to court documents.
“The result of this important work is that the government will save over a million dollars in payments to a person who tried to defraud the disability system,” U.S. Attorney Anne Tompkins said. The prosecution “serves as a warning to anyone who might believe that the government is not carefully watching, pursuing and punishing such frauds.”
Let’s do a little math. The sentence of $46,000 and 100 hours of community service was purported to save “over a million dollars” in fraudulent disability payments. This implies that the convicted Robin Knight Smith’s time was worth $9,540 an hour. Was she a lawyer in her spare time, when she wasn’t at the Post Office or Harrah’s Casino?
If you want to game the system, what better place to do it than in a casino? Like Harrah’s. Or Wall Street.
• • •
Here’s the real difference between Ants and Grasshoppers. Ants are the ones who built the system, according to Ant rules. Grasshoppers are everyone else. Grasshoppers can’t be trusted to adhere to the rules of a game they never agreed to play. In Game Theory, they would be considered defectors (by Ants who subscribe to Game Theory.)
When you have players who not only disagree on the rules of the game but whether in fact there is a game being played, it is natural that conflicts will arise.
• • •
Ants envy Grasshoppers at the same time they resent them. Ants wish that art and music were larger parts of their own lives, instead of all the crumb-carrying they do all day. God, how we hate Grasshoppers for enjoying themselves, while we carry crumbs and dig holes! Ants never quite get it that they could be making music too. Should one’s whole existence revolve around surviving winter? Ants avoid this question. Easier to blame Grasshoppers. And taxes. Easier to view one’s societal obligations as an objectionable burden on oneself, rather than the contribution one makes so we can all live less brutal, more fulfilling lives.