Category: Tax


Fantasy Authors, Tax Policy & Veil Piercing

Pat Rothfuss, author of the best-selling fantasy novel “The Name of the Wind, and an interviewee in my “Law and Hard Fantasy” series, has a post up on his blog ruminating about tax policy and incorporation.

Up until this year, I’ve always gotten money back because I’ve lived well below the poverty line. This year, I got to give them money. It was, as they say, more fun than getting kicked in the throat. Mostly.

Don’t get me wrong, I’m not against taxes. Everyone loves to bitch about them, but taxes pay for schools, and roads, and snowplows, and sewage treatment plants. My friends have a son who is autistic, and the government helps them by bringing in well-trained people.

These things are important. If that’s all my taxes went toward, I would pay them gladly. I would sing a song while writing out the check.

However, we all know that’s not the case.

So, under the advice of several wise people, I’ve decided to start a corporation. This is supposed to prevent the government from taking quite as big a bite out of my ass for next year’s taxes.

It doesn’t seem right, honestly. The corporation is just me: I own it. And this corporation (let’s call it Me-corp) will be employing me. That, apparently, is different from being actually self-employed. Sorry? What? How does that work?

I guess what it comes down to is that the government is really, really dumb. Dumb enough so that if I put on sock on one of my hands and use it as a puppet, it will be convinced that the puppet is actually paying the taxes, not me.

But I’m not above exploiting a loophole in the system. So all that remains is to figure out what to call this corporation. I having trouble picking a name. Names are important things, you know. They tell you a great deal about a… a corporation.

I’m not an expert in tax law, so I’ll leave discussion of the income-sheltering aspects of this structure to the experts, but I know something about corporate veil piercing. And I’ll just say that calling a corporation a “puppet” would seem to make it less likely that a court would consider it a bona fide entity for the purpose of shielding a shareholder’s personal assets in any suit against Me.corp.

Who Wants to Think They’re Millionaires?

Lots of Americans, apparently:

A Time Magazine poll in 2000 found that 19 percent of those surveyed believed themselves to be among the richest 1 percent of Americans. Another 20 percent said they expected to one day be among the richest 1 percent.

But as Citizens for Tax Justice estimates, “This year, the best-off one percent will have an estimated average income of $1.5 million each. Just to get into this elite group requires an income greater than $466,000.” And the middle class of, say, ABC debate moderator Charlie Gibson is also pretty expansive–it includes people with adjusted gross income over $250,000, though CTJ notes that only about 2% of taxpayers fit that category.

As the “millionaire’s amendment” in our tattered campaign finance laws comes under attack, misperceptions about wealth feed into Supreme Court arguments as well:

Consider Tuesday’s oral arguments over the so-called Millionaires’ Amendment, the federal law that lifts some political fundraising limits for candidates facing wealthy self-funded opponents, defined as those who pour at least $350,000 of their own cash into their campaign.

Justice Antonin Scalia suggested that practically anybody had that cash available for political activism, if he or she really wanted to tap some family assets. “Are we talking wealthy people here? What’s the average price of a home in the United States? I think it’s a good deal above $350,000, isn’t it?” he said.

Actually, it’s nowhere near that. According to provisional figures from the National Association of Realtors, the average single family home price last month was $246,000. And falling.

As I noted two years ago, even the assumption that everyone has $200 to spare for a political campaign is pretty objectionable. And it is downright nonsensical to deny that donating $200 “hurts” a poor family far more than one with disposable income to spare (just think of the parable of the widow’s mite). The legitimacy of our current “dollar primary” politics probably rests in large part on the erroneous perception of 38% of the population that they are (or someday will be) in the top 1% of earners.

UPDATE: Given my title, I should note that about 3% of the US population are millionaires (i.e., have assets over and above principal residence that are worth over a million dollars). Nevertheless, given that the median net worth of the top 10% in the U.S. was $833,600 in 2001, and that of the bottom ten percent was below $7,900, Americans live in very different economic worlds.

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Those wacky tax guys…

Who says that tax lawyers don’t have a sense of humor? I recently pulled the following disclaimer off the bottom of an email sent by an in-house attorney at a capital management firm:

Disclaimers: This information was added automatically by Mozilla. It is not intended to be a signature. I am not your lawyer. You are not my client. If you think that there is useful tax advice in this e-mail, you are delusional. If the IRS wants to impose a penalty on you, waving this e-mail at them will make them laugh at you, and it won’t get you off the hook. If someone shows you this e-mail, and says it proves that some bright idea of his will save you a boatload of taxes, he is lying — run the other way as fast as you can.

Those wacky tax guys…

Free Lunch Discussed at Reason

The concept of a “left libertarian” has been something of an oxymoron of late, best left to obscure philosophical proposals and Kossite appeals to Cato. But David Cay Johnston’s recent conversation at Reason Magazine makes the case in some interesting ways:

[Johnston’s new book] Free Lunch is full of sharp, heavily reported takedowns on eminent domain, expensive special favors for sports teams, legislative deals that put taxpayers on the hook for a private train company’s crimes and errors, giveaways from small towns to attract big-box stores, and how heavily government-managed markets in areas such as power and health care can enrich some at everyone’s expense.

I’ve found Reason the most principled libertarian outfit around, so I’m not surprised that they’ve interviewed Johnston. I just started his book, and I’ll be posting a review here later this month. It’s been fascinating so far.


I’m Sorry… Sincerely, The IRS

Today, the New York Times reports, the National Taxpayer Advocate delivered her annual report to Congress. First established in 1998, the Taxpayer Advocate Service describes itself as “an independent organization within the IRS that assists taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.” Judging by the generous use of exclamation points on its home page, moreover, the Service would appear to be quite excited about this mission.

Among other things, I was struck by certain aspects of the IRS’ present-day operations that the annual report critiques. I hadn’t realized, for example, that the IRS makes widespread – if ineffectual – use of private debt collectors, or that it charges (sometimes substantial) fees to respond to taxpayer inquiries.

Two reform proposals in the annual report, however, particularly caught my eye:

First, there is the Advocate’s proposal to adopt a new taxpayer bill of rights – an odd-seeming concept, to begin with. (Isn’t the Administrative Procedure Act the “bill of rights” of the modern administrative state?) This bill of rights, moreover, would include a list of taxpayer “responsibilites,” including requirements that they (in the Times‘ words) “conduct themselves honestly and [] cooperate with auditors and tax collectors.” But what exactly is the “honest conduct” the Advocate has in mind? Avoiding fraudulent statements to the IRS? Surely, we’ve already got that covered. What’s other honest conduct might be expected? Some general promise of good and clean living?

Even more eye-catching were the report’s proposed “Apology Payments,” to be doled out by the Advocate’s office – in amounts ranging from $100 to $1,000, and up to a collective cap of $1 million – to taxpayers who suffer “excessive expense or undue burden” because of IRS error or delay. Leaving aside the procedural complexities of such a scheme, are there analogous arrangements to be found in other areas of law? (The Times reports that the U.K. and Australia already have such a scheme in their tax code.) Do we do it anywhere else?

The Heroism of Susan Pace Hamill

It is now sadly all too common to see public intellectuals pointedly ignoring–or even cheering on–growing inequality. Bloodless statistical accounts tend to miss the consequences that flow for poor families when taxes on the wealthiest are cut and social programs are gutted accordingly.

Professor Susan Pace Hamill has done an extraordinary job in turning public attention to this problem. According to the NYT’s David Cay Johnston, “her latest effort is a book, As Certain as Death (Carolina Academic Press, 2007), that seeks to document how the 50 states, in contravention of her view of biblical injunctions, do more to burden the poor and relieve the rich than vice versa.” Some statistics are really striking:

The poorest fifth of Alabama families, with incomes under $13,000, pay state and local taxes that take almost 11 cents out of each dollar. The richest 1 percent, who make $229,000 or more, pay less than 4 cents out of each dollar they earn, according to Citizens for Tax Justice, an advocacy group whose numbers are generally considered trustworthy even by many of its opponents.

As a cursory Google search shows, Professor Pace Hamill has honed her message with extraordinary clarity and skill in a variety of forums–law review articles, books, interviews, and even sermons. Prof. Pace Hamill’s engaged scholarship and contributions as a public intellectual provide a great model for those who seek to develop religiously inspired legal theory.

Hat Tip: TaxProfBlog; Mirror of Justice.

The Place of Charity

By the way, I don’t want to sound (from my last post) as if I am against all charity. I’m very concerned about the plight of those in LDC’s, and I’ve argued that charitable giving should be something of a moral requirement for many of us in the developed world. As this extraordinary program from Krista Tippett’s Speaking of Faith shows, charitable giving can help us find a true “moral balance” of sharing, saving, and spending.

Sometimes it is hard to know exactly where one’s contribution will do the most good. Over the past three years I have found many good causes through Global Giving, a group now sponsoring a Giving Challenge. Here are some causes I found compelling enough to give to:

Safe Water and Latrines for Bangladeshi Slum

Clean Water for DEPDC’s Underprivileged Children

Help Feed 200 Neglected Elderly in Guatemala

I’m also happy to report that GG’s president, Mari Kuraishi, recently gave a talk at a conference devoted to figuring out the best ways of assessing the reputation and value of various online entities–including charities. As efforts like these improve, questions about the accountability of charities will become less nagging.

Understanding Resistance to Redistribution

Over at Balkinization, Professor Brian Tamanaha worries that the “fabled American Dream, the supposed glue that holds our society together across its many fault lines, is a delusion for many.” He points to “new research [that] suggests the United States’ much-ballyhooed upward mobility is a myth, and one that’s slipping further from reality with each new generation.” (Even The Economist has recognized the problem!) Tamanaha wonders why the issue has so little visibility in national political debates, and gives several good reasons. I’d like to focus on one of them: the sense that increasing inequality “feels irresistible, the product of structural factors beyond our control.”

First, though this sense may be widespread, it is highly contestable empirically, and doesn’t really “ring true” at an intuitive level. Let’s not even talk about the justice or appropriateness of an executive making hundreds of times more than line workers–what about people who almost got to the top spot? As Eduardo Porter reports, “widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.”

A form of “legitimation theodicy” has become important for some at the top, who reach for sports metaphors:

[Some] very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s “unique talent” for baseball, as Leo J. Hindery Jr. put it. “I think there are people, including myself at certain times in my career,” Mr. Hindery said, “who because of their uniqueness warrant whatever the market will bear.”

The flip side of this is a well-cultivated sense among the “losers” in the new economic order that their fates are their own fault. This is one reason why the SCHIP battle is so hard-fought right now: it is very important for those pursuing an inequality-enhancing agenda to insist that some people do not deserve health insurance. . . . and that that sin is so egregious as to be visited even upon their children.

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Questioning the Prosperity Gospel

camelneedle.jpgRecently Republican Senator Charles Grassley has begun to investigate “six televangelists who are part of an evangelical subculture known loosely as Prosperity gospel.” For example,

Grassley wanted to know how Kenneth Copeland–who as a church leader pays no taxes but is expected to plow revenue back into the public welfare–got a private plane and whether flights to Hawaii and Fiji qualified as business trips. Grassley sought credit card receipts and the numbers of the church’s offshore bank accounts.

The conflict raises some interesting theological questions–for example, what if the religious group sincerely believes that its leaders deserve extraordinary opulence? What if their high spending is not a diversion of resources, but instead is the very point of the religion? As I’m mentioned before regarding The Secret, wealth worship may be working its way into the DNA of American culture. Consider this conflict between Grassley and the Prosperity gospel crowd:

Prosperity adherents believe the right thoughts and speech, along with giving to the church, will prompt divine repayment in this life, with a return as high as $100 on each dollar handed up. On a small scale, Prosperity’s positive thinking has sometimes energized the march of the poor into the middle class, but many Christians find it theologically and ethically perverse. Prosperity dominates American religious TV, and millions of adherents send millions of dollars to preachers they have never met. For Grassley, this might be fine if the ministers put all the money back into their mission work. But his now famous question about Meyer’s $23,000 commode suggests he questions the destination of her estimated $124 million annual take.

I think the answer has to be that the Prosperity Gospel crowd is itself distorting and ignoring Christian doctrine–even if such an indictment sets up the state as a more authoritative interpreter of the Bible in this case than those it would prosecute.

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How the Economics of the Well-Off Can’t Help the Uninsured

Two of the most perceptive health policy analysts, Drs. Steffie Woolhandler and David U. Himmelstein, provide a good “reality check” for those who think a Massachusetts-style health plan can fully handle the problem of the uninsured. (Though it took me a long time to figure out their title, “I am not a Health Reform,” was a play on Nixon’s “I am not a Crook.”)

Woolhandler and Himmelstein observe that the past twenty years of failed state-based health care reform (and mandates) do not bode well for the plans now being discussed among presidential candidates:

In 1971, President Nixon sought to forestall single-payer national health insurance by proposing an alternative. He wanted to combine a mandate, which would require that employers cover their workers, with a Medicaid-like program for poor families, which all Americans would be able to join by paying sliding-scale premiums based on their income.

Nixon’s plan, though never passed, refuses to stay dead. Now Hillary Clinton, John Edwards and Barack Obama all propose Nixon-like reforms. Their plans resemble measures that were passed and then failed in several states over the past two decades.

W&H are particularly disappointed by the recent Massachusetts plan; “even under threat of fines, only 7 percent of the 244,000 uninsured people in the state who are required to buy unsubsidized coverage had signed up by Dec. 1. Few can afford the sky-high premiums.” W&H should also acknowledge that in some cases the uninsured themselves are responsible; according to one recent study, “twenty-five percent are eligible for public coverage.”

W&H suggest that mandates will not work, but do not have the space to fully explore why. I think they are right to emphasize lack of affordability in plans, but a recent book suggests some deeper issues. Charles Karelis’s The Persistence of Poverty: Why the Economics of the Well-Off Can’t Help the Poor argues that we cannot expect impoverished individuals to react to economic incentives the same way that middle- and upper-class people do.

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