Why I Pay Too Much in Taxes

[tcmay@got.net (Timothy C. May)]

At 10:24 PM 5/4/96, Black Unicorn wrote:

>An organization that is efficent at enforcing a immensely complex set of
>regulations incomprehensible to joe sixpack is not a good thing.


As if anybody didn't already know, the tax code is incomprehensible to more
than just "Joe Sixpack." I find it imcomprehensible, with "carryback
callback offshore allowances" and "alternative minimum taxes" and all that
garbage.

I started using "Macintax" many years ago, then decided to wing it manually
for many years, but have recently gone back to the Intuit product (called
Macintax, but a cross with TurboTax).

I answer a bunch of questions it asks me, making educated guesses where I
don't understand something, and then I do the process a _second_ time,
usually with different results. I use the lower tax bill of the two and
send that instance in. Sometimes the IRS and its partners (the Franchise
Tax Board, where California taxes are approaching what Federal rates for
most people were a scant decade or two ago) tells me I underpaid and must
send in additional taxes, penalties, interest charges, etc. (They won't
prosecute for such minor things, so long as the money is paid and there was
no gross hiding of income.)

I am gradually losing all track of what is going on, and I suspect I'm not
alone (my friends who use tax preparers, human ones, report the same
situation).

It seems to me that Jordan was referring to the compliance rate and the
cost of the overhead, not considering the overall tax burden. (Italy is a
fascinating example. The country appears to be moderately poor, based on
tax receipts, but spending is quite high...it is clear that a large
fraction of Italy's overall income is unreported.)

Not wanting to join in this bashing of taxes--my views are clear, as
evidenced in the title of this thread--but I have to point out that I paid
approximately 60% of everything I made last year to the tax collectors!
This counts the Federal income tax (about 32%), the California income tax
(about 11%), the "self-employment tax" (FICA) for some consulting I did
(15%), property tax on my old residence ($2200), property tax on my new
residence ($4200), sales tax on purchases (8.25%), gasoline taxes (about
30-40 cents per gallon), a special tax on my Ford Explorer ($300), and
probably some miscellaneous other taxes I have neglected.

And of course the corporations that pay me dividends and whose stock price
shows gains have _already_ paid roughly 45% or so in taxes, depending on
how clever they were at allocating costs to minimize taxes. This is the
famous "double taxation" of corporate earnings one hears about. Intel, for
example, pays 45% of its considerable income in taxes, sends some of the
remaining profits to me in the form of capital gains and dividends, and I
then pay another 40% or so in income taxes on this share. The math is
pretty simple...there ain't much left over. (The much-derided Laffer Curve
is actually quite important here...when overall tax rates get high enough,
people choose to do less work. Some of us even retire early.)

Considering that a growing fraction of the population is not working at
all, and is living on "entitlements" that they essentially get from me, and
considering that the American Revolution was at least partly in response to
the perception that taxes collected by King George were a bit too high (at
a _tiny fraction_ of the amount I cited above), the resentment many of us
feel is understandable.

One area where I mostly agree with Jordan Hayes and disagree with Sandy,
Uni, and Duncan, is that I don't think it's as easy as they sometimes claim
it is to avoid taxes by the offshore stratagems they espouse. Believe me, I
looked into this a while back (it is never illegal to investigate ways to
minimize tax burdens), and even considered moving out of the U.S. to a tax
haven of some sort.

It turns out, as it does for many people I know, that my assets are
relatively traceable. Salaries and even consulting fees are reported
assiduously. Stocks can certainly be moved offshore, but the IRS obviously
knows where they are (the institutions that keep records of stock ownership
will tell them, for one thing...this may take a few years for the records
to catch up, but they ultimately will).

Certainly I could liquidate one form of my assets (stocks, real estate,
etc.) and simply move the money out of the country. Tax evasion is always
an option. But the price paid if one gets caught tends to be rather high.

(Despite what you hear anecdotally about the IRS "settling" for pennies on
the dollar.)

Call me a skeptic.

I will do my best not to be drawn into a debate that has been held here
several times before. If Sandy, Duncan, etc., believe it is so easy to
avoid taxes--on the resources we are talking about, not sheltering small
amounts--or if they claim that I am obviously not following their advice,
I'll let them make these claims without any attempt to rebut them. I've
been there and done that before.

I have no doubt that "tax planning" works for some people, and I think
certain people like Vince Cate may do well in places like Anguilla,
essentially starting a business from scratch. I even have longterm hopes
for tax havens, cyberspace tax havens, anonymous systems, etc. But this
ain't happening soon.

But I see no clear way that X shares of Apple, Y shares of Sun, Z shares of
Intel, etc. can be converted into other forms without taxes being paid, or
evaded. (Evaded, not avoided.) I recall Sandy claiming some scheme where I
would use my shares as collateral and borrow tax-free against them. Sure,
it's what I do everyday with my margin account. But to ultimately pay off a
margin debt by selling assets involves taking capital gains (if there were
any, of course--a safe bet in the last 10 years), and at this point the IRS
and California Franchise Tax Board want their 40-45% cut.

Not being prepared to risk imprisonment for tax evasion, and being desirous
of living in the United States rather than on a coral atoll, I answer the
questions that Macintax asks me, gulp when I see the final figure, and
write out a check (which I then have to sell even more stock to
cover...perpetuating the cycle).

--Tim May


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