I’ve generally directed my hostility to the politicians, but the latest IRS scandal is leading me to reassess my views.
This Lisa Benson cartoon captures the mentality of the tax collection bureaucracy.
The problem isn’t that the IRS wasted money at boondoggle conferences. Every government agency and department pisses away money in a frivolous fashion.
We should be far more worried about the IRS’s callous disregard of the Constitution and Bill of Rights.
I’ve said many times that fundamental tax reform is the answer, but that’s only part of the story.
So long as we have a big and bloated government, the politicians are going to want some sort of oppressive bureaucracy to extract several trillion dollars of our money every year.
If you take a group of Democrats who are also unionized government employees, and put them in charge of policing political speech, it doesn’t matter how professional and well-intentioned they are. The result will be much like the debacle in the Cincinnati office of the IRS. …there’s no reason to even posit evil intent by the IRS officials who formulated, approved or executed the inappropriate guidelines for picking groups to scrutinize most closely. …The public servants figuring out which groups qualified for 501(c)4 “social welfare” non-profit status were mostly Democrats surrounded by mostly Democrats. …In the 2012 election, every donation traceable to this office went to President Obama or liberal Sen. Sherrod Brown. This is an environment where even those trying to be fair could develop a disproportionate distrust of the Tea Party. One IRS worker — a member of NTEU and contributor to its PAC, which gives 96 percent of its money to Democratic candidates — explained it this way: “The reason NTEU mostly supports Democratic candidates for office is because Democratic candidates are mostly more supportive of civil servants/government employees.”
Tim concludes with a wise observation.
As long as we have a civil service workforce that leans Left, and as long as we have an income tax system that requires the IRS to police political speech, conservative groups can always expect special IRS scrutiny.
The real issue is the expansive, expensive bureaucratic state and its inherent threat to any system of limited government, rule of law, and individual liberty. …the broader the government’s authority, the greater its need for revenue, the wider its enforcement power, the more expansive the bureaucracy’s discretion, the increasingly important the battle for political control, and the more bitter the partisan fight, the more likely government officials will abuse their positions, violate rules, laws, and Constitution, and sacrifice people’s liberties. The blame falls squarely on Congress, not the IRS.
…the denizens of Capitol Hill also have created a tax code marked by outrageous complexity, special interest electioneering, and systematic social engineering. Legislators have intentionally created avenues for tax avoidance to win votes, and then complained about widespread tax avoidance to win votes.
So what’s the answer?
The most obvious response to the scandal — beyond punishing anyone who violated the law — is tax reform. Implement a flat tax and you’d still have an IRS, but the income tax would be less complex, there would be fewer “preferences” for the agency to police, and rates would be lower, leaving taxpayers with less incentive for aggressive tax avoidance. …Failing to address the broader underlying factors also would merely set the stage for a repeat performance in some form a few years hence. …More fundamentally, government, and especially the national government, should do less. Efficient social engineering may be slightly better than inefficient social engineering, but no social engineering would be far better.
But here’s the challenge. We know the solution, but it will be almost impossible to implement good policy unless we figure out some way to restrain the spending side of the fiscal ledger.
At the risk of over-simplifying, we will never get tax reform unless we figure out how to implement entitlement reform.
Notwithstanding the title of this post, this is not a story about a taxpayer fighting against the IRS. If you want that kind of story (and if you have a strong stomach), you can read about how an IRS thug named Robert Norlander tried to ruin the life of a guy named Charlie Engle.
Or, on a lighter note, you can read about Evan Mathis and his “encounter” with the IRS. But that’s not today’s topic either.
As you can see from these cartoons, I’m very happy to be introduced to Jim McKee, particularly since he’s generating some great material about the IRS scandal. Let’s start with a cartoon he produced that calls attention to the fact that an IRS hack pleaded the fifth even though taxpayers don’t have similar rights when confronted by tax collectors.
By the way, the IRS actually is concerned about its image. This is the bureaucracy, after all, that decided to squander $15 million of our money on a PR campaign.
Anyhow, McKee has given us some very amusing cartoons. But let’s not lose sight of the fact that we have a terrible tax code, which is enforced by some terrible people.
The politicians deserve most of the blame, but you can see from these examples that the IRS bureaucracy deserves scorn.
So I wasn’t surprised to learn that it also has politically biased employees.
But some Americans probably are shocked. So I want to be the first to publicly thank President Obama for – at the very least – presiding over a culture that gave IRS bureaucrats the green light to engage in this kind of misbehavior.
Why am I thanking Obama? For the simple reason that this scandal means that more Americans now understand that the IRS is a venal agency. And that presumably means that more Americans now realize we should junk the internal revenue code and implement a simple and fair flat tax.
Since I’m in an expansive and sharing mood, I think we also owe some appreciation to some of the good people who are helping to publicize the IRS’s despicable behavior.
…the nature of Barack Obama’s administration is being clarified as revelations about IRS targeting of conservative groups merge with myriad Benghazi mendacities. …we are told that a few wayward souls in Cincinnati, with nary a trace of political purpose, targeted for harassment political groups with “tea party” and “patriot” in their titles. …Jay Carney, whose unenviable job is not to explain but to explain away what his employers say, calls the IRS’s behavior “inappropriate.” No, using the salad fork for the entree is inappropriate. Using the Internal Revenue Service for political purposes is a criminal offense.
Time was, progressives like the president 100 years ago, Woodrow Wilson, had the virtue of candor: He explicitly rejected the Founders’ fears of government. Modern enlightenment, he said, made it safe to concentrate power in Washington, and especially in disinterested executive-branch agencies run by autonomous, high-minded experts. Today, however, progressivism’s insinuation is that Americans must be minutely regulated because they are so dimwitted they will swallow nonsense. Such as: There was no political motive in the IRS targeting political conservatives.
How painfully true. Sheep are not famous for their intelligence. And as the American people learn to be passively dependent on government, presumably we will acquire more sheep-like characteristics.
But the firestorm of protest leads me to think we’re not at that stage. At least not yet.
…most Americans, myself included, become libertarians when a policeman is rude and swaggering during a traffic stop. Give me that badge number. It is precisely because police powers are essential to the public good that abusing them is so offensive. The same holds for overzealous or corrupt airport-security agents. And it is doubly true with IRS personnel who misuse their broad and intimidating powers. It is enough to bring out the Samuel Adams in anyone.
Past presidents have found the IRS an extremely useful piece of federal machinery for that purpose. A lot of what we know about that sordid history comes from the Senate Select Committee on intelligence abuses, chaired by Sen. Frank Church, D-Idaho, in the mid-’70s. As Chris Hayes wrote in the Nation in 2006, “Church and many Democrats…soon found that presidents of both parties were culpable: “Secret documents obtained by the committee even revealed that the sainted FDR had ordered IRS audits of his political enemies.” In “The Lawless State,” his account of the Church Committee revelations, Morton Halperin noted that “the first organized political ‘strike force’ was formed within the IRS in 1961, and was directed against right-wing political groups.” In this case, I doubt there was ever a JFK or Nixon-style direct command from on high to harass the Tea Party. It’s more likely to be a case of “proactive” bureaucrats inspired by presidential railing against the Tea Party and Citizens United: “Will no one rid me of these meddlesome right-wing freaks?”
Let’s close with a couple of good cartoons.
The first one reminds me of the joke that “Service” is part of the IRS’s name, but only in the way that a bull services a cow.
The humor is a bit darker in this cartoon, but the message is the same.
I just saw a headline that made me think that libertarian fantasies somehow had turned into reality.
As you can see, 24 IRS employees were just arrested for stealing. But what about the other 105,976 bureaucrats at the Internal Revenue Service who seize our money under the implied threat of violence?
Shouldn’t they be arrested for stealing from us as well?
But then my bubble burst. The story has nothing to do with the injustice of the internal revenue code and the shakedown of American taxpayers.
…authorities say Internal Revenue Service employees in Tennessee were stealing unemployment and other benefits while fully employed. On Thursday, 13 of those employees were indicted on federal charges that they lied to get unemployment, food stamps, welfare and housing vouchers. An additional 11 have been indicted on state charges of theft greater than $1,000.
In other words, these “public servants” were guilty of a form of triple dipping.
And they then bilked taxpayers yet again by mooching from various handout programs.
I’m actually surprised that they got arrested. Based on Keynesian economics, they should get medals for “stimulating” the economy.
P.S. All humor aside, non-anarchist libertarians face an interesting mental challenge. Many of them view the tax system as a form of theft. And there’s no question that it is enforced – ultimately – at the point of a gun. But with the exception of anarcho-capitalists, libertarians support the kind of limited government envisioned by the Founding Fathers. So how do you justify the taxes needed to finance that limited public sector? Most people would justify tax systems if they’re the result of a democratic process, but libertarians believe in rights rather than untrammeled majoritarianism. So how can they rationalize taxation? I freely confess that I don’t have the right answer. As I’ve noted before, I’m a practical libertarian, not the theoretical type. My job is to somehow figure out how we can shrink the federal government back to 3 percent of economic output. After that, the theoretical libertarians can figure out the thorny issues.
They also don’t like the IRS, in part because it has so much arbitrary power to ruin lives.
But it’s not just that is has the power to ruin lives. That can be said about the FBI, the DEA, the BATF, and all sorts of other enforcement agencies.
What irks people about the IRS is that it has so much power combined with the fact that the internal revenue code is a nightmare of complexity that can overwhelm even the most well-intentioned taxpayer. Just spend a couple of minutes watching this video if you don’t believe me.
Yet if you use inaccurate information from the IRS when filing your taxes, you’re still liable. To add insult to injury (or perhaps injury to injury is the right phrase), you’re then guilty until you prove yourself innocent – notwithstanding the Constitution’s guarantee of presumption of innocence.
Now we have some new information showing the difficulty of complying with a bad tax system.
A new report from the Treasury Department reveals that volunteers (who presumably have the best of intentions) make mistakes in more than 50 percent of cases.
Here are some key excerpts from the report.
Of the 39 tax returns prepared for our auditors, 19 (49 percent) were prepared correctly and 20 (51 percent) were prepared incorrectly. The accuracy rate should not be projected to the entire population of tax returns prepared at the Volunteer Program sites. Nevertheless, if the 20 incorrect tax returns had been filed: 12 (60 percent) taxpayers would not have been refunded a total of $3,996 to which they were entitled, one (5 percent) taxpayer would have received a refund of $303 more than the amount to which he or she was entitled, one (5 percent) taxpayer would have owed $165 less than the amount that should have been owed, and six (30 percent) taxpayers would have owed an additional total of $1,483 in tax and/or penalties. …The IRS also conducted 53 anonymous shopping visits during the 2012 Filing Season. Volunteers prepared tax returns for SPEC function shoppers with a 60 percent accuracy rate.
So here’s the bottom line. We have a completely corrupt tax system that is impossibly complex. Yet every year politicians add new provisions to please their buddies from the lobbyist community.
Sadly, tax reform is an uphill battle for four very big reasons.
Politicians don’t want tax reform since it reduces their power to micro-manage the economy and to exchange loopholes for campaign cash.
The IRS doesn’t want tax reform since there are about 100,000 bureaucrats with comfy jobs overseeing the current system.
Lobbyists obviously don’t want to reform since that would mean fewer clients paying big bucks to get special favors.
And the interest groups oppose the flat tax because they want a tilted playing field in order to obtain unearned wealth.
But there are now about 30 nations around the world that have adopted this simple and fair system, so reform isn’t impossible. But it will only happen when voters can convince politicians that they will lose their jobs if they don’t adopt the flat tax.
P.S. I’ll also take a national sales tax, like the Fair Tax, as a replacement. But since I don’t trust politicians, that option requires that we first replace the 16th Amendment with something so ironclad that not even Chief Justice John Roberts would be able to rationalize that an income tax was permissible.
I was wondering whether their use of humor is a defense mechanism to endure the predations of statist politicians such as Gordon Brown and David Cameron.
But then why aren’t the French famous for humor considering they’ve had to deal with Sarkozy and Hollande?
So maybe there’s an alternative explanation for British humor. In any event, we can now add some tax humor to the list. I have no idea who Jeremy Kyle is, but I’m guessing an infamous moocher (sort of like America’s Diaper Man or Germany’s Footless Hans). The other dependents are self explanatory.
At the risk of sounding chauvinistic, we do have some very good American tax humor, such as cartoons about the value-added tax that can be seen here, here and here.
There are also lots of jokes at the expense of the IRS, as you can see here, here, here, here, and here.
Also, I suspect this comedian has helped improve awareness of excessive taxation.
I thought I despised the IRS, but I’m just an amateur. I’m in Geneva, Switzerland, where I just finished speaking to a group of overseas Americans who have steam coming out of their ears.
Losing an arm and a leg isn’t much fun, which reminds me that some Congressman (I think) had a very good idea of shifting election day so that it coincides with tax day. Not a bad idea, given the message of the cartoon.
Tax day is just around the corner, and we even get a one-day reprieve since April 15 falls on a Sunday.
And since everyone knows that I’m a big fan of the current tax system and the IRS (speaking of which, here’s a very good joke), let’s celebrate by digging into the Jeff MacNelly archives for these two tax cartoons.
First, here’s what many of us will be doing next weekend. Click to enlarge the cartoon. Every line is worth reading.
Some of the world’s most disgusting and evil regimes restricted the right to emigrate, including the imposition of exit taxes designed to fleece those who did want to escape.
…citizens have been refused permission to leave the Soviet Union unless they pay a new tax… Nearly 500 Jews signed a letter to U.N. Secretary General Kurt Waldheim calling the tax an illegal “ransom” and an extreme injustice. Jews trying to emigrate to Israel have been the main victims of the new tax imposed by a decree… However, the tax is applied to anyone trying to emigrate from the Soviet Union.
… nearly a third of the German war effort was paid for with money stolen from Jews according a new study about the role of the German Finance Ministry during the ‘Third Reich’. …Ministry officials robbed an estimated 120 billion reichsmarks [the equivalent of nearly US$ 20 billion today] by looting and through stringent confiscation laws. …Tax laws discriminated against Jews from 1934, while some who managed to leave Germany before the Holocaust had much of their wealth seized through an ‘exit tax’.
Unfortunately, exit taxes still exist, and I’m embarrassed to say that the United States is one of the few countries to impose such a levy.
There’s no anti-Semitic motive for the tax. Instead, politicians have imposed exit taxes because some Americans decided to emigrate to jurisdictions with better tax law. And rather than interpret this as a sign that the tax code was too onerous and should be replaced with something like a flat tax, they decided to enact a law to ransack people as they crossed the border.
But even this reprehensible policy isn’t enough for some of the clowns in Washington. Senator Barbara Boxer, the empty suit from the formerly Golden State, has decided that basic liberties such as the presumption of innocence are an impediment to tax enforcement. As such, she’s attached an odious provision to a transportation bill that would restrict the right to travel.
"Ihren papieren, bitte?"
A bill…that could potentially allow the federal government to prevent any Americans who owe back taxes from traveling outside the U.S. is one step closer to becoming law. Senate Bill 1813 was introduced back in November by Senator Barbara Boxer (D-LosAngeles)… Section 40304 of the legislation states that any individual who owes more than $50,000 to the Internal Revenue Service may be subject to “action with respect to denial, revocation, or limitation of a passport”. … there does not appear to be any specific language requiring a taxpayer to be charged with tax evasion or any other crime in order to have their passport revoked or limited — only that a notice of lien or levy has been filed by the IRS.
The good news, at least relatively speaking, is that Boxer is only motivated by greed and statism. But the end result is still a reprehensible restriction on the liberty of people disfavored by the ruling elite.
And remember, while most of the blame for a terrible tax system should be directed against the clowns in Congress and the White House, the IRS goes above and beyond legislative requirements to hassle and torture Americans. Heck, sometimes it simply decides to ignore the law!
Early in 2010, I wrote about a reprehensible IRS plan to create a cartel in the tax preparation industry, which would screw small firms and entrepreneurs to help line the pockets of big companies such as H&R Block.
And, earlier this year, I specifically criticized the IRS Commissioner for moving ahead with this scheme, which I also suspect is motivated by a desire on the part of the IRS to have a group of captive tax preparers who will be timid about protecting the interests of taxpayers.
By the way, the Institute for Justice is a great organization that effectively fights for individual rights. Check out this IJ video on asset forfeiture laws (which basically enable stealing by the government).
P.S. I’m not interested in protecting the interests of the tax preparation industry. Indeed, I want a simple and fair flat tax, which would decimate all tax preparation firms. But I don’t want the thugs at the IRS to decide which firms are allowed to operate.
This interview with the IRS Commissioner is really irritating. He wants us to believe that all the problems exist because of bad laws enacted by Congress.
Commissioner Shulman also makes reference to a distasteful IRS proposal to regulate the tax preparation industry, which is really a scheme to enrich the big firms like H&R Block at the expense of smaller competitors.
So that’s another black mark against the bureaucracy.
But the most noxious part of the interview is when he admits he has to pay someone to file his tax return and then dodges a question on what could be done to make the system better.
But that’s not surprising. Mr. Shulman oversees a bureaucracy with about 100,000 employees (bigger than the FBI, CIA, and DEA combined), and they obviously wouldn’t want the type of reform that would force them to get jobs in the real world.
But I don’t have any problem with telling the truth. America should have a simple and fair flat tax.
Actually, that’s just an interim step. What we really need is to restore a limited central government, as envisioned by the Founding Fathers. That way we wouldn’t need any broad-based tax to finance Washington.
Real reform can give people more security and save taxpayers by reducing the burden of government spending by trillions of dollars over the next several decades.
But sometimes it is the comparatively tiny bits of spending that effectively illustrate the waste, stupidity, and venality of big government. Lets talk about how the Internal Revenue Service (IRS) is squandering $15 million in a way that should drive taxpayers ballistic with rage.
The nation’s tax collector wants a “full service communications and marketing company” to help convey its “corporate vision and goals,” according to a 49-page solicitation sent to 12 agencies. The winner’s duties could include market research, educating the public about new tax provisions, and designing national information campaigns. The one-year contract could be extended for four more years, with a total value of as much as $15 million, the IRS solicitation says. PR firm Porter Novelli has had the contract for four years, but it reached the $17.5 million limit, IRS spokesman Terry Lemons said. …The IRS has relied on Porter Novelli to help inform taxpayers about some new laws and programs. Porter Novelli confirmed that the firm works with the IRS, but declined to comment further. Public relations experts said it would be an attractive challenge, given the agency’s unpopularity. …PR types said it’s technically possible to think of tougher marketing challenges — but not many. “Advancing the interests of the North Korean leadership at the moment would be harder than the IRS,” suggested Matthew Harrington.
Isn’t it wonderful that the IRS isn’t as despised as the North Korean dictatorship! I guess that’s because the North Korean government will sometimes kill you or starve you to death. The IRS, by contrast, only steals your money and occasionally gets you tossed in prison.
To show that I’m a public-spirited person, I’m going to save taxpayers $15 million by giving the IRS two good pieces of advice.
1) Obey the Constitution, which means respecting the presumption of innocence and following the Fourth Amendment’s guidelines about illegal search and seizure. I realize that complicates the job of enforcing a terrible tax code, but the Constitution exists precisely because the Founding Fathers thought some things were more important than “efficient” government.
2) Urge your overseers in the U.S. Congress to junk the internal revenue code and replace it with a simple and fair flat tax. The video below provides a simple explanation.
See how simple that was. No need to throw $15 million down the toilet of some politically connected PR firm.
Enjoy the video.
And here’s another video documenting the onerous compliance burden of the current system and explaining how that flat tax would de-fang the IRS.
Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.
Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.
Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.
According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].
Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.
The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance – not more power for the IRS.
Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.
The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.
…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.
On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.
All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.
Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.
Last year, I came up with a saying that “Bad Government Policy Begets More Bad Government Policy” and labeled it “Mitchell’s Law” during a bout of narcissism.
The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.
This FATCA law basically imposes a huge regulatory burden on all companies that have international transactions involving the United States, and all foreign financial institutions that want to invest in the United States. It is such a disaster that even the New York Times has taken notice, recently reporting that:
…the Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown. …The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the Internal Revenue Service, check existing accounts in search of Americans and annually declare their compliance. Noncompliance would be punished with a withholding charge of up to 30 percent on any income and capital payments the company gets from the United States. …The I.R.S., under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year. But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets. …He said his sense was that Fatca required companies “to prove your innocence.” …Then there is a question of reciprocity: Would the United States accept the same demands for information from the tax authorities in other countries — say Russia or China?
It’s worth noting at this point that FATCA only exists because of bad tax law. If the United States had a simple and fair flat tax, there would be no double taxation of income that is saved and invested. As such, the IRS wouldn’t have any reason to care whether Americans had bank accounts and/or investments in places such as London, Hong Kong, and Panama.
But as is so often the case with politicians, they choose not to fix bad policy and instead decide to impose one bad policy on top of another. Hence, the crowd in Washington enacting FATCA and sending the IRS on a jihad.
By the way, the New York Times was late to the party. Many other news outlets already have noticed that the United States is about to suffer a big self-inflicted economic wound.
Indeed, what’s remarkable about Obama’s FATCA policy is that the world is now united. But it’s not united for something big and noble, such as peace, commerce, prosperity, or human rights. Instead, it’s united in opposition to intrusive, misguided, and foolish American tax law.
Let’s look at some examples.
o From the United Kingdom, a Financial Times column warns that, “This summer, the senior management of one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? …what is worrying this particular Asian financial group is…a new law called the Foreign Account Tax Compliance Act…the new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. Little wonder. Never mind the fact that implementing these measures is likely to be costly. …Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.”
o From India, the Economic Times reports that, “FATCA, or the Foreign Account Tax Compliance Act, will require overseas banks to report U.S. clients to the Internal Revenue Service, but its loose definition of who is a U.S. citizen will create a huge administrative burden and could push non-residents to slash their U.S. exposure, some bankers say. …Bankers say the scheme will be extremely costly to implement, and some say that as the legislation stands, any bank with a client judged to be a U.S. citizen will be also obliged to supply documentation on all other clients. “FATCA will cost 10 times to the banks than it will generate for the IRS. It is going to be extremely complicated,” said Yves Mirabaud, managing partner at Mirabaud & Cie and Swiss Bankers Association board member.”
o Discussing the impact in Canada, Reuters notes, “The new regulation has drawn criticism from the world’s banks and business people about its reach and costs. ..”Hundreds of millions of dollars spent on developing compliance processes to target Canadian citizens would not be a useful exercise, and they are, for the most part, people who actually have no tax liabilities because they do not earn income in the United States,” [Canadian Finance Minister] Flaherty said.”
o A Taiwan news outlet said, “Taiwan’s domestic banks will reportedly reduce holdings of American bonds worth an estimated NT$100 billion (US$3.33 billion) due to the U.S. government’s recent decision to impose 30% tax on foreign-investment income in U.S. securities as bonds. Taiwan’s eight government-linked banks reportedly hold U.S. financial products worth over US$2 billion… On April 8, 2011, the U.S. government issued a notice advising foreign financial institutions to meet certain obligations under the Foreign Account Tax Compliance Act (FATCA), under which foreign financial institutions are subject to complex reporting rules related to their U.S. accounts.”
o From the Persian Gulf, the Bahrain Daily News noted, “A US law…has drawn the criticism of the world’s banks and business people, who dismiss it as imperialist and “the neutron bomb of the global financial system.” The unusually broad regulation, known as FATCA, or the Foreign Account Tax Compliance Act, makes the world’s financial institutions something of an extension of the tax-collecting Internal Revenue Service – something no other country does for its tax regime. …Even the European Commission has objected, and experts say other countries may create their own FATCA-style regimes for US banks or withdraw from US capital markets. In a barrage of letters to the Treasury, IRS and Congress, opponents from Australia to Switzerland to Hong Kong assail FATCA’s application to a broad swath of institutions and entities.”
o A story from Singapore finds, “For many years, thousands of foreign investors have put their money into American shares or other investments. Now, however, a somewhat obscure law called the Foreign Account Tax Compliance Act (FATCA) may make investments in the United States for everyone, from billionaires to the man on the street, here in Singapore far less attractive. …some banks or investment managers may advise customers not to invest in the US. … “private bankers are publicly advising their clients to clear their portfolios of all US securities”. A fund manager here told me his company is also advising clients to avoid US investments, and other companies may similarly start telling large clients as well as smaller ones the same story. Investors could then see recommendations not to invest in the US, and they may put their money elsewhere. …As consulting firm PwC said, “some institutions could decide that complying with the due diligence and verification provisions may not be cost effective” so they may stop making investments in the US. Banks or other asset managers may similarly decide it is easier not to offer US investments than to try and comply with the FATCA.”
o From Switzerland, a story “about the backlash from United States expats and the financial sector to the Foreign Account Tax Compliance Act (FATCA)” reports that, “Growing numbers of American expatriates are renouncing their US citizenship over a controversial new tax law and ever more burdensome fiscal and reporting obligations. …banks and business people who are supposed to enforce it on behalf of the US tax man are worried about its costly administrative burden… it’s just too expensive. The consequence will be that they cut out US clients and stop investing in the US. …Three or four years ago no one talked about renouncing nationality – now it’s an open discussion. That’s a major shift in mentality.
o Writing about the reaction from Europe, one columnist noted, “FATCA encourages foreign financial institutions to limit their exposure to U.S. assets. In a joint letter to the Treasury and the IRS, the European Banking Federation and the Institute of International Bankers, which together represent most of the non-U.S. banks and securities firms that would be affected by FATCA, warned that “many [foreign financial institutions], particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations.” A widespread divestment of U.S. securities by institutions seeking to avoid the burdens of FATCA could have real and harmful effects on the U.S. economy.”
These press excerpts help demonstrate the costs of FATCA, but what about the benefits? After all, maybe the law will lead to lots of good results that offset the high regulatory costs and lost investment for the American economy.
Well, the only “benefit” anybody had identified is that FATCA will transfer more money from the productive sector of the economy to the government. Indeed, Obama argued during the 2008 campaign that cracking down on “tax havens” with proposals such as FATCA would give politicians lots of additional money to spend.
But when the legislation was approved in 2010, the Joint Committee on Taxation estimated that the new law would raise only $8.7 billion over 10 years, not the $100 billion that Obama claimed could be collected every single year. This video has some of the damning details.
One final point demands attention.
While it appears that the rest of the world is against FATCA, that’s not completely true. Some international bureaucrats in Paris, funded by American tax dollars, actually want the rest of the world to adopt the same Orwellian system. Here’s a blurb from the New York Times story.
Jeffrey Owens, a tax expert at the Organization for Economic Cooperation and Development, said catching tax evaders was “a concern that many member countries share.” If countries could agree to new global reporting standards for exchanging information, he said, then “maybe there’s a way forward.”
In other words, the pinhead bureaucrats at the OECD think FATCA’s such a swell idea that they want to create a global network of tax police. So not only would America erode the sovereignty of other nations because of our bad tax law, but those other nations would be able to impose their bad tax law on income earned in America!
And just in case you think that’s just irresponsible demagoguery, it’s already beginning to happen. Check out this IRS regulation, proposed by the Obama Administration, that would require American banks to put foreign law above American law.
But the impact on civil liberties and constitutional rights may be how the internal revenue code does the greatest damage to America.
In part, this involves the loss of basic rights. Our Constitution, for instances, guarantees the presumption of innocence. But that fundamental freedom has been thrown out the window to help the IRS enforce a bad tax system. If the IRS decides you’ve done something wrong or not coughed up enough cash, you are guilty until you prove yourself innocent.
Now there’s a new – and very disturbing – development. A reckless federal judge has decided to let the IRS go on a fishing expedition of California real estate records because it is theoretically possible that some people haven’t reported information on their tax returns. Here are some details from a report at Forbes.
A federal district court judge has given the Internal Revenue Service permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money, from 2005 to 2010. The IRS wants those names as part of a crackdown on what it believes is the widespread failure to file required tax returns when real property is passed between family members. …officials of California’s BOE said state law prohibited them from disclosing the information without a court approved summons. …With a normal summons, the IRS seeks information about a specific taxpayer whose identity it knows. A John Does summons, by contrast, allows the IRS to get the names of all taxpayers who are members of a certain group.
To put this in context and to understand how sinister this is, imagine if some agency of government decided that to comb through the records of all African-Americans because some blacks commit crime? Or they decided to investigate all Occupy Wall Street protesters because of the crimes committed by some of the campers? Or how about snooping on the private lives of all tea partiers simply because the government doesn’t like dissent?
We would all agree (hopefully!) that these steps would represent unjustified fishing expeditions. And if there is any justice left in our system, the courts would stop the government from infringing our rights.
But, for some reason, the Constitution gets thrown under the bus when it comes to taxation.
The answer, as you hopefully agree, is to rip up the entire tax code and replace it with a simple and fair flat tax. This video explains.
America already has a tax code that ranks in the bottom half of the “tax oppression index.” If we don’t fix the IRS soon, don’t be surprised if we wind up in last place at this rate.
As this image illustrates, the internal revenue code is a nightmare of complexity.
And this chart shows how Obamacare is turning the health care system into a Byzantine nightmare.
So what happens when you mix bad tax policy and bad health care policy? Well, you get this chart, which shows the maze that small business owners must navigate in order to comply with a new Obamacare tax credit.
Earlier this year, President Obama’s IRS proposed a regulation that would force banks in America to report any interest they pay to accounts owned by non-resident aliens (that’s the technical term for foreigners who don’t live in the U.S.).
What made this regulation so bizarre, however, is that Congress specifically has exempted these account from taxation for the rather obvious reason that they want to attract this mobile capital to the American economy. Indeed, Congress repeatedly has ratified this policy ever since it was first implemented 90 years ago.
So why, you may be asking, would the IRS propose such a regulation? After all, why impose a regulatory burden on a weakened banking sector when it has nothing to do with enforcing American tax law?
The answer, if you can believe it, is that they want American banks to help enforce foreign tax law. And the bureaucrats at the IRS want to impose this burden even though the regulation is completely contrary to existing U.S. law.
Not surprisingly, this rogue behavior by the IRS already has generated considerable opposition. Senator Rubio has been a leader on the issue, being the first to condemn the proposed regulation.
And now we have two more important voices against the IRS’s rogue regulation.
The Chairman of the Oversight Subcommittee in charge of the IRS, Congressman Charles Boustany of Louisiana, just sent a very critical letter to Treasury Secretary Geithner, and these are some of his chief concerns.
If the regulation were to take effect, it would not only run counter to the will of the Congress, but would potentially drive foreign investments out of our economy, hurting individuals and small businesses by reducing access to capital. I write to request that IRS suspend the proposed regulation. …As the Internal Revenue Code imposes no taxation or reporting requirements on this deposit interest, the proposed regulation serves no compelling tax collection purpose. Instead, it is my understanding that the IRS seeks this new authority to help foreign governments collect their own taxes abroad. …It is disappointing to see the IRS once again try to impose unnecessary regulations and costs on U.S. banks. To attract investment of foreign dollars into the U.S. economy, the Internal Revenue Code generally exempts these deposits from taxation and reporting requirements. These foreign investments in turn help to finance a variety of products essential to economic growth, such as small business loans and home mortgages. Imposing reporting requirements on these deposits through regulatory fiat threatens to drive significant investments out of our economy by undermining the rules Congress has set in place specifically to attract it, and at exactly the time when our economy can least afford it.
And now the business community has become involved. Here’s some of what the Chamber of Commerce recently said, and you can click this PDF file (USCC S1506) to read the entire letter.
Given the fragile state of America’s economic recovery, it is disturbing to see actions by the Treasury that could jeopardize deposits at U.S. banks and credit unions held by nonresident aliens. These deposits, which are not subject to U.S. taxes, are at risk of being abruptly withdrawn and future deposits deterred, which could lead to a reallocation of deposits out of the U.S. banking system and, thus, reduce lending to businesses. Furthermore, complying with the proposed regulation places additional reporting requirements and expenses upon financial firms. Without any real benefit stemming from the collection of this information, imposition of this reporting requirement seems to be a solution in search of a problem.
This may seem like an arcane issue and international tax matters often are not terribly exciting, but a couple of minutes of watching this video will make you realize there are some very important principles at stake.
Only the IRS could manage to combine bad tax policy, bad regulatory policy, bad human rights policy, and bad sovereignty policy into one regulation.
Sen. Marco Rubio (R-Fla.) and other Senate Republicans on Tuesday introduced a bill aimed at blocking pending regulations that would require banks to report to the Internal Revenue Service all interest deposits paid to nonresident aliens (NRA). Rubio, along with Texas GOP Sens. John Cornyn and Kay Bailey Hutchison, introduced S. 1506 because they believe the pending regulations have the potential to drive billions of dollars of deposits away from U.S. banks. A summary of the bill provided by Rubio’s office argues that this could leave U.S. banks undercapitalized and less able to lend in the U.S. “Simply put, this rule will cause billions of dollars in important NRA deposits to be withdrawn from American banks and invested in countries with less onerous reporting requirements,” the lawmakers state in the bill summary. “A capital flight of any magnitude will hurt the lending capacity of community banks and damage local and state economies — not to mention endanger those who invest in U.S. banks due to corruption, inflation, and violence in their home countries, particularly in nations like Mexico and Venezuela.” The summary also notes that Congress has explicitly exempted NRA deposits from taxation… Rubio’s bill is a companion bill to H.R. 2568, which was introduced by Reps. Bill Posey (R-Fla.), Francisco Canseco (R-Texas), Mario Diaz-Balart (R-Fla.), Ruben Hinojosa (D-Texas) and Gregory Meeks (D-NY).
As a Yankees fan, it was particularly exciting that Derek Jeter became only the second player to get his 3000th hit with a home run.
As a student of human nature, it was remarkable that the fan who caught the ball, Christian Lopez, returned it to Jeter instead of selling it for as much as $300,000.
As a libertarian, it is disgusting that the jackboots at the IRS have now gotten involved by threatening to tax Mr. Lopez because the Yankees repaid his generosity with luxury box seat s and signed memorabilia. Here are some of the details from NBC New York.
The tax man may be on the hunt for the super fan who caught Derek Jeter’s 3,000th hit. Christian Lopez, 23, recovered the prized ball his father fumbled after The Captain hammered it into their section of the stands in the third inning of the Yankees’ win over Tampa Bay on Saturday. The Verizon salesman from Highland Mills, N.Y., gave the ball back to Jeter, whom he called an “icon,” and the Yankees lavished a slew of prizes, including luxury box seats for every remaining home game this season and post-season and some signed memorabilia. Now the IRS wants a piece. The prizes Lopez received are estimated to be worth more than $32,000 — and, like game show contestants, Lopez may have to pay taxes on the gifts and prizes because the IRS considers them income. Some estimate the IRS will put Lopez on the hook for anywhere between $5,000 and $13,000, reports the Daily News.
The only thing missing from this story is whether the thugs at the IRS also plan to tax Jeter for the value of the ball. Actually, I probably shouldn’t have mentioned that idea. But, then again, it’s highly unlikely that IRS bureaucrats are reading a blog dedicated to liberty.
That’s the good news. The bad news is that an international version of Obamacare’s 1099 scheme also was enacted early last year. But since the burden is largely falling on foreigners, there’s no groundswell among voters to repeal the law – even though it will impose far more damage on the American economy.
Known as the FATCA (the acronym for the Foreign Account Tax Compliance Act), this law was included as a revenue-raising provision to pay for one of Obama’s failed stimulus bills.
But while the bill didn’t create jobs, it has created a giant nightmare for all sorts of people and firms – including foreign financial institutions that may now decide that it’s no longer worth the trouble to invest in America.
…one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? Their motive has nothing to do with the outlook for the dollar. …Instead, what is worrying this particular Asian financial group is tax. In January 2013, the US will implement a new law called the Foreign Account Tax Compliance Act. …the new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. …implementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws. …Terry Campbell, head of Canada’s banking association, points out, the rules are essentially akin to “conscripting financial institutions around the world to be arms of US tax authorities”. …the IRS is threatening to impose a withholding tax of up to 30 per cent on sales of US assets by groups that it deems to be “non-compliant” – and the assets could include US shares or US Treasury bonds. Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.” …“Right now my board is probably as concerned about political risk in America as Indonesia, from a business perspective – perhaps more so,” says the head of one large global bank. It is a complaint that American politicians ignore at their peril.
There are plenty of those stories, to be sure, but American tax law has become so bad that the IRS is causing headaches and anger even in nations with high taxes and weak protection of client data.
Toronto-Dominion Bank is putting up a fight against a new U.S. regulation that would compel foreign banks to sort through billions of dollars of deposits to find U.S. citizens who might be hiding money. According to Bloomberg News, TD has complained that the proposed IRS rule is unreasonable because it would require the bank to make US$100-million investment in new software and staff. Other lenders resisting the effort include Allianz SE of Germany, Aegon NV of the Netherlands and Commonwealth Bank of Australia, Bloomberg said. Now the Canadian Bankers association has joined the fray. In an emailed statement the CBA called the requirement “highly complex” and “very difficult and costly for Canadian banks to comply with.” …According to the New York-based Institute of International Bankers, major global banks would end up spending US$250 million or more to comply with the regulation in terms of new technology employee training.
The vast majority of Americans are very fortunate that they don’t have any personal interactions with the IRS’s onerous international tax rules. But that doesn’t mean they shouldn’t care. The tax treatment of cross-border economic activity can have enormous implications for America’s prosperity, as I’ve already explained in my discussions of a reckless IRS regulation that could drive more than $100 billion of capital out of American banks.
But that’s just the tip of the iceberg. FATCA is far more onerous and extensive, so the damage will be much greater. Not surprisingly, the law utterly fails to satisfy any sort of cost-benefit analysis.
From the perspective of politicians, the “benefit” is more tax revenue. So how does FATCA score on this basis? During the 2008 campaign, Obama claimed this policy would generate $100 billion of additional revenue every year. When it came time to score the legislation, however, the Joint Committee on Taxation predicted that the law will generate only $870 million per year. That’s a big drop-off, even by the shoddy standards of Washington.
Yet for this tiny amount of revenue, the law imposes a giant regulatory burden on all individuals, companies, and institutions that meet two criteria: 1) They have some form of cross-border economic activity, and 2) They have a business or citizenship relationship with the United States.
Americans living overseas are one of the groups that will be severely penalized. Simply stated, foreign financial institutions are treating U.S. citizens like lepers because they don’t want to deal with the IRS and be deputy enforcers of terrible American law. Here are comments from some of Americans living in other nations (all of whom wish to remain anonymous because they fear being targeted by a thuggish IRS).
o From an American with a spouse working in Germany – “…when he went to create an account, he discovered that the bond fund could not be sold to US citizens.”
o From a non-profit group operating in Europe – “…we received notification from [bank redacted] that they were terminating our account.”
o From an American working in Switzerland – “I’m in the process of having my…accounts with [bank redacted] forced closed, except for the mortgage. I’ve been unable to open an account with any other Swiss bank.”
o From an American living in Belgium – “…my portfolio of investments held at their bank was blocked. …He advised me that as of that
date, I could no longer trade, but could only hold, sell or transfer my portfolio. I was banned from trading in either US stocks or all others.”
o From a retired teacher in Germany – “I was denied the policy because I am an American citizen. My agent very clearly said that he could sell the policy that I wanted to any other nationality, except me-because I was American!”
o From an American working in Saudi Arabia – “As a resident of Saudi Arabia, I have twice been rejected as a customer, purely on the basis of my US citizenship. In both instances, I was told that increased administrative and compliance burdens imposed by US authorities have led the banks in question to refuse to open securities accounts for American citizens.”
o From an American in Japan – “All of these banks and institutions are cutting me off from participation in any but the most simple of basic bank account. Why? Because they do not want to take the time and instill the systems and carry the cost of reporting the income of each of their US citizen clients to the US government.”
o From an American married to a European – “I have been unable to gain legal advice in Switzerland regarding US Wills and Guardianships because [bank redacted] lawyers are ‘not permitted to speak to Americans about legal, tax or banking matters in specific terms.’”
o From an American married to a European – “The company who has been holding my modest UK share portfolio wrote to me in September 2010 saying they were closing my account. They were removing all US persons from their client base due to the increased reporting and audit costs placed on them by the Fatca legislation.”
o From an American in Europe with a foreign spouse – “They sent me a letter saying: Our records show that you are an American citizen. Because of various strict new American rules regarding securities accounts held by American shareholders, we are closing such accounts including yours.”
o From an American assigned overseas by his company – “I was extremely surprised and outraged by the fact that not one bank (including foreign branches of US banks!) would allow me to open a simple savings account to pay my rent and bills. All of the banks cited my US citizenship and the difficulties they experience with the US government.”
o From an American in Spain – “I have been forced to close a U.S. bank account due to being an overseas citizen and cannot open new bank or brokerage accounts in the U.S. I am also being denied the opening of new brokerage accounts in Spain.”
Last but not least, another set of victims are foreigners who legally reside in the United States. That makes them tax residents according to American tax law, which means that they also are lepers from the perspective of foreign financial institutions.
Let’s close this lengthy post by including this letter from a Danish bank to a Danish citizen living in the United States. Once again, identifying information is redacted because the person did not want to suffer IRS persecution (it should disturb all of us, by the way, that there is such universal fear of IRS thuggery).
Read it and weep. Or maybe I should say look at it and weep.
I suppose this is a good time to recycle my flat tax video. I don’t mention this in the video, but Hong Kong’s flat tax system, which has been around for more than 60 years, requires less than 200 pages. Slovakia’s flat tax law is thinner than a magazine.
These funds are hugely important for the health of the U.S. financial sector and are a critical source of funds for new job creation and other forms of investment.
This is a credit to the competitiveness of American banks and other financial institutions, but we also should give credit to politicians. For more than 90 years, Congress has approved and maintained laws to attract investment from overseas. As a general rule, foreigners are not taxed on interest they earn in America. Moreover, by not requiring it to be reported to the IRS, lawmakers on Capitol Hill have effectively blocked foreign governments from taxing this U.S.-source income.
This is why it is so disappointing and frustrating that the Internal Revenue Service is creating grave risks for the American economy by pushing a regulation that would drive a significant slice of this foreign capital to other nations. More specifically, the IRS wants banks to report how much interest they pay foreign depositors so that this information can be forwarded to overseas tax authorities.
Not surprisingly, many members of Congress are rather upset by this rogue behavior.
Senator Rubio, for instance, just sent a letter to President Obama, slamming the IRS and urging the withdrawal of the regulation.
At a time when unemployment remains high and economic growth is lagging, forcing banks to report interest paid to nonresident aliens would encourage the flight of capital overseas to jurisdictions without onerous reporting requirements, place unnecessary burdens on the American economy, put our financial system at a fundamental competitive disadvantage, and would restrict access to capital when our economy can least afford it. …I respectfully ask that Regulation 146097-09 be permanently withdrawn from consideration. This regulation would have a highly detrimental effect on our economy at a time when pro-growth measures are sorely needed.
And here’s what the entire Florida House delegation (including all Democrats) had to say in a separate letter organized by Congressman Posey.
America’s financial institutions benefit greatly from deposits of foreigners in U.S. banks. These deposits help finance jobs and generate economic growth… For more than 90 years, the United States has recognized the importance of foreign deposits and has refrained from taxing the interest earned by them or requiring their reporting. Unfortunately, a rule proposed by the Internal Revenue Service would overturn this practice and likely result in the flight of hundreds of billions of dollars from U.S. financial institutions. …According to the Commerce Department, foreigners have $10.6 trillion passively invested in the U.S. economy, including nearly “$3.6 trillion reported by U.S. banks and securities brokers.” In addition, a 2004 study from the Mercatus Center at George Mason University estimated that “a scaled back version of the rule would drive $88 billion from American financial institutions,” and this version of the regulation will be far more damaging.
We are very concerned that this proposed regulation will bring serious harm to the Texas economy, should it go into effect. …Forgoing the taxation of deposit interest paid to certain global investors is a long-standing tax policy that helps attract capital investment to the United States. For generations, these investors have placed their funds in institutions in Texas and across the United States because of the safety of our banks. Another reason that many of these investors deposit funds in American institutions is the instability in their home countries. …With less capital, community banks will be able to extend less credit to working families and small businesses. Ultimately, working families and small businesses will bear the brunt of this ill-advised rule. Given the ongoing fragility of our nation’s economy, we must not pursue policies that will send away job-creating capital.We ask you to withdraw the IRS’s proposed REG-14609-09. The United States should continue to encourage deposits from global investors, as our nation and our economy are best served by this policy.
Their dismay shouldn’t be too surprising since their state would be especially disadvantaged. Here are key passages from a story in the Houston Chronicle.
Texas bankers fear Mexican nationals will yank their deposits if the institutions are required to report to the Internal Revenue Service the interest income non-U.S. residents earn. …such a requirement would drive billions of dollars in deposits to other countries from banks in Texas and other parts the country, hindering the economic recovery, bankers argue. About a trillion dollars in deposits from foreign nationals are in U.S. bank accounts, according to some estimates. …The issue is of particular concern to some banks in South Texas, where many Mexican nationals have moved deposits because they don’t feel their money is safe in institutions in Mexico. …”This proposal has caused a wave of panic in Mexico,” said Lindsay Martin, an estate-planning lawyer with Oppenheimer Blend Harrison + Tate in San Antonio. He has received in recent weeks more than a dozen calls from Mexican nationals and U.S.-based financial planners with questions on the rule. …Jabier Rodriguez, chief executive of Pharr-based Lone Star National Bank, said not one Mexican national he has spoken to backs the rule. “Several of them have said if it were to happen, then there’s no reason for us to have our money here anymore,” he said. Many Mexican nationals worry that the data could end up in the wrong hands, jeopardizing their safety. If people in Mexico and some South American nations find out they have a million dollars in an FDIC-insured account in the United States, “their families could be kidnapped,” added Alex Sanchez, president of the Florida Bankers Association.
For those who want more information about this critical issue, here’s a video explaining why the IRS’s unlawful regulation is very bad for the American economy.
I suppose there are some good jokes to make about Pakistan employing transgender tax collectors in an attempt to coerce more money from taxpayers, but I’m enough of a policy wonk to have serious questions about the system.
First, why does the government need to “shame” people. Can’t they just arrest taxpayers and/or seize their property? Or do Pakistani taxpayers actually enjoy the presumption of innocence, unlike their oppressed American counterparts?
Second, I read stories about religious zealots in Pakistan killing Christians and stoning adulterers. How do these tax collectors escape persecution? Is it that they only operate in a big city, which is more tolerant, while the really awful stuff happens in rural areas?
Miss your tax deadline in the United States this weekend, and you might get a nasty letter at your door. In Karachi, Pakistan’s largest city, you might get Riffee and the gang. They are “transgender” tax collectors — whose weapons include flamboyancy, surprise — and a little lipstick. In a move that speaks volumes about the lengths to which Pakistan is going to tackle tax evasion, Karachi officials are using Riffee – who like many people in South Asia works under a single name – and her team as enforcers with a difference. They are sent to the businesses or houses of debtors. The aim — in this very conservative Muslim society — to embarrass tax debtors into paying up. Riffee — like her tax-collector friends Sana and Kohan — is physically a man, but prefers to be called and dress as a woman. Their job is quite simple: each morning they turn up to work and get a list of missed payments. One by one, they make house-calls, causing trouble at each debtor’s home or office, trying to get them to pay up. It’s not clear how effective this tactic is, but officials insist they would not do it if it did not work. “Their appearance causes great embarrassment amongst the people,” said Sajid Hussein Bhatti, the tax superintendent who gives Riffee her orders every morning.
Pakistan does have a lot of tax evasion, to be sure, but the unwillingness to comply is actually just a symptom of high tax rates and and a corrupt government. People don’t like paying tax when they feel like they are getting ripped off to finance a wasteful public sector. That’s true in Pakistan, Greece, and just about every other nation. That’s why lower tax rates are the best way to boost compliance.
Those were compelling posts, at least I hope. But now let’s tie these themes together. Art Laffer has a column in the Wall Street Journal that explains the comprehensively awful burden of the internal revenue code – and also shows the promise of a better approach.
There is a lot more to taxes than simply paying the bill. Taxpayers must spend significantly more than $1 in order to provide $1 of income-tax revenue to the federal government. To start with, individuals and businesses must pay the government the $1 in revenue plus the costs of their own time spent filing and complying with the tax code; plus the tax collection costs of the IRS; plus the tax compliance outlays that individuals and businesses pay to help them file their taxes. In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually. This is a cost markup of 30 cents on every dollar paid in taxes. And this is not even a complete accounting of the costs of tax complexity. …David Keating of the National Taxpayers Union provides a useful perspective on how big the tax compliance industry is. According to his research, as of 2009 the income-tax industry employed “more workers than are employed at the five biggest employers among Fortune 500 companies—more than all the workers at Wal-Mart Stores, United Parcel Service, McDonald’s, International Business Machines, and Citigroup combined.” Without diminishing in any way the professionalism of tax attorneys, accountants and financial planners, all of these efforts produce nothing other than, well, tax compliance. …A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs. Based on the estimates from our new study, if a static, revenue-neutral flat-tax reform were to reduce the tax complexity in half, the long-term growth in our economy would increase by around one-half of 1% per year.
Nothing can compensate for the misery of having your money seized by the IRS and sent to Washington where it will be squandered by vote-buying politicians.
But if you’re a fan of gallows humor, these jokes that people have sent me over the years may brighten your day.
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A man about to have a heart transplant was offered the choice of either a 26 year-old marathon runners heart or the heart of a 62 year-old IRS agent. He picked the agent’s heart because he said it had never been used.
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A university committee was selecting a new dean. They had narrowed the candidates down to a mathematician, an economist and a tax lawyer.
Each was asked this question during their interview: “How much is two plus two?”
The mathematician answered immediately, “Four.”
The economist thought for several minutes and finally answered, “Four, plus or minus one.”
Finally the tax lawyer stood up, peered around the room and motioned silently for the committee members to gather close to him. In a hushed, conspiratorial tone, he replied, “How much do you want it to be?”
Q: How are an apple and a I.R.S. agent alike?
A: They both look good hanging from a tree.
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Q: What did the terrorist that hijacked a jumbo-jet full of I.R.S. agents do?
A: He threatened to release one every hour if his demands weren’t met.
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Q: What’s the difference between an I.R.S. agent and a mosquito?
A: One is a bloodsucking parasite, the other is an insect.
I want to join a violent, armed group with no regard for the law… but the IRS isn’t hiring.
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A businessman on his deathbed called his friend and said, “Bill, I want you to promise me that when I die you will have my remains cremated.”
“And what,” his friend asked, “Do you want me to do with your ashes?”
The businessman said, “Just put them in an envelope and mail them to the Internal Revenue Service and write on the envelope, “Now you have everything.”
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Late one night a mugger wearing a ski mask jumped into the path of a well-dressed man and stuck a gun in his ribs. “Give me your money,” he demanded.
Indignant, the affluent man replied, “You can’t do this – I’m a US Congressman!”
“In that case,” replied the robber, “Give me MY money!”
Narrated by Hiwa Alaghebandian of the American Enterprise Institute, the mini-documentary explains how needless complexity creates an added burden – sort of like a hidden tax that we pay for the supposed privilege of paying taxes.
Two things from the video are worth highlighting.
First, we should make sure to put most of the blame on Congress. As Ms. Alaghebandian notes, the IRS is in the unenviable position of trying to enforce Byzantine tax laws. Yes, there are examples of grotesque IRS abuse, but even the most angelic group of bureaucrats would have a hard time overseeing 70,000-plus pages of laws and regulations (by contrast, the Hong Kong flat tax, which has been in place for more than 60 years, requires less than 200 pages).
Second, we should remember that compliance costs are just the tip of the iceberg. The video also briefly mentions three other costs.
2. The budgetary burden of the IRS, which is a staggering $12.5 billion. This is the money we spend to employ an army of tax bureaucrats that is larger than the CIA and FBI combined.
Because of their well-known kindness and generosity of spirit, our wonderful friends at the IRS are letting us wait until Monday before filing our tax returns (or tax extensions, for those of us love to postpone misery).
So let’s have a fun weekend returning the love and affection.
We’ll start with a top-10 list from Letterman. It’s not quite as clever or funny as I would hope, but still worth sharing.
10. IRS deadlines are just suggestions. File your taxes whenever you want.
9. Warlocks may not claim trolls as dependents.
8. Make filing more personable by naming your calculator. Mine is named “Owen.”
7. Make sure your accountant went to a real school and not a phony Internet college like I did.
6. H Block: Good guy, R Block: complete greaseball.
5. Getting a refund? Log on to IRS.gov to spin the wheel and play “double or nothing”.
4. If you don’t remember your Social Security number, make one up.
3. Do not use Wesley Snipes’ accountant.
2. Not really a tax tip, but accountants are wild in the sack.
1. Take it from me, prison’s not so bad.
income-tax revenue to the federal government. To start with, individuals and businesses must pay the government the $1 in revenue plus the costs of their own time spent filing and complying with the tax code; plus the tax collection costs of the IRS; plus the tax compliance outlays that individuals and businesses pay to help them file their taxes. In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually. This is a cost markup of 30 cents on every dollar paid in taxes. And this is not even a complete accounting of the costs of tax complexity. …David Keating of the National Taxpayers Union provides a useful perspective on how big the tax compliance industry is. According to his research, as of 2009 the income-tax industry employed “more workers than are employed at the five biggest employers among Fortune 500 companies—more than all the workers at Wal-Mart Stores, United Parcel Service, McDonald’s, International Business Machines, and Citigroup combined.” Without diminishing in any way the professionalism of tax attorneys, accountants and financial planners, all of these efforts produce nothing other than, well, tax compliance. …A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs. Based on the estimates from our new study, if a static, revenue-neutral flat-tax reform were to reduce the tax complexity in half, the long-term growth in our economy would increase by around one-half of 1% per year.
