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Posts Tagged ‘IRS’

Call me perverse, but I’m enjoying this IRS scandal. It’s good to see them suffer a tiny fraction of the agony they impose on the American people.

I’ve already shared a couple of cartoons on the topic, and I also posted a photo from my newest sports hero that captures how most of us feel about the least-favorite part of the federal behemoth.

Now let’s enjoy some additional cartoons. Let’s start with one from Michael Ramirez, which appropriately mocks Obama for saying we shouldn’t fear the government.

IRS Cartoon 10

Here’s Henry Payne’s contribution, which reminds me that the IRS actually expects us to believe they didn’t engage in political bias.

IRS Cartoon 9

And Ken Catalino suggests that the federal government treats Americans with the same suspicion and hostility accorded to terrorists.

IRS Cartoon 8

Though we should be happy that we’re not being targeted for drone attack. At least not yet.

Speaking of targeting, here’s another Catalino cartoon that recreates a meeting at the IRS.

IRS Cartoon 7

I like this Glenn Foden cartoon, if for no other reason that it would be nice to see taxpayers march on Washington to slay the IRS monster.

IRS Cartoon 6

Here’s another Foden cartoon, which I like because it has the same theme as this Jerry Holbert cartoon, showing big government as a destructive and malicious force.

IRS Cartoon 5

These two Eric Allie cartoons (here and here) have a more charitable interpretation, implying that the damage is unintentional.

Here’s another gem from Ramirez, winner of my cartoonist contest.

IRS Cartoon 4

Lisa Benson weighs in with a cartoon on the army of drones. Sort of like this very good Glenn McCoy cartoon.

IRS Cartoon 3

Here’s another cartoon from Henry Payne, showing Obama’s faux scolding of the IRS.

IRS Cartoon 2

Last but not least, this Chuck Asay cartoon may be the best of the bunch. When we get in trouble with the IRS (even if we’ve done nothing wrong), we’re guilty ’til we prove ourselves innocent.

Too bad we can’t exercise our rights, just like the IRS hack who just pleaded the fifth and refused to answer questions about her role in the scandal.

IRS Cartoon 1

Now that I’ve shared all these cartoons, let’s remember that we should assign some of the blame to politicians.

And I’m not referring to the President and the culture of corruption and Chicago-style sleaze that seems to be engulfing the Obama Administration.

I’m talking about the constant legislative tinkering and the 74,000 pages of Byzantine complexity that has been created in the 100 years since the income tax was created.

However, there are many reasons why the IRS bureaucracy deserves scorn.

So let’s pass the flat tax, but never forget that a disproportionate share of bad people seem drawn to government.

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With so many scandals percolating, there are lots of good cartoons being produced.

But I think this Chip Bok gem deserves special praise.

It manages to weave together both the costly Obamacare boondoggle with the reprehensible politicization of the IRS.

So BOHICA, my friends.

IRS Obamacare

If you want other Chip Bok cartoons, click here, here, here, here, here, here (my favorite), here and here.

And for cartoons that mix the IRS and Obamacare, click here, here, and here.

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When I was a little kid, my sports idol was Mickey Mantle.

When I went to college, Herschel Walker was my guy.

Now, I may have to add Evan Mathis to that distinguished list.

Who is Evan Mathis, you ask?

Well, he’s an offensive lineman for the Philadelphia Eagles who played in college for the Crimson Tide of Alabama.

2012 - UGA-BamaSince I’m a Georgia Bulldog, I wouldn’t normally hold someone from ‘Bama in high esteem – especially since I haven’t stopped sulking since the SEC Championship Game. but when someone does something that merits high praise, I’m willing to be ecumenical.

And Evan Mathis passes that test, as explained by NBC Sports.

Already the least popular of the federal governmental agencies, the IRS has taken a significant hit in recent days amid news confirming longstanding beliefs that the U.S.Evan-Mathis-Peeing-IRS-Sign tax department exercised its discretion to conduct audits and generally give folks a hard time with politics in mind. Like most if not all Americans, Eagles offensive lineman Evan Mathis doesn’t like it.  Unlike most if not all Americans, Mathis has opted to make his views known, in an entertaining way. Mathis posted on Instagram a photo of himself in the universal standing pee position by an IRS sign, with the message “Audit this.”

So what message was Mathis trying to send? It’s unclear, but there are many reasons why the IRS deserves scorn.

No wonder I thanked President Obama for unleashing this new scandal and reminding many new people that they should listen to those “voices” who warn about unchecked power in Washington.

P.S. I’m not sure how I’ll react when the IRS resorts to the novel tax-collection tactic that’s being tried in Pakistan.

P.P.S. Maybe Mathis can become a national spokesman for tax reform after he retires from football.

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Last week, while writing about the latest IRS scandal, I noted that the IRS has a long record of abusive actions.

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.

Let’s start with George Will, who is predictably – and bitingly – critical.

…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.

I also like that Will took the opportunity to criticize the worst (or at least close-to-worst) President in American history.

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.

The lawless and abusive IRS even got Michael Gerson agitated.

…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.

And here’s what my colleague Gene Healy wrote about the IRS’s history of political shenanigans.

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.

IRS Tea Party Cartoon 1

The humor is a bit darker in this cartoon, but the message is the same.

IRS Tea Party Cartoon 2

P.S. Since I’m in such a good mood,  I’ll share some of my other IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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I’m happy to bash the IRS, but I usually try to explain that our anger should be focused on the politicians who created the corrupt, 74,000-page tax code.

But sometimes the IRS deserves some negative attention. The tax collection bureaucracy has thieving employees, incompetent employees, thuggish employees, brainless employees, and victimizing employees.

The senior folks at the IRS also deserve scorn for bone-headed decisions such as squandering millions of dollars on a P.R. campaign and a scheme to regulate and control private tax preparers.

Now it seems we have another reason to condemn the tax-collection bureaucracy. The IRS is engaging in Nixon-type political harassment.

Here’s some of what the Associated Press just reported.

The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status, a top IRS official said Friday. Organizations were singled out because they included the words “tea party” or “patriot” in their applications for tax-exempt status, said Lois Lerner, who heads the IRS division that oversees tax-exempt groups.

Heaven forbid somebody self-identify as being patriotic. Obviously a cause for investigation by the IRS.

And it’s rather ironic that the IRS felt compelled to apologize just a few days after President Obama just told us we shouldn’t listen to “voices” telling us that bad things happen in Washington.

But it’s not just that the IRS targeted groups opposing big government. The bureaucrats also violated the rules designed to protect taxpayers from IRS abuse.

…groups were asked for their list of donors, which violates IRS policy in most cases, she said. “That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review,” Lerner said at a conference sponsored by the American Bar Association. “The IRS would like to apologize for that,” she added.

But you can put your mind at ease because senior IRS officials assure us that the targeting of Tea Party groups had nothing to do with political bias.

Lerner said the practice was…not motivated by political bias. …IRS Commissioner Douglas Shulman told Congress in March 2012 that the IRS was not targeting groups based on their political views. “There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman told a House Ways and Means subcommittee.

Just like we’re supposed to believe that political bias had nothing to do with all the IRS harassment of conservative groups during the Clinton years. The message from the elites in Washington is “Nothing to see here, move along.”

But as the Wall Street Journal warned at the time, it seems there is a remarkable lack of curiosity about patterns of IRS abuse.

…once we agree that a politicized IRS is a dangerous thing, it is hard to understand the see-no-evil approach taken by the Congress, the press and the judiciary about serious, current allegations of exactly this. …organizations have been using the Freedom of Information Act to find out if there is anything to the extraordinary run of audits that happened to hit a number of tax-exempt organizations that might reasonably be described as Clinton enemies. …we have lots of Clinton enemies who have suffered actual audits, and very little interest in finding out whether this was simply a massive coincidence or the result of something more sinister.

And now we’re going through the same process again.

Maybe, just maybe, there’s a lesson to be learned about the dangers of giving power to politicians and bureaucrats.

Yet another argument for the flat tax. If there’s no charitable deduction, there’s no opening for a politically biased IRS bureaucracy to investigate and harass non-profit groups because of their philosophical beliefs.

P.S. On a lighter note, here’s the IRS version of the quadratic formula, and a cartoon showing how GPS would work if operated by the IRS.

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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?

IRS Employees arrested

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.

It turns out that these IRS bureaucrats were busted for getting unauthorized government handouts.

…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.

  1. They took money from taxpayers as part of their excessive compensation packages.
  2. Their day job was to then enforce a coercive and reprehensible tax system that took money from taxpayers
  3. 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.

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For the past 30 or so years, I’ve done my own taxes by hand. I thought this was a good approach because it would help me better understand the practical challenges of the tax code.

Bravest man IRS

Dan Mitchell has dropped out of this contest

But it’s time to confess that I broke down and used Turbotax for yesterday’s tax return.

It’s not that my financial affairs are complicated. I basically get my Cato salary and a bit of income from speeches and articles. But even that became too much of a challenge. The tipping point was the form for Health Savings Accounts. The IRS is yelling at me for how I filled out this form in past years, and I fear that I will be perpetually in their cross hairs without relying on a computer program to avoid mistakes.

To help me deal with yesterday’s traumatic experience, I’m sharing some very good cartoons.

We’ll start with one from Gary Varvel.

IRS Cartoon 1

Sort of the visual version of this letter-to-the-editor.

Our next cartoon, which may be my favorite of the group, is from Glenn McCoy.

IRS Cartoon 2

By the way, if you don’t think the IRS is capable of thuggery, read this horrifying story.

I don’t know Paul Fell’s work, but this next cartoon is a very good introduction.

IRS Cartoon 3

This is the second time the grim reaper has appeared in a cartoon. The first time involved the death tax.

Last but not least, we have a Chip Bok cartoon about tax code complexity.

IRS Cartoon 4

As a bonus, it also features the complexity of Obamacare. If you like cartoons that mix the IRS and Obamacare, check out this classic from Glenn McCoy and this gem by Gary Varvel.

If you still need to be cheered up, here’s some more IRS humor to brighten your day, including the IRS version of the quadratic formula, a new Obama 1040 form, a list of tax day tips from David Letterman, a cartoon ofhow GPS would work if operated by the IRS, an IRS-designed pencil sharpener, a sale on 1040-form toilet paper (a real product), and two songs about the tax agency (here and here),  and a PG-13 joke about a Rabbi and an IRS agent.

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I’m not a big fan of the Internal Revenue Service, though I try to make sure that politicians get much of the blame for America’s convoluted, punitive, and unfair tax code.

Heck, just look at these three images – here, here, and here – and you’ll find startling evidence that politicians make the tax system worse with each passing year.

But there is an office at the IRS that ostensibly exists to defend the interests of taxpayers. The Taxpayer Advocate Service, according to the government website, “an independent organization within the IRS and helps taxpayers resolve problems with the IRS and recommend changes that will prevent the problems.” The head of this office, Nina Olson, has the title of National Taxpayer Advocate.

Sounds good, right?

Well, not so fast. The TAS does some good things, but Ms. Olson spends at least part of her time advocating for the government.

The TAS just released its annual report, and here’s some of what the bureaucracy recommended, according to a Bloomberg story.

Among the other problems Olson identifies in the report are…the underfunding of the Internal Revenue Service… The IRS, which Olson compares to the accounts receivable department of a company, should be fenced off from more budget cuts by Congress, she writes in the report.

Don’t rub your eyes or clean your glasses. You read correctly. The folks at the IRS who supposedly are advocating for you are instead advocating for a bigger IRS budget.

I debunked this silly argument last year, explaining why Congress should reject the Obama Administration’s assertion that more money for the IRS would be an “investment” that would yield big returns.

But I want to be fair. Some of what the TAS does is worth applauding. The report also discusses the grotesque levels of complexity in the code. Here’s more of the Bloomberg story.

TAS IRS ComplexityThe U.S. tax system’s most serious problem is the 4-million-word code’s excessive complexity that makes it tough for taxpayers to comply with and difficult for the government to administer, National Taxpayer Advocate Nina Olson wrote in an annual report to Congress. The tax code cost taxpayers and businesses $168 billion in compliance in 2010… “Lowering rates in exchange for broadening the tax base would be an excellent bargain,” says the report, released today in Washington. “We are confident that in the end, public support for a simpler code will be strong and deep.”

The TAS also produced this very depressing infographic (click to enlarge). It’s absolutely disgraceful that complying with the tax code requires the equivalent of 3 million full-time workers. It’s a vast understatement to call this a counterproductive misallocation of labor.

Or how about the fact that just the guidance for the income tax, when printed out, creates a stack of paper more than 12 inches high? And what about the nauseating little tidbit that the tax code has been changed more than once per day since 2001?

No wonder it’s such a corrupt mess. Isn’t it time we rip up the entire tax code and put in place something simple and fair like a flat tax? Here’s my case for real tax reform.

By the way, I’m also more than willing to replace the tax code with a national sales tax, perhaps something like the Fair Tax. I’m given speeches, testified to Congress, appeared on TV, and done all sorts of things to promote that idea.

But the one huge caveat is that we need to make sure that the politicians don’t pull a bait and switch and stick us with both an income tax and national sales tax. Which is what happened in Europe when governments implemented the value-added tax without repealing income taxes.

That’s why we would first need to get rid of the income tax and repeal the 16th Amendment. But then, because I don’t trust the Supreme Court (gee, I wonder why?), I would also want to replace the 16th Amendment with new language that would be so ironclad that even Chief Justice John Roberts couldn’t fabricate reasons why an income tax could ever return to plague the nation.

But since we can’t even get the votes to approve a watered-down balanced budget amendment, I’m not holding my breath for the day that the Constitution is amended to permanently kill the income tax.

And that’s why I think the flat tax is a safer option.

The worst thing that happens if we get a flat tax is that politicians change their mind and we degenerate back to the current system.

The worst thing that happens if we get a national sales tax is that politicians “forget” to eliminate the income tax, we wind up with both, and become France.

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I used to think this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over time.

But this new image may be the most effective of all of them. We don’t know what’s in the other 72,000 pages of tax code, but we’re all familiar with the basic 1040 tax form. Look at what the politicians have done to it over the past several decades.

1040 Instruction graph

The only answer, needless to say, is to throw the entire mess in the trash can and replace it with a simple and fair flat tax.

Here’s my brief explanation of how the flat tax would work and why it’s a good idea.

Tax reform would give us more growth, but it also would reduce one of the major source of corruption in Washington.

It’s also based on the notion that discrimination is wrong and that class-warfare policy should be rejected.

So what’s not to like?

P.S. I always get a lot of email and comments from people who wonder whether we should adopt a national sales tax instead. That’s fine with me, for reasons I explain here, but you better make sure to first amend the Constitution so that scheming politicians don’t pull a bait-and-switch and saddle us with both an income tax and a sales tax.

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One of the principles of good tax policy and fundamental tax reform is that there should be no double taxation of income that is saved and invested. Such a policy promotes current consumption at the expense of future consumption, which is simply an econo-geek way of saying that it penalizes capital formation.

This isn’t very prudent or wise since every economic theory agrees that capital formation is key to long-run growth and higher living standards. Even Marxist and socialist theory is based on this notion (they want government to be in charge of investing, so they want to do the right thing in a very wrong way – think Solyndra on steroids).

To help explain this issue, the Wall Street Journal today published a very good primer on taxing capital gains.

The editors begin with an uncontroversial proposition.

The current Democratic obsession with raising the capital gains tax comes from a mistaken belief that the preferential rate applied to the sale of a family business, farm or financial asset is a “loophole” that mainly benefits the rich.

They offer three reasons why this view is wrong, starting with a basic inequity in the tax code.

Far from being a loophole, the low tax rate applied to capital gains is beneficial and fair for several reasons. First, under current tax rules, all gains from investments are fully taxed, but all losses are not fully deductible. This asymmetry is a disincentive to take risks. A lower tax rate helps to compensate for not being able to write-off capital losses.

Next, the editors highlight the unfairness of not letting investors take inflation into account when calculating capital gains. As explained in this video, this can lead to tax rates of more than 100 percent on real gains.

Second, capital gains aren’t adjusted for inflation, so the gains from a dollar invested in an enterprise over a long period of time are partly real and partly inflationary. It’s therefore possible for investors to pay a tax on “gains” that are illusory, which is another reason for the lower tax rate.

This may not seem like an important issue today, but just wait ’til Bernanke gets to QE24 and assets are rising in value solely because of inflation.

The final – and strongest argument – is that any capital gains tax is illegitimate because it is double taxation. I think this flowchart is very helpful for those who want to understand the issue, but the WSJ’s explanation is very good as well.

Third, since the U.S. also taxes businesses on profits when they are earned, the tax on the sale of a stock or a business is a double tax on the income of that business. When you buy a stock, its valuation is the discounted present value of the earnings. The main reason to tax capital investment at low rates is to encourage saving and investment. If someone buys a car or a yacht or a vacation, they don’t pay extra federal income tax. But if they save those dollars and invest them in the family business or in stock, wham, they are smacked with another round of tax.

There’s also good research to back up this theory – some produced by prominent leftists.

Many economists believe that the economically optimal tax on capital gains is zero. Mr. Obama’s first chief economic adviser, Larry Summers, wrote in the American Economic Review in 1981 that the elimination of capital income taxation “would have very substantial economic effects” and “might raise steady-state output by as much as 18 percent, and consumption by 16 percent.”

Summers is talking about more than just the capital gains tax, so his estimate is best viewed as the type of growth that might be possible with a flat tax that eliminated all double taxation.

Nobel laureate Robert Lucas also thinks that such a reform would have large beneficial effects.

Almost all economists agree—or at least used to agree—that keeping taxes low on investment is critical to economic growth, rising wages and job creation. A study by Nobel laureate Robert Lucas estimates that if the U.S. eliminated its capital gains and dividend taxes (which Mr. Obama also wants to increase), the capital stock of American plant and equipment would be twice as large. Over time this would grow the economy by trillions of dollars.

So why aren’t these reforms happening, either the medium-sized goal of getting rid of the capital gains tax, or the larger goal of junking the corrupt internal revenue code for a simple and fair flat tax?

A big obstacle is that too many politicians believe in class-warfare tax policy, even though lower-income people are among the biggest victims when the economy is weak.

For more information, here’s my video explaining that the right capital gains tax rate is zero.

P.S. Some of you may be wondering why I didn’t make a Laffer Curve argument for a lower capital gains tax. The main reason is because I have no interest in maximizing revenue for the government. I simply want good policy, which is why the rate should be zero.

P.P.S. I also didn’t bother to make a competitiveness argument, mostly because the WSJ’s editorial didn’t focus on that subtopic. But check out this post to see how Obama’s policy is putting America at a significant disadvantage.

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Everyone seems to agree that the Brits have a good sense of humor, and I think you’ll agree if you peruse this modern glossary of financial terms and this example of politically incorrect terrorism humor.

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.

Quite clever, sort of like this letter defending drunken sailors from unfair and malicious comparisons.

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.

And everyone seems to like this beer-centric explanation of the tax system.

Last but not least, we also have the official cigarette of the Obama campaign, as well as cartoons here, here, here and here that mock the President’s class-warfare tax agenda.

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I’ve been fighting for more than 10 years to stop an IRS regulation that would force American banks to put foreign tax law above US tax law.

Sadly, I recently lost that battle when Treasury Secretary Tim Geithner finalized the third version of the regulation (it was first proposed by Clinton, and then a second version was put forth by the Bush White House).

In previous posts, I explained why this regulation represents bad tax policy and undermines the rule of law. I also have explained that it will hurt the American economy and why it endangers the human rights of people living under tyrannical and thuggish regimes.

But such concerns don’t matter to the tax cheat who is serving as the Treasury Secretary.

Richard Rahn is not happy about this outcome, either, and here is some of what he wrote in the Washington Times.

Over the past several years, Treasury Secretary Timothy F. Geithner was warned by many private economists and members of Congress of the adverse consequences of a proposed rule that would force U.S. banks to be uncompensated tax collectors for foreign governments. On April 17, Mr. Geithner issued the rule anyway. …To put it simply, the Obama Treasury Department and Internal Revenue Service (IRS) are forcing U.S. banks to report to foreign governments that often are corrupt or worse on lawful deposits their citizens hold in U.S. banks, thus putting those citizens’ lives at risk. As the former governor of Oklahoma and now president of the American Bankers Association, Frank Keating, wrote: “While the IRS minimizes potential security issues, nonresident aliens are unlikely to feel reassured by promises that their information won’t fall into the wrong hands. These pledges could be met with apprehension when countries with questionable human rights records remain on the recipient list. This rule gives nonresident aliens every incentive to pick up and move their deposits elsewhere.” …Looking at the actions and words of Mr. Geithner, you can conclude that he is consciously trying to destroy the U.S. economy, he lacks a sufficient number of brain cells and nerve connections for the job, or his ego and desire to pander to his boss and well-known economic illiterates has caused him to be willfully negligent over and over again. The latter is probably closest to the truth.

What makes this new regulation so disturbing is that it is a gross abuse of the regulatory process. For more than 90 years, Congress has maintained a policy of seeking to attract capital to the American financial system. Lawmakers repeatedly have looked at this issue of “nonresident alien” deposits, and they always have decided that America should be a safe haven for foreigners who want a good place to deposit money.

Yet the IRS, which is supposed to issue regulations that enforce existing law, proposed a regulation that overturns the law. And Geithner approved it. No vote from Congress. No legislation from the White House. No need to bother with the rule of law or democracy (and people wonder why there is rhetoric about a gangster government!).

I cover some of the key points in this video about the proposal.

You may be wondering why the Obama Administration is in favor of such a bad idea. Well, there’s no great mystery. Politicians get very upset if people have the freedom to shift economic activity to jurisdictions with better tax law. This process, known as tax competition, creates pressure for better tax policy.

Statists from all around the world have united in a campaign to undermine tax competition and expand the power of governments to impose bad tax policy. Obama and his team are simply doing their part to advance this dystopic vision.

The implementation of this IRS regulation means we’ve suffered an unfortunate defeat in this battle. So if we care about promoting good policy and restraining the greed of the political class, we need to redouble our efforts.

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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.

These folks are livid with the tax system, thanks to awful policies such as America’s worldwide tax regime and punitive laws such as FATCA.

So let’s ease the pain with some tax humor.

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.

And if you like tax humor, I recommend this IRS pencil sharpener. And for those who don’t mind PG-13 humor, there’s a good joke about the Rabbi and the IRS agent.

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I’m rather clueless on matters of popular culture, but I know the IRS is a vicious and needless bureaucracy that plagues the American people (though IRS agents could learn something from their Pakistani counterparts)

So I’m obviously a fan of this song that several people have sent me.

About a month ago, I made fun of the IRS for wanting to squander $15 million of our tax dollars on a PR campaign.  What’s great about this song is that it presumably is akin to a big PR campaign against the IRS jackboots.

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!

This video has some of the ugly details.

But let’s not end this post on a depressing note. Here’s some IRS humor to brighten your day, including the IRS version of the quadratic formula, a new Obama 1040 form, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, and (my favorite) a joke about a Rabbi and an IRS agent.

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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.

With thuggish moves like that, no wonder the IRS wants to flush $15 million of our tax dollars down the toilet in a futile effort to improve its public image.

But there is some good news. The Institute for Justice has filed suit against the IRS for its disgusting behavior. This video explains.

One point from the video that should be emphasized is that the IRS is taking this step without any congressional authorization or instruction. But if you read this link about an IRS regulation that would force American banks to put foreign law above US law, you’ll know that the tax agency is capable of rogue behavior.

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).

And since we’re on the topic of theft by government, this IJ video on property rights, eminent domain, and the Kelo decision also is very much worth watching.

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.

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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.

I certainly agree that the crowd in Washington is venal, corrupt, and duplicitous. But the IRS takes a bad situation and makes it worse, whether we’re looking at gross abuses of the regulatory process or absurd proposals to squander money on a P.R. campaign to make the agency more cuddly.

So I’m less than overwhelmed by this performance.

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.

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The overwhelming fiscal policy challenge for America is entitlement programs, as I explain in this set of videos. To protect America from becoming another Greece, we need personal retirement accounts for Social Security. We need vouchers for Medicare. And we need to block-grant Medicaid back to the states.

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.

Here are some disturbing details from the Wall Street Journal report.

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.

Seems like such a good idea that only people who benefit from the current system would be opposed. Unfortunately, that describes the political class, upon which we’re relying to get such reforms.

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Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes.

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.

Here are some key findings from the study.

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.

Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.

…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.

And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.

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.

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I’ve written several times about a proposed IRS regulation that would force American banks to put foreign law above U.S. law. I’ve repeatedly warned that the scheme, which would force financial institutions to report the deposit interest they pay to foreigners, is bad economic policy, bad regulatory policy, and bad banking policy.

My arguments have included:

But these points don’t seem to matter to the Obama Administration, which is ideologically committed to the anti-tax competition agenda of Europe’s welfare states. This is why the White House supports all sorts of destructive policies, including not only this misguided regulation, but also the creation of something akin to a world tax organization that will have power to block free-market tax policy.

A new article in the Weekly Standard explains what’s at stake.

Early last year the Treasury Department published its “Guidance on Reporting Interest Paid to Nonresident Aliens,” which would require banks to report to the Internal Revenue Service the interest paid to foreign depositors with a U.S. bank account. While the Treasury and the regulatory apparatus insist that the cost and inconvenience of adhering to this regulation is next to nothing, the rule may cost the U.S. banking system hundreds of billions of dollars in lost deposits, in turn costing our economy billions of dollars, while providing no discernible benefit to banks, depositors, taxpayers, or the U.S. economy. …a much bigger problem—for banks and the economy—than the compliance costs is the threat of a massive capital flight. The United States is a very popular place for foreigners to park their savings, for a variety of reasons. For starters, we offer a stable government that can be trusted to keep its hands off deposits—something that appeals greatly to residents of Venezuela, Argentina, Ecuador, and any number of other unstable countries. …As a result, a staggeringly large amount of savings from abroad is currently held in U.S banks. While the Treasury asserts that “deposits held by nonresident alien individuals are a very small percentage of the [total] deposits held by U.S. financial institutions,” that very small percentage amounts to more than $3.7 trillion, according to a 2011 Bureau of Economic Analysis report, hardly a pittance. The massive amount of foreign savings here is a boon to the U.S. economy. Banks lend against these deposits, mainly to companies here in the United States. Jay Cochran, an economist at George Mason University, studied the impact that the more limited 2002 reporting requirements would have had on the banking system, estimating that it would have resulted in nearly $100 billion in deposits leaving the U.S. banking system. A reporting regulation that covers all foreign accounts would likely result in two to three times more capital flight. The impact would be harmful not just for the banks but for the broader economy. The decline in profits in the banking sector alone from a roughly quarter-trillion-dollar capital flight would be in the range of $5-10 billion—which makes a mockery of the notion that the costs of the regulation are under $100,000.

For more information about this wretched proposal, here’s a video I narrated on the topic.

To put it bluntly, the Obama Administration is pushing this regulation because it thinks the anti-tax competition agenda of Europe’s welfare states is so important that it is willing to risk the health of the American economy, undermine the soundness of U.S. financial institutions, disregard the rule of law, and abuse the regulatory process.

Indeed, this proposal is even worse than the increasingly infamous Foreign Account Tax Compliance Act.

And that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the costly FATCA regulations being developed by the IRS are for the purpose of enforcing the law.

The interest-reporting IRS regulation is also costly and destructive, to be sure, but what makes it so perverse is that it is – at best – completely gratuitous. It is being advanced solely for reasons of ideology, regardless of the law and consequences be damned.

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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.

Maybe this cartoon was right after all.

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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.

Both Senators from Texas also have announced their opposition, and the entire Florida congressional delegation came out against the IRS’s regulatory overreach.

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.

But criticism is not limited to Capitol Hill. The Center for Freedom and Prosperity has spearheaded opposition from think tanks, taxpayer organizations, and public policy groups.

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.

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I’ve shared many examples of IRS humor over the years, including a new Obama 1040 form, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, and (my favorite) a joke about a Rabbi and an IRS agent.

So you’ll understand why I can’t resist sharing this gem I saw on the TaxProf Blog.

If you want to move from humor to real-world tragedy, watch this video on IRS complexity.

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Senator Rubio continues to impress with his Reagan-like efforts to restrain government and promote growth. His latest initiative is legislation to curtail rogue IRS bureaucrats who are seeking to use regulatory edicts to overturn 90 years of law.

Here are excerpts from a report in The Hill.

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).

This may sound like a technical issue, but this video explains why it has huge implications.

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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.

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Found this in my inbox. I was thinking about saving it for next April, but then decided I might forget so I better use it now. You can click to enlarge and get a clearer image.

This is somewhat clever, though I don’t like line 6c since it indirectly implies that McCain would have been better than Obama. But let’s just enjoy a good cartoon and not dwell on the fact that there was no good choice in 2008.

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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.

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There hasn’t been much good economic news in recent years, but one bright spot for the economy is that the United States is a haven for foreign investors and this has helped attract more than $10 trillion to American capital markets according to Commerce Department data.

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.

Yes, you read correctly. The IRS is seeking to abuse its regulatory power to overturn existing law.

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.

Both Texas Senators also have registered their opposition. Senators Hutchison and Cornyn wrote to the Obama Administration earlier this month.

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.

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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?

Third, why does Pakistan even bother with an income tax. I commented last year about Hillary Clinton’s ideological advice to Pakistan about squeezing the so-called rich, but the CNN story excerpted below says only 1 percent of the population is affected. What’s the point? The tax obviously doesn’t generate much revenue. Why not get rid of an oppressive law and make the country a tax haven?

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.

(h/t Pejman Yousefzadeh)

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