Dispatch From the Frontline - 04.16.12

Government lasts as long as the under-taxed can defend themselves against the overtaxed. – Bernard Berenson, American Historian (1865—1959)

Well, it is finally here…the day many of us dread.  No, I am not talking about your appointment for having a root canal—something far worse.  It’s time to “render unto Caesar the things which are Caesar’s!”  You can almost hear a collective sigh as millions of Americans prepare to stand in long lines at their local Post Office as they “volunteer” to pay their taxes.

We thought it would be appropriate to dedicate this week’s Dispatch to the subject of taxes with the hopes of breaking several myths and hopefully provide you with some thought-provoking points to chew on as you file your taxes.  Rush Limbaugh, once said that, “No nation has ever taxed itself into prosperity.” Contrast that to what Franklin D. Roosevelt said, “Taxes, are the dues that we pay for the privileges of membership in an organized society.”

I remember two years ago when the Associated Press ran an article that was titled, “Nearly Half of U.S. Households Escape Federal Income Tax.” The article went viral and resonated with the swelling ranks of the Tea (Taxed Enough Already) Party sweeping across the country. But what most Americans failed to grasp was that the vast majority of those Americans who escaped federal income taxes do pay other taxes, including federal payroll taxes for such things as Social Security and Medicare as well as excise taxes on gasoline, aviation, alcohol and cigarettes. These taxes are on top of state and local sales taxes, income taxes and one of my personal favorites, property taxes. Unfortunately, our tax system exempts almost half the U.S. from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education.

Granted, I would happily debate anyone on whether or not the Department of Homeland In-Security actually keeps the American public safe from international terrorists—provided we not discuss the subject of the DHS’ recent bout of successful raids and seizure of deadly hair dryers and hair straighteners from burning Americans’ scalps. If we agree to set aside hair products and appliances, I am fairly certain I could hold my own.

And I will try to restrain myself from railing against the Department of Education and bemoaning how our broken education system is actually not benefiting many other than bureaucrats. This federal bureaucracy squanders away billions of our tax dollars, and student loans now exceed over $1 trillion dollars.  Last year alone, over $100 billion in student loans were taken out, setting a new record!  The bottom line is the Constitution did not authorize the Department of Education, nor did the Founding Fathers ever envision the federal government dictating educational policies.

But I digress…

Irrespective of your stand on these subjects, the federal income tax is the government’s largest source of revenue, raising more than $900 billion—a little less than half of what the government spends.  In 2007 about 38% of households paid no federal income tax. That number spiked to 49% in 2008 according to estimates at the Tax Policy Center.

Of all the amendments to the U.S. Constitution, the 99-year-old 16th Amendment, which authorized Congress to enact our current tax system, has long been under attack.  Some Americans argue that because we have a “voluntary” system, taxes are optional. But voluntary only “means the government is trusting you to self-report how much tax you owe" versus letting the "government tell you what you owe."

Unfortunately, if you volunteer an amount, you better be right or the IRS may fine or jail you. Of course, if the government had its way, they would love nothing more than tell you what you have to pay. Sound crazy?

Think again.

In 2006, Senate Finance Committee Chairman Max Baucus (D-Mont.) argued that if the IRS was allowed to prepare your taxes for you, it would close a $345 billion annual difference between what the government believes taxpayers owe them and what the IRS actually collects—sometimes called “the tax gap.” Baucus actually said, “I think the solution [to the tax gap problem] is to get rid of the middle-man and no fees required.”

Baucus isn’t alone. Obama’s former Chairman of the Council of Economic Advisers, Austan Goolsbee, made a strong case for it in a New York Times op-ed explaining, “…the revenue service could send you a tax form already filled out with the information it has for you—a Simple Return—rather than a blank tax form. You would simply check the numbers against your W2 and 1099 and sign it.”

If that wasn’t bad enough, a number of politicians and bureaucrats in Washington D.C. are seeking to set up the Internal Revenue Service’s power and technology to essentially audit taxpayers before returns are even filed. An IRS spokesman unveiled the agency’s vision for the “Look Forward” model in which most of the pertinent reporting information for the average tax payer (W2, 1099, mortgage interest, etc.) would be submitted to the IRS well in advance of the individual deadline. The goal would be to give the IRS the ability to pre-calculate what it expects to receive in taxes and instantly reject any return that doesn’t comply with its determination.

This June, the Supreme Court is set to rule over the legality of Obamacare.  What many Americans don’t realize is that the Internal Revenue Service will function as the government’s enforcer—monitoring both businesses and individuals to certify whether they have the insurance coverage that the government will now require. To do that, IRS will be asking for $10 Billion in order to hire 16,500 more IRS agents to collect, examine and audit new tax information mandated on families and businesses. Stranger than fiction, it was later reported by The Drudge Report, that the IRS posted a request for quotes from suppliers for 12-gauge pump shotguns be submitted to the IRS.

Why on Earth are IRS agents arming themselves?

Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” Should one attempt to read our current federal tax code and all its 3+ million words, they would have to read 164 pages each day, 7 days a week, 365 days a year for a year.  Our tax code is purposely confusing to benefit those who are charged with enforcing taxes.

So as you file your taxes, I thought these nuggets of information may be appropriate. Just ask yourself, what ever happened to holding government employees and elected officials to higher standards??

• 100,000 civilian federal employees owe the IRS $962 million in back taxes. If you include retirees and military service members, the numbers go from 100,000 to 276,000 owing $3 billion in back taxes
• 41 Obama White House Aides owe the IRS $831,000 in back-taxes!
• 684 Capitol Hill employees owe $10.6 million in over due taxes in 2010.
• 176 Department of Education workers owe $4.2 million
• 391 Department of Housing and Urban Development staffers owe $5 million
• 1,971 Employees at the Justice Department owe $14,350,152 in over due taxes
• 4,856 Employees under the Department of Homeland Security owe $37,012,175 in taxes
• Congressman Charlie Rangel failed to declare rental home income to the IRS
• US Secretary Timothy Geithner didn’t pay Social Security and Medicare taxes for several years while he worked for the IMF

But hey, maybe if we can’t get the IRS to enforce tax laws on government workers and elected officials, then maybe getting Americans to rat out their neighbors to the IRS and pay them whistleblower rewards is the second best thing!!

Have you ever asked yourself what do your IRS taxes really pay for?

This is how it works. Congress passes a law, and the House Appropriates the funds. The U.S. Treasury then prints the notes for the appropriation. Then the Federal Reserve purchases these notes, and loans the money back to the Federal government at interest. Interest rates fluctuate—which the Federal Reserve controls. The cash is then distributed to the regional Federal Reserve banks from which the appropriations are disseminated per the Congressional mandate. The conundrum we face is that the system is rigged against us—because the Federal Reserve is creating the money out of thin air, and we’re borrowing that money with interest so it is designed that we can never pay off our debt.

Periodically, the Federal Reserve will ask Congress for an increase in money supply as was the case with Quantitative Easing I and II.  By pumping new cash into the economy, it decreases the buying power of the dollar. This makes it seem as though prices have risen—but that is not the case.  Actually it is the opposite…the value of the dollar is dropping!  Some refer to this as an inflation tax. The fact of the matter is that throughout the Federal Reserve’s 99-year history in 1913, the U.S. dollar has lost over 95% of its purchasing power.

A Congressional Research Service report commissioned by Ronald Reagan found that all individual income tax revenues “are gone before one nickel is spent on the services which taxpayers expect from their government.” As a matter of fact, ever since 1969, Congress has spent more money that it has taken in. The Treasury Department has to borrow money to meet Congress’ appropriations.

Either way you look at it, our tax system is unfair and broken. Instead of our so-called elected officials providing us fundamental reforms to our tax system, the Democrats and Republicans prefer the status quo.  Our current tax system allows big corporations and the ultra-wealthy to avoid paying taxes.  So how does GE get away with paying $0 taxes on $14 billion in profits?

So as you stand in line at the post-office, with the ink drying on your forms and checks, remind yourself what Rush Limbaugh said: “If Thomas Jefferson thought taxation without representation was bad, he should see how it is with representation.”

Until next time, keep your powder dry and your faith strong!