Economic Stimulus Checks: Bread and Circuses

As the ideals of the Roman republic were eroded and displaced by the politics and tyrannical rule of the Caesars, governing parties realized that an oppressed citizenry could be pacified with food and entertainment. Thus, the government became the provider of bread and circuses (panem et circenses), an ancient Roman metaphor for people choosing food and fun over freedom.

 

The issuing of Economic Stimulus Checks is a straightforward application of the bread and circuses philosophy. Yet curiously, I haven’t heard much dissent regarding this approach. It seems there should be quite a bit of outrage.

 

First, if our elected officials see fit to “give back” some money, why did they take it in the first place? If they believe returning money to the citizens will help the economy, then it’s reasonable to suggest that taking it was harmful to the economy. (It’s a pretty twisted scenario where someone creates a problem so they can fix it, but that’s one of the essential illusions of government: create a problem so you can put forward your party and your policies as the solution.)

 

Second, where is the money coming from? We hear constantly of the ballooning federal debt and the lack of funding for government programs. How can an organization constantly in need of money afford to hand out $600 to every qualified taxpayer?

 

In the best Keynesian tradition, our government has either decided to borrow more to encourage spending, or to authorized its central bank (the Federal Reserve) to print more money. Either way, taxpaying citizens get stuck with the bill; in one scenario, the federal deficit grows larger, in the other, the value of the currency gets smaller. Thus, your $600 “rebate” results in higher taxes or less spending power.

 

Furthermore, government officials have the temerity to tell us how to spend it! They didn’t want us to use to pay off debt, or put it savings. No, they told us the best thing we could do was to spend it! The truly patriotic would use their “windfall” to buy a plasma TV, take a weekend ski trip, make a down payment on an new car, or visit the Caribbean. (It was a nice, benevolent touch when President Bush finally acknowledged it would be okay to spend the checks on necessities as well; you know, things like rent and gasoline.)

 

It’s absurd. They take your money, expect your gratitude for giving a fraction of it back – and then they want to tell you how to spend it! The arrogance is breathtaking. But nary a soul is demanding accountability for these actions – because they’re getting a check back! Not that you should sent your check back. From a purely pragmatic point of view, any money in your hands is better than leaving it under government control.

 

But instead of just accepting the scraps, why isn’t someone asking for more? Americans have become a docile populace, conned into believing that dependency on government hand-outs and consumer debt are necessary for survival. The collective mindset has such low expectations that many can’t imagine anything better than watching “American Idol” on a new TV (courtesy of your congressman!) Bread and circuses, indeed.

 

 

Not Yours To Give

Not Yours To Give

You can’t believe everything you read on the internet. (But even the lies and half-truths can provoke some interesting thoughts.) If you want to get the whole story here, take the time to read everything – because I saved the best for last.

On February 18, 2008, I received an e-mail about taxes, which included the following excerpt:

The next time you hear a politician use the word “billion” in a casual manner, think about whether you want the “politicians” spending YOUR tax money. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of its releases.

• A billion seconds ago it was 1959.
• A billion minutes ago Jesus was walking the streets of Jerusalem.
• A billion days ago no-one was around.
• A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.

 While this thought is still fresh in our brain, let’s take a look at New Orleans. It’s amazing what you can learn with some simple division…

Louisiana Senator Mary Landrieu (D), is presently asking the Congress for $250 BILLION to rebuild New Orleans. Interesting number, what does it mean?

1. Well, if you are one of 484,674 residents of New Orleans (every man, woman, child), you each get $516,528.
2. Or, if you have one of the 188,251 homes in New Orleans , your home gets $1,329,787.
3. Or, if you are a family of four, your family gets $2,066,012.

Washington, D.C .. HELLO!!! … Are all your calculators broken??

Interesting statistics, right? They really help put the concept of “billion” in perspective. And wouldn’t it be nice to be a New Orleans family of four in line for more than $2 million in federal money. Except…

Senator Landrieu isn’t “presently asking Congress” for $250 billion. She asked for it in 2005, right in the midst of the all the “we’ve-got-to-do-something” hysteria about Katrina. After further review, it was fairly obvious the $250 billion figure was overkill. So while the billion info is interesting, the “outrage” is over something that didn’t happen.

However…

Skip the math. There’s another issue here. It’s the assumption that government should be involved in providing “relief” through disbursement of public funds. I know it may sound like a noble undertaking, but is there any rational economic or social justification for having FEMA or any other government disaster relief agency?

This is not meant to be cold-hearted or mean-spirited. Helping those is need is certainly one of the primary virtues of a healthy society. But strong, logical arguments can be made against using government as an instrument of social mercy. In fact, the more likely by-product of government-sponsored social relief – even in emergency and disaster situations – is greed, corruption and waste.

Almost 20 years ago, a mentor gave me a booklet entitled “Not Yours To Give” which convincingly explains why charity should not come from government coffers. The story features an incident in the life of the legendary Davy Crockett during his service as a Congressman. To read the full story – and to fully understand why government should not be in the social relief business, clink on this link “Not Yours To Give”

Getting To Known The IRS – Part 3

A week after my interview with the IRS criminal investigators, I had the chance to meet with an Enrolled Agent who was an IRS collection officer for 38 years. An Enrolled Agent (EA) is a “federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.” (from the National Association of Enrolled Agents web site, www.naea.org)

Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. Unlike attorneys or CPAs, Enrolled Agents are licensed specifically by the government. EAs either pass a comprehensive examination which covers all aspects of the tax code, or qualify by having worked at the IRS “for five years in a position which regularly interpreted and applied the tax code and its regulations.” (Many ex-IRS personnel become EAs.)

This Enrolled Agent had been helping several other taxpayers whose returns had been audited as a result of their association with the tax preparer under investigation by the criminal division (see Getting to Know the IRS – Parts I and II). From what I had been told by other taxpayers, this Enrolled Agent was a sympathetic advocate, and had been quite helpful with several individuals who, on the advice of the tax preparer, had chosen to respond belligerently to the IRS.

After two years of sparring via correspondence, the IRS had asserted its muscle, garnishing wages, and seizing bank accounts. Apparently, the Enrolled Agent had been able to undo the damage, stop the liens, and get people back in good standing with the IRS. In one case, the taxpayer was even getting a refund of most of their taxes paid. For the others, additional taxes were still due, but he was helping negotiate reasonable terms of settlement. (When he was a collection agent, one of the EA’s areas of expertise was offers in compromise. When a taxpayer gets in too deep, there may be the realization that the IRS has no reasonable hope of collecting all of the tax due. At that point, offers in compromise can result in a settlement.)

I was eager to meet this man, partly because of his knowledge and background, but also to assess his perspective. How do you work for an employer like the IRS for 38 years, then become an advocate for the taxpayer? It seems like the two positions are not compatible, so was there a change in heart about the IRS that led this individual to retire and work for the “other side?”

Turns out that what I might see as a moral paradox didn’t register with the EA. He admitted being a bit disillusioned by changes in the offers in compromise programs, but by itself that issue wasn’t enough to make him quit. It was simply a pragmatic financial decision. He had just done his retirement calculations, and decided that the time was right to get out. Furthermore, between his experience and connections, he could have a nice retirement career. In short, he knew the system, and had no qualms about working it, either from the IRS’ or the taxpayer’s side of the table. (I should add that although his attitude toward taxation and the IRS was pragmatic, the EA impressed me as someone of high integrity. While at the IRS, I’ll bet he was an exemplary employee, and now operates in the same manner as an EA.)

For openers, we talked a little about the Fair Tax initiative, and while he understood the concept, remained unconvinced because of enforcement logistics. “Someone’s always going to cheat,” he said. “That’s why there’s always going to be an IRS in some form.” This veered off into a discussion about whether it was necessary for the government to provide so many services, and tax so much. Again, his view was pragmatic: Government provides services people want, and there’s got to be a way to collect the revenue to cover the costs. When I countered that most people don’t have any say in what their government provides or what it costs, he agreed, but noted that most people probably couldn’t determine if the government was delivering good value for the taxes received. “How do you know if you’re overpaying for police protection or national defense?” he asked.

Several things he said surprised me. In his entire time at the IRS, he never carried a gun, even though most people thought he did. “The government doesn’t like the idea of collecting taxes at the point of a gun,” he said. For the most part, he lived where he worked. His home phone number was listed in the local directory, but only once in his 38 years with the IRS had he been physically threatened.

He said that even though the IRS had lots of regulatory authority and enforcement power, most situations were best resolved with a little human finesse. The goal is not in most cases to break the taxpayer over past issues, but to exact a payment that encourages him to stay in line for the future. That was one of the benefits of the offer in compromise program; it not only secured revenue to satisfy taxes owed, but made it worthwhile for people to stop fighting the system.

I asked him about some of the high-profile incidents where celebrities (Willie Nelson, Mike Tyson, etc.) end up owing a huge amount of taxes, yet continue working, touring, and living large. He said that often in those situations, the government settles by taking a flat percentage of all future earnings, say 30 percent. The government may not ever recover all that was owed, but their getting a sizable guaranteed cut of future earnings. And the taxpayer has reasons to stay in compliance, because if they ever miss a future tax payment, the offer in compromise can be voided.

I asked him how he viewed the people he pursued in collections. Did he think they were tax evaders or hapless people caught in the system? He said in his experience, he thought 45% of the taxpayers were people who just got stuck – health problems or a failing business upset their world, and they just never recovered. Another 45% were probably playing fast and loose with the tax code and got caught. And 10% were just plain bad apples – avoiding taxes wasn’t their only criminal activity.

I told him I imagined he had some pretty good stories after 38 years with the IRS. He nodded and said, “Every retired IRS guy thinks he ought to write a book.”

The conversation veered to specific examples of how an EA’s knowledge might save the taxpayer money:

Any time a taxpayer owes more than $25,000, the IRS can demand a complete financial statement, listing all assets. The information the IRS can glean from an audit is limited to what you report relating to income in that particular year. Now, because you owe and can’t pay immediately, the IRS gets to look at everything you’ve accumulated over your lifetime as well – the equity in your home, your investment portfolio, the size of your 401(k), the savings accounts you have for your kids, the vacation home, all of it.

After they see it all, IRS collection agents can make a determination of what, if any, assets they would like the taxpayer to sell or re-finance in order to meet their tax obligation. In a sense, the IRS becomes your “financial advisor” for the purpose of recommending what should be liquidated to meet the tax obligation.

Although the IRS does not have absolute authority over how you settle your tax bill, the agency will use the information to push for resolution, implying they are there to help you resolve your problem.

In some situations, the easy answer is to sell some stocks or bonds and pay the debt. But if you don’t have assets that can be quickly liquidated, the IRS can propose other solutions. If you don’t have an equity line of credit against your home, the IRS might suggest establishing an account and borrowing from it (after all, the interest might be deductible). If there’s a loan provision in your 401(k), they might push for taking a loan.

One of the typical recommendations a collection agent might make is to liquidate an IRA account, if one exists. Of course, the liquidation may result in additional taxes for the current year, as well as a penalty for early withdrawal, so paying a $25,000 tax bill could cost something like $40,000.

As this point in his example, the EA digressed to tell a story. “Ever hear of the tortoise and the scorpion?” he asked.

The Tortoise and the Scorpion

One day a scorpion was on the bank of the River Jordan, wanting to get across to the other side. But of course scorpions can’t swim. Luckily it spotted a tortoise that was about to swim across the river.

‘Please, tortoise,’ said the scorpion, “I need to get across the river, but I can’t swim – let me ride on your back.”

“What sort of a fool do you take me for?” said the tortoise. “If I let you near me you’ll sting me to death.”

“Of course I won’t,” said the scorpion. “I’m trying to get across the river. What possible good would it do me to sting you? I’d drown!”

The tortoise thought it over, and could see the logic of the scorpion’s argument. So he let the scorpion jump onto his back, and set off swimming across the Jordan. But half-way across the river, where the river was at its deepest, the tortoise felt the scorpion’s sting stab deep into his flesh. As both animals began to drown, the scorpion apologized: “I’m a scorpion – I couldn’t help myself. That’s what I do.”

“The IRS is the scorpion,” said the EA. “They collect taxes. It’s what they do. No matter how much an IRS agent says he’s trying to help you, his first and only assignment is to collect revenue. And what happens to you after they get the money doesn’t matter.”

To finish his example, the EA noted that if the taxpayer reduced his outstanding tax liability below $25,000, he most likely would have several less intrusive and burdensome options for resolving the rest of the tax owed. So…

If the taxpayer took a partial liquidation to reduce the outstanding tax bill to less than $25,000, he/she might be eligible for a streamlined installment agreement in which monthly payments are made over the next five years. This agreement can usually be completed by phone – without submitting to a detailed financial examination.

Would a collections agent help the taxpayer by explaining the above regulations and mentioning a partial liquidation as a possible solution? In the experience of this particular EA, “No. If they can get it all now, that’s what they do.”

From the EA’s perspective, it’s foolish to mess with the IRS. But that doesn’t mean you should just capitulate when you receive correspondence or an audit notice. Maybe it was nothing more than an advertisement for his services, but his statement was compelling. “Never deal with the IRS alone. People who go it alone are usually the ones that end up having the most problems.”

Getting To Known The IRS – Part 2

The IRS office isn’t exactly customer-friendly. The agency occupies the entire upper floor, but when you get off the elevator, there’s no reception desk or anything else that says “welcome.” Instead, there’s a table in the hallway with a phone on it. If you have an appointment, you pick up the phone, and someone behind the doors steps out to usher you in. In my situation, one of the agents said he would be watching for me. He was. As soon as I stepped out of the elevator, he was opening the door.

It’s also awkward to exchange introductory pleasantries. These guys are criminal investigators and you are a taxpayer – I don’t imagine either side has a particularly good opinion of the other.

The two investigators on this case seemed a little mismatched. The one who led most of the conversation was the younger of the two, and as my friend observed was an “FBI-wanna-be” with sort of a quasi-military demeanor. The other guy was older, probably in his fifties. From other experiences with IRS personnel, I’d bet he was an IRS lifer. Again, my friend had the luxury of observing more while I was answering questions, and came up with another assessment that I thought was dead-on: The older agent was “a little guy trying to be important.”

After once again clarifying that I was not the subject of any criminal investigation, the questions began. They wanted to know where and why I had come to know the tax preparer. They wanted to know if the preparer had made promises of lower tax payments or no tax payments. They wanted to know if he said or did anything that could be construed as recommending that I lie or fabricate information on the returns, etc.

They wanted to know my connection to other people who apparently had been links in the chain of their investigation and prosecution. Two were taxpayers that had been sent to prison. One I knew, the other I didn’t.

Occasionally during their questions, I asked for details on their investigation. They would not tell me specifics, although they acknowledged they had met with the suspect. I stated that on reflection I found the tax preparer to be an enigma. Much of what he told me seemed accurate, but other issues had been off-putting, and I just couldn’t reconcile the inconsistencies; that was the reason for my terminating contact with him more than five years ago. I asked the investigators what their impression was of the tax preparer, and while the younger agent just stonewalled, the older one rolled his eyes and sort of snorted.

The older agent pressed the point of wanting to know why I would work with a guy like this. I told the agents that the primary reason I chose this man for assistance with my taxes was because his philosophical and religious convictions seemed genuine. The older agent rolled his eyes again.

Near the end of the interview (it lasted about an hour), the old guy sort of went on a little rant about tax protestors, indicating people like myself should know better than to get hooked up with guys like this. I shrugged and said something about every taxpayer having the right to structure his affairs to pay the least tax possible, and the old guy got a little testy. He gave a mini-lecture on the tax protestors, tax avoidance and tax evasion. I reminded the investigators that my last contact with the tax preparer was five years ago, and that I wasn’t attempting to defend or explain the preparer’s behavior.

At the end of the interview, I asked the younger agent if I could have a copy of the list of questions they had for me. He seemed a little reluctant. I told him I had received copies of the examiner’s notes and questions from my audit, so why couldn’t I have these? He relented, and gave me his typed list of questions.

As we left, the younger agent thanked me for my time, and said they would contact me if only they needed more information. I told them it would be fine with me if this was the last time I had to discuss my relationship with the tax preparer.

On the way home, I replayed the events with my friend. My focus was mostly on the questions and the content, but my friend had another astute observation. Of the two agents, he noted, the younger one seemed quite matter of fact – he had a list of questions, he wanted answers, and anything that veered off topic was an irrelevant distraction. On the other hand, the older agent was more animated, took more notes, and was almost combative. Getting information was one thing, but it felt like the older agent also wanted to convince us that he was right and we were wrong for even considering the tax preparer as credible. It was like he wanted to say “how could you be so stupid?” and he wanted me to agree and apologize.

I have not had extensive contact with IRS personnel, but my contact is probably more than the average citizen. One thing I have observed: IRS people are pretty zealous about their work. The ones I have met aren’t just in it for the paycheck; they believe they are doing the country a great service by making “everyone pay their fair share.” I imagine it’s necessary to have pretty high internal belief in your work, because an IRS employee sure isn’t going to get much positive reinforcement from the American public.

On the other hand, I also sense in some IRS personnel a disdain or disgust for the taxpayer. For IRS personnel, the only reason someone resists or defies tax law is because they are criminal or ignorant. While some might forgive ignorance, they still can’t fathom why any taxpayer would step out of line, even inadvertently. When you try to present the idea that some people might have moral or philosophical objections to the current tax system, it doesn’t register. “Given the legal authority and enforcement power of the IRS, why would anyone even think of getting on our bad side?” is the essence of the responses I’ve received.

This disconnect was best illustrated by an exchange I had with the examiner of my 2002 and 2003 returns. At the beginning of the process, I told him I faced a dilemma regarding the audit: After all my experiences with the tax protestor people – the arguments that the 13^th Amendment had never been properly ratified, that wages and income weren’t the same thing, that the Internal Revenue Code didn’t apply to sovereign individuals, etc. – I was convinced that the IRS was legally empowered to enforce the collection of taxes. But agreeing with the legality of the IRS didn’t satisfy the moral questions.

I made an analogy to the Jim Crow laws in the South. The laws were “legal,” but also immoral in the denial of civil rights to certain groups of citizens based on their pigmentation or ancestry. So, I asked, when moral conviction conflicts with legality, what do you do?

The auditor didn’t miss a beat. “You know what happened to the people who protested the Jim Crow laws, don’t you?” he asked.

“Some of them went to jail,” I said.

“Yep. That’s right,” he said. End of conversation.

Getting To Known The IRS – Part 1

About 15 years ago, I was exposed to some thought-provoking information on the economic impact and moral implications of governmental taxation. One day, my business partner handed me several books about the United States income tax system he thought I would find interesting. Thus began a decade-long, twisting journey through the world of federal income tax protesters, tax avoiders and ultimately, con men. As a result of my travels, I have also had the dubious opportunity of engaging the IRS far more than I would prefer. But the experience has been instructive.

Eleven years ago, I met an individual who represented himself as an income tax expert. Because of his philosophical and religious convictions, his approach to taxes appealed to me; essentially, his message (at the time) was to “render unto Caesar the things that were Caesar’s” but no more. For several years, he prepared my tax returns.

However, this individual gradually become more militant in his stance toward the government, and more erratic in his delivery of business services. In 2002, I terminated my business relationship with him.

In 2005, I received notice that the IRS was auditing my returns from 2002 and 2003. Upon further discussion (which took awhile) the IRS disclosed the reason for the audit was because of my connection to this tax preparer – guilt (or suspicion) by association.

The aggravation and psychological stress of an audit is bad enough. But even worse, the LLC I had established under this individual’s guidance was improperly structured for tax purposes. The audited changes resulted in a $40,000 additional assessment, including tax, interest and penalty. Ouch, definitely ouch.

Having finally paid this obligation in full in the fall of 2007, I was hoping my encounter with this “tax expert” was finally behind me. Then two men from the IRS’ Criminal Investigation unit came to my door in January 2008. Having assured me I was not the target of any criminal investigation, they informed me the IRS was pursuing criminal charges against my former tax preparer. They asked me if I could meet with them sometime and answer a few questions. I scheduled an appointment for three weeks later, giving me some time to consider the ramifications of meeting with the investigators.

After some discussion with a couple of attorneys, I decided to attend the meeting. But rather than bring official legal representation, I just brought along a good friend as a witness. The reasoning was as follows:

Assuming I was nothing more than an individual who had received tax preparation services from the person under investigation, bringing an attorney might suggest something more duplicitous on my part. To my knowledge, I had been nothing more than a bystander – there was no attempt to do anything other than legally lowering my tax bill.

Since two agents showed up at the door, I figured they would probably both be part of the interview process. If I went by myself, I’d be out-numbered, but having a witness in the room would even the sides, and might blunt any good-cop/bad-cop interrogations.

Finally, there’s nothing like having a third party in the room to make sure everyone attempts to be on their best behavior. Since my friend is also a fellow church member, there was also some positive pressure on me to stay under control. And if the IRS guys got a little belligerent, well, at least I’d have a witness.

I know this line of reasoning doesn’t sit well with strict legal advocates. As far as they are concerned, any meeting with the IRS, criminal or civil, should have representation. I can see their point, but I guess I was relying my innocence. And, since I figured I wasn’t in harm’s way, I was curious about the process – I had questions I wanted to ask as well.