blog/tax

The United States is starting to look like Eastern Europe in the bad old days.

There is a new directive from the Department of Homeland Security.  (Warning, PDF).  It says what can and cannot be grabbed when someone is passing through customs at the U. S. border.

Here’s how I interpret the directive:

1. We can take your computer and hang on to it for as long as we want to.  Other stuff too, if we feel like it.
2. We pay lip service to the attorney-client privilege (see E(3) in the document, but we’re still going to take your computer and other stuff too, if we feel like it.
3. Go stick your nose in a dead bear’s bum.

Sorry, dear MacBook (yes, the black one; I paid the black tax).  You don’t get to travel anymore.  Your trip to Switzerland two weeks ago was your last trip.  This is not a difficult technical problem to solve for me.

The bigger problem is the phone.  Do I leave my iPhone at home, too?  I think I have a solution to this, too.  I’ll have to test it.  (Yes, DHS droids, you can watch all of the Diggnation episodes on my iPhone if you want to.)

This is unmitigated stupidity.  It is nothing but security theater.

This is unmitigated stupidity.  It does nothing for security of the United States.  It MAY catch a few dim bulbs who don’t have the wit to follow an obvious plan such as the one that occurred to me 4 seconds into reading about the government’s new strategies.

This is unmitigated stupidity.  It is hampering international trade.  I know that because making international business transactions is my business.  This is slowing me down.  It is causing my clients from outside the United States to pause momentarily and say “Hey, wait a second, do I really want to invest in the U. S.?”

This is unmitigated stupidity.  It is attempting to achieve something by measuring the wrong thing.

I guess I shouldn’t be surprised by the profoundly stupid governmental bureaucracy.  But I am.  Silly me.

. . . just try getting something done with the sales tax people.  Nice people, but . . . sheesh.

There is a lot going on in the offshore tax evasion world these days.  I’ll start commenting a bit more on that in the upcoming days.  After all, we deal daily with offshore trusts, money in Switzerland, and all that fun stuff.

Hidden agendas?

It seems to me that a lot of the commentary about the “rich” (definitions vary) and taxation have a hidden agenda.  That agenda is “us vs. them” with a thin veneer over a lake of resentment.

Why do we tax?

The objective of a tax system is to gather money so the government can spend it.   Moral outrage is misplaced.

Why do people cheat on their taxes?

If you’re wondering why people hide money and don’t pay tax, think about these points:

1.  A small percentage of people will always cheat and lie. 

Bell curve, people! Just like a few people will break into cars and steal your stereo, there will be a few people who will hide money and lie about it to not pay taxes.  It’s there.  Live with it.  Set up appropriate systems but you’re going to have that background noise as long as humans are involved.

2.  Tax systems can encourage cheating and lying. 

How?  A couple of ways.  One is with penalties.  If you (metaphorically speaking) have the death penalty for all crimes from parking violations to murder, well, you’ve decreased the incentive to pay attention to penalties.

We do international tax stuff for humans and companies.  In this arena the compliance (translation = paperwork and forms you have to file) is so complex–and the penalties so draconian–that you’re essentially at the mercy of a tax auditor who can club you to death for accidental errors.

In other words, the pain differential between lying and trying to do the right thing?  It’s shrinking.  At the margin this increases the number of people who are willing to throw up their hands and not try to do the right thing.

3.  Tax rates encourage lying and cheating.

The higher the rates, the more likely you are to see scheming and tax evasion.  It is here that I see the Outrage and Wailing by commentators.  This is where I’m going to have to back up my hunches with reality, but here goes.

I’m guessing that it is a decision made at the margin.  Is it cheaper to pay the tax and sleep well at night?  Or is it cheaper to lie and live with the anxiety?

If this kind of marginal utility thinking is right, then a lower tax rate would encourage more people to live in the light rather than in the darkness.

Anecdotally I see that kind of thinking, particularly because of the capital gains tax rates.  People can–and do–say “Meh, I’m just going to sell and pay the tax because the rate is 15%.”  In California you have the 9.3% State income tax as well, so it pushes the cost closer to 25%.  People pay that.  I’m not sure they would think that way if the combined hit started to exceed 30%.  But that’s guessing.

Statement of bias

I favor vastly simpler tax systems, even though it would cost me most of my livelihood.

I favor much lower tax rates.  MUCH lower.  No carve-outs for people to take tax deductions here or get credits there.  Use the tax system to collect revenue only.  Don’t use the tax system as a method to promote specific types of economic behavior, and don’t use the tax system to engage in moral judgments (hint:  if the word “should” is in a sentence, you’re in bad shape).

A quick aside

Here’s the TaxProf’s post on this topic.  It triggered today’s post from me.

It has some statistics in it.  The statistics are claimed to be true, and the facts suggest a certain conclusion.  In fact the conclusion fairly well shouts out at you.

A Federal judge has issued an order allowing the IRS to proceed against UBS AG, in their never-ending quest to find tax evaders.

U.S. people with undisclosed Swiss bank accounts?  The bell tolls for thee. *

*Kinda ironic that the quote comes from John Donne’s poem that starts “No man is an island” when people think they can hide money in palm-fronded island paradises.

Nobody Cares Manifesto from Dennis Howlett via Hugh McLeod.

Lawyers, too.

On ROI–if you have to persuade your customer how much value you have conveyed to him/her, there is one inescapable conclusion.

The Joint Committee on Taxation’s Technical Explanation of the exit tax is here as a PDF. Actually, the part you’re interested in starts on Page 36, so skip the rest of it.

I’ll give you a plain text excerpt shortly, plus the text of new Section 877A (the part of the Internal Revenue Code that imposes the exit tax when you give up your U.S. passport or green card). And I’ll do a boil-down Babelfish translation of tax jargon to English. But for now, read this turgid prose straight from Congressional staffers and Treasury Department ghostwriters.