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Uncle Orson Reviews Everything
April 16, 2015

First appeared in print in The Rhino Times, Greensboro, NC.

Tax Day

Today is the day after Tax Day, and I have some good news for those of you who just didn't make it in time.

If you don't turn in your tax return on time, you will not go to jail. You'll just pay a penalty.

If you mail in your return but don't send the money you owe, you will not go to jail. You'll just pay interest -- and a penalty.

If you send in your return and it turns out you made some mistakes that happen to be in your favor, you will not go to jail. You'll just pay interest and a penalty.

Isn't that good news?

Now, if you never file a tax return at all, or if your "mistakes" reveal a pattern of deception, or if you're earning money under the table and not reporting it, or you're hiding earnings by pretending somebody else got them, or claiming deductions you aren't entitled to, or any of hundreds of other practices that fall under the heading "fraud," then yes, you're probably going to lose most of your stuff and there's a solid chance you'll spend some time getting a stripy suntan.

But you know what? We all want bad things to happen to tax cheats because most of us are not cheating. We're paying every dime that our representatives in Congress have determined that we must pay in taxes on our earnings. And as long as we're paying, those other guys had better pay, too.

Remember back in the 2012 election, when Senate Majority Leader Harry Reid lurched to his feet and remained standing long enough to make the false and defamatory claim that Mitt Romney hadn't paid any taxes for years?

Harry Reid knew it was a lie when he said it, as he has recently admitted; it was his attempt to influence the presidential election, and he was very careful to make his slanderous statement on the Senate floor because Congresswights can't be sued for slander for anything they say during a session of Congress.

But people were willing to believe it, or half-believe it, because they knew perfectly well that folks who earn the really big bucks, like Mitt Romney, can afford to pay accountants and lawyers to pore over the tax laws and find every legal way to reduce their tax burden.

The tax reductions they find are, in fact, completely legal. They are committing no crime. Every "loophole" in the tax law was put there by Congress in order to create a cash incentive for companies and individuals to make certain financial choices; and if you make those choices, then you're entitled to those tax breaks.

Just as you only qualify for unemployment payments if you are, in fact, unemployed, so also you only qualify for tax benefits if you are complying with the statutes.

It happens that in the case of Mitt Romney, his tax accountants found ways for him to pay far less in taxes than he actually paid. Yes, that's right -- he could have legally paid less than he did, and he chose to pay more than he had to.

Why? Well, if you're a cynic, you can assume that he knew that someday those tax records would become public, probably during an election, and he wanted to make sure that he would be seen to have paid extra so that people would hate him a little less for making so much money.

Or, if you're willing to give a rich politician the benefit of the doubt, then you can assume he felt that the tax breaks in his case would have left him paying less than his fair share of taxes, and so he tipped the government a little for ... good service, maybe?

But let's remember something else, too: Income taxes are based on earnings. They are not based on profits or stock dividends or any of the ways that truly rich people get their fabulous incomes.

In fact, most of the bogus statistics used to "prove" that the rich are getting richer and the poor are getting poorer are based on taxable earnings and not on income that is treated as "unearned."

Anybody who's paying income taxes has a job and works for what he earns. Maybe he's getting paid way too much -- but take that up with the people who set his salary. He still has to show up at the office, or the meetings, or the basketball or baseball locker room, or the big concert arena with the thousands of screaming fans. He still has to stand in front of the camera and say his lines, or read the teleprompter, or be a Kardashian all day.

The really rich people are the ones who earn a boatload of money without doing anything except owning stuff -- land, stocks, bonds. And they are never counted in the statistics about the rich getting richer -- because we don't have any practical way to measure.

The really deceptive thing about those stats is that when they say "people in the lowest tax brackets now earn a smaller percentage of what people in the highest tax brackets earn," they are ignoring the fact that the people in the top tax brackets in 2015 were, in all likelihood, in the bottom tax brackets in 1975.

That's right. Many of the "poor" in 1975 are the "rich" today. That's because after their student days and their first low-paying jobs, they got older, got promotions, and earned more.

Then, in a few more years, they'll be earning less -- living on whatever the government lets them save during these peak years, and whatever Social Security is solvent enough to pay.

Today, the real poor pay no income taxes at all, and neither do the rich. They don't figure in any income tax bracket, and so they aren't even mentioned in the discussion of so-called "rich" and "poor." (That's like trying to discuss which vehicles cause wear and tear on our roadways without including bicycles ... and trucks.)

So when you complain that the "rich keep getting richer," just remember that if you work hard, are good at your job, and are lucky, you who were in those suffering lower tax brackets in your twenties will be in, or closer to, those much-more-highly-taxed earnings brackets in your early sixties.

And those top earners pay far more of the nation's tax burden, per capita, than anybody farther down, or higher up, the scale.

What about the IRS itself? The scandals that hit them in recent years have been pretty devastating. The fact that they politicized the awarding of tax-exempt status was obviously a systematic action, and the absurd "punishment" for that is that a Republican-dominated Congress has cut their budget so severely that they can no longer serve the tax-paying public adequately.

Long lines at IRS offices and telephone hangups for people calling in are symptoms of this, so that many who didn't file on time, or filed returns filled with mistakes, are going to pay penalties because they couldn't get the help from the IRS that they needed.

Maybe the IRS deliberately implemented the budget cuts in ways that would cause maximum pain to taxpayers, but that's the same game that our school districts play when they pretend that the only way to deal with budgets smaller than they asked for is to pay teachers less -- or lay them off.

But please keep some history in mind. The IRS has always been politicized, or at least it has been since the 1960s. During Watergate, when people howled about Richard Nixon's dirty tricks, it also came out that President Kennedy had ordered the IRS to audit his political enemies, a terrible inconvenience. After Richard Nixon lost to Kennedy in 1960, if I remember aright he was audited by the IRS every year.

The liberal media thought all of Kennedy's vicious pranks were funny -- can't the Republicans take a joke? While Nixon's much milder pranks were horrible crimes for which people really did go to jail.

So of course the news media don't think it's a big deal that the IRS targeted Tea Party and other conservative organizations -- after all, they "deserve" to be punished for having incorrect thoughts. Portions of the IRS became, in effect, a branch of the American Inquisition -- for which most of the newsmedia are cheerleaders.

The IRS, like any other institution, is made up of people who respond to the incentives they're given. I found this out early in my long career as a self-employed person. I knew I needed help with tax returns, of course, but it took a long time before I found somebody who actually understood how my type of earnings fit in with the tax laws.

You see, nobody was withholding taxes from my income and sending it to the IRS the way most people's employers do. I had the grave misfortune of receiving my entire income and depositing it in my bank account. Then, when I paid taxes, I felt the pain of every single dollar flowing out into the government's gaping maw.

Self-employed people also pay 50% more FICA taxes than people who work for companies. Ouch again.

If it weren't for tax withholding, we would have had a revolution long ago. But money you never see never feels as if you actually had it, right? So it doesn't hurt so bad. Genius points are awarded to the inventor of tax withholding. Our tax system depends on it.

The real problem with not having your taxes withheld is that you think you actually have that money. We have since learned that the moment the money comes in, we must earmark a certain percentage for taxes and never regard that money as our own. But early in my career, I didn't really understand that. At least not deeply enough to act on it.

Some important need would come up, and, because the money was right there in the bank, I would use it to meet that current need. After all, I told myself, my money comes in lump sums at unpredictable intervals and in unpredictable amounts. By the time we need to pay these taxes, we'll get another big check or two, and ...

And, of course, we'll owe taxes on those checks, too, so instead of catching up, we're getting farther behind.

Many a novice self-employed person has run into the same self-trap: You spent it, it's gone, but now the IRS expects you to pay it as if you still had it. And, if you're late, they'll charge you interest and penalties on it -- so you can end up paying double the amount you would have paid if you had paid on time.

Worse yet, back in the late 1970s and early 1980s, the IRS operated under different rules. They had extraordinary powers to seize assets from people who were late on their taxes. They couldn't arrest you or put you in jail, not as long as you filed an honest tax return -- but they could go into your bank accounts and strip them, so that every check you wrote would bounce.

IRS enforcers were apparently judged on the basis of how much money they were able to extract from those who were paying their taxes late. They had every incentive to seize your assets, even if you were keeping faithfully to the schedule of payments you had worked out with the IRS.

So they could -- and would -- go into your checking account on December 15th and take all your funds, so that all the checks you wrote at Christmas time would bounce. IRS late fees plus obscenely high bounce charges from the bank -- on checks that had funds to cover them when you wrote them.

Back in 1982, an IRS enforcement official in Indiana explained to me the hopelessness of my position. "I can't see any solution for you," he said, "except to go into the underground economy. Take all your payments in cash and report nothing. Don't leave a paper trail."

I couldn't believe what I was hearing. "But that would make me a criminal, wouldn't it? Either for not filing a return at all, or for filing a return that didn't report my real earnings. Right?"

"True," he said, "but we wouldn't know you were there, unless you did something stupid like getting famous."

Yeah, well ... writers don't actually get famous -- not like actors or athletes or rock stars -- but we can get close enough to famous that somebody might notice if we didn't file any tax returns. Besides, publishers aren't going to pay writers in cash. They have to be able to deduct writers' royalties from their taxable corporate income.

Besides, I believe in taxes. That's because I believe in government. Not every single thing that governments do pleases me, but there are services that governments must perform and I believe in paying my fair share, as determined by our elected Congress. So this IRS agent's suggestion really did not make me happy.

Two things have changed since those days. First, new laws were introduced that sharply reduced the IRS's ability to seize assets without due process or to violate agreements they've made with delinquent taxpayers. So the IRS is, in fact, a kinder, gentler institution than it used to be.

Second, I found a brilliant accountant who actually understands tax law, and his report to us was, "You paid huge penalties on late taxes during those early years when, by law, you probably didn't owe any taxes at all." Too bad we found that out long after the statute of limitations, so we could never get any of that money back.

We also learned that when you have a tax lawyer talk to the IRS on your behalf, the IRS behaves very differently. For one thing, they know all the local tax lawyers personally, so they aren't going to play any games with them. And best of all, even though you have to pay the lawyer, you know that the decisions that are finally made are as fair as they're going to get -- and the IRS will stick to them.

Don't make lawyer jokes around me. I love my lawyers. They earn every dollar they're paid.

Here's what really made things work well for us, eventually. Our accountant helped us get to a point where we could file quarterly tax returns, paying accurately estimated taxes during the year, so that at the end of the year, when we were able to determine what our taxable earnings really were, we were already current.

Just like people whose employers had withheld and prepaid their income taxes for them.

The American system of taxation is kind of wonderful. Whatever you might think of the numbers and percentages involved, remember that we all file our tax returns on the honor system. The IRS, in most cases, takes our tax returns at face value.

They have W-4 and W-2 forms to verify our income. But the IRS doesn't have enough people to check up on everybody.

It's like those bogus scares about the government spying on everybody by tracking phone calls and emails. Nobody has time to read or listen to everything we say on the phone or send over the internet. There aren't enough people in the United States to listen to everything that all the other people say, or read everything they mail or post.

Ditto with the IRS. They never had enough employees to audit more than a fraction of tax returns, and in recent years, with budget cuts at the IRS, they are able to audit even fewer.

So the people who cheat on their taxes in petty ways are probably going to get away with it. No doubt they feel really smart, but they're just ordinary liars and thieves, stealing from you and me, who pay our full tax load. I don't think Mitt Romney paid enough extra taxes to make up for all the cheating on Tax Day.

The flamboyant cheaters are still flagged, audited, and, if they've made mistakes or "mistakes," those funds will be collected along with interest and penalties to help cover the cost of catching them.

But the system works because most of us don't cheat at all.

That's right. Look around at the office, on the street, in the restaurant, in the shopping center, at the movies: Most of those people are paying exactly what they believe they owe, by law, on their taxes every year.

Not because they're afraid of being audited or punished, but because they're good citizens. They're honorable people. They would never sign their names to a fraudulent tax return. And that's why our tax system works -- because most people don't cheat.

If that ever changes -- if most people lose their honor and cheat on their taxes -- then we'll have to shift to a more repressive system of tax collection in order to keep the government running.

Look, I agree with you that the government is taking too much in taxes and spending too much. I think they shouldn't spend more than they actually collect, and I think they shouldn't collect so much in the first place. That opinion is a common one, and it's the single biggest reason why people ever vote Republicans into Congress.

But every program that sucks money out of our pockets has people who believe that it's a good thing, and lobbyists who will get their constituents to scream (or spend money to advertise) in order to scare Congress into not cutting their program.

The way Democrats cut spending is to eviscerate our military, so that we can't maintain international law and order. When we hear all the big talk about how our negotiations with Iran are a joke, the big joke isn't that Iran won't comply with any treaty -- of course they won't, any more than Iraq under Saddam, or the PLO, or Syria, ever complied with a treaty.

The reason the negotiations are a joke is that our military is being scaled back to such a shocking degree that even if we notice when Iran breaks the treaty, we can't do anything about it.

This happened under Carter (remember how his Iran hostage rescue mission went?), under Clinton (remember how we ran out of bombs during our minimal effort to get Serbia to stop killing Kosovars?), and now under Obama. When you elect Democrats as President, that's what you get -- a highly trained, dedicated military without either the men or the materiele to do anything difficult or dangerous.

And even when we do accomplish something important (under a Republican President, of course), the next Democrat in office will throw all the gains away.

But defense spending is, by definition, always "wasted money" in one sense: Either you'll never use the war materiele because you'll be at peace (and that's a good thing!), or you'll use it up in war, which means you'll fire off all those bullets and explode those bombs and obliterate those drones, and there won't be any meaningful economic return on investment.

After all, the military's primary mission, when it has a mission at all, is to break things and kill people. This does not boost anybody's economy.

Even a drone that kills a known terrorist does not keep us safe from the terrorists we did not find. No matter how many of the enemy our bullets kill, it never makes up for our soldiers and sailors and marines and aviators who died or were maimed -- and therefore will not contribute to our economy later.

As a matter of economics, war is almost entirely wastage. Yet what we keep learning, one Democratic administration after another, is that if you don't "waste" enough tax money to maintain a credible military force that has the power to intervene in distant places, malevolent foreign powers feel free to start wars or commit acts of terror that disrupt trade and hurt the world economy.

Never mind the moral weight of the millions of people Iran's leaders have promised to kill in Israel the moment they get enough nuclear weapons (they already have the ICBMs to deliver them). Erasing Israel from the world economy would hurt us all financially, too.

Likewise, Russia's adventurism would quickly turn Ukraine into a nation of slave laborers again. China would love to take Taiwan out of the world's economic picture. North Korea's insane leaders would like to obliterate South Korea's continuous proof that the worship of Communist maniacs is not a viable economic strategy.

Why haven't they already done it? Perhaps because the Republicans in Congress are conducting their own foreign policy -- one with a spine.

A weak American military has consequences, and when our tax dollars are "wasted" on defense spending, the whole world economy is safer and more productive.

But don't get too smug, Republicans. Because all those dollars "wasted" on "government spending" by Democratic administrations -- where do you think that money is going?

It's mostly going into salaries, and the people who get those salaries need to eat, pay rent, buy clothes, and, yes, buy an occasional science fiction novel, should they be so inclined. The people receiving welfare or pensions or unemployment benefits, or whose health care expenses are being met -- most tax money flows back into the economy again, one way or another.

Drastic, sudden cuts in those programs would have repercussions throughout the economy. If you doubt me, look back at what happened in the former Soviet Bloc when Communist rule collapsed between 1989 and 1991. Look at what happened in countries where the IMF forced draconian budget cuts. The collateral damage to the poor and the newly unemployed is horrifying.

So when we pay our taxes, no matter how much we might hate the way the money is getting spent, that money must flow into the government coffers or we would all pay a steep price.

And those few among our friends and neighbors and co-workers who cheat on their taxes are really taking money out of our pockets; shame on them. They aren't smart, they're just stupid and selfish.

I think Congress should restore full funding to the IRS so they can (a) help us calculate our taxes accurately and (b) do a more effective job of locating tax cheats (and people who made honest mistakes) and encouraging them to pay their full share.

Besides, since those early days when I became far too familiar with the IRS's tax collection methods, I have come to know some IRS collection agents personally, outside of work, and they are among the most honest and honorable, fair-minded and compassionate people I know.

My guess is that the proportion of honest, good IRS employees is the same as the proportion of honest, good people in every walk of life. That is: most of them.

It's good for us to feel the pain of paying taxes, so that we can say "Whoa" to our elected representatives when the pain becomes too great.

It's also good for us to pay the taxes, so that we don't have to feel the pain of sudden and drastic cuts in the number of employees and beneficiaries drawing their income out of tax money.

Tax Day is when we prove, by pumping our money into the system, that we're all in this together.

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