The American Dilemma and How We Can Fix It

Archive for the ‘IRS’ Category

THE TRUTH ABOUT “INCOME INEQUALITY”

Once upon a time my father received a notice that his tax return was being audited.  At the time he was a salesman and travelled the country extensively being on the road for forty or more weeks per year.  All of this was done by automobile – and one of the deductions which he correctly took was for expenses related to these trips.  Fortunately, my father was also a meticulous record keeper as well as being scrupulously honest.

Notwithstanding that he felt that unless he had made a mathematical error, which he thought was unlikely, he was confident that his return would survive anyone’s scrutiny, he was still nervous when he arrived at the IRS”s office for his audit.  But several hours later the auditor agreed that my father’s return had been honestly and accurately prepared and issued a “no change” determination.

But the next year he got another such audit demand and one the following year.  As was the case with his first experience these two audits resulted in the auditors’ accepting the original returns as filed.  But other than experiencing a nervous stomach and perhaps a little heart burn, my father learned and taught me a valuable lesson which Chief Justice John Marshall stated in writing a majority opinion in a tax case, “The power to tax is the power to destroy”.

There are several threats to achieving financial independence and even wealth.  They are inflation; lack of financial knowledge; bad management; and most importantly, taxes.  With the exception of taxes, the other three can be handled.  There are assets that increase in value even if inflation becomes rampant; a person can educate himself on how to invest his savings; if a manager who has been hired by an investor is not meeting expectations he or she can be replaced.  But no individual can control the amount of taxes that government extracts from his earnings.  That is a matter of policy and law, enacted by the Congress and signed by the President.

The left’s theory – or at least their major talking points – are that income inequality makes it impossible for people to compete on a level playing field and that in particular, women and minorities are disenfranchised from the same level of opportunity that, for example, white males, (and whites in general) enjoy.  Hence they push for a higher minimum Federal hourly wage – as though a person who has no financial knowledge will somehow break into the middle class and realize the American dream by earning a couple of extra dollars an hour.  People do not get wealthy or break the shackles of poverty by making ten, twelve or even fifteen dollars an hour.  People get wealthy because they have a unique talent or because they start their own business which grows and prospers – or, for the lucky few – because they inherited their money.

But one of the lessons that my father taught me is that, “It isn’t what you make – it’s what you keep” that determines a person’s financial situation.  No matter how much you make if you spend more than that amount, the conclusion will be financial disaster.  Just look at the Federal government’s balance sheet if you doubt that.  Or look at Curtis James Jackson III (better known as 50 Cent) who made several hundred million dollars and just declared bankruptcy.

But the left persists in making these arguments that we need to level the playing field so that everyone has equal opportunity to succeed and if they really believed in the hogwash with which they bombard us, it seems only logical that rather than a fifteen dollar per hour minimum wage we should simply decree it to be one hundred or one thousand dollars per hour.  Now that would have an impact.

So why stop at fifteen bucks when a higher number would be better?  The answer is that everyone realizes that having the skill set to be a burger flipper is simply not worth that amount of money in a free and open job marketplace.  And the reason that being a burger flipper makes the current minimum wage is that there are a lot of potential burger flippers out there who will take that job and do it in an equally competent manner as the present employee should he or she decide that his employer is engaged in “oppressing him”.

My first summer job was working for a company that wholesaled shirts.  I earned two dollars fifty cents per hour and worked a forty hour week.  Of my gross income I had to commit one dollar fifty cents for carfare to get to the job and get home.  And even then, Social Security and Federal and New York state taxes were deducted from my check.  (The City of New York had not yet implemented their own additional income tax on its residents).

Since I took my lunches to work with me, (provided courtesy of my parents) I was able to save most of my check for my college tuition.  And when I realized that it was only a three mile walk one way, I started getting up extra early to walk to my job rather than spend the fifteen cents on the subway.  Once a week on Wednesday I would, rather than bring lunch, treat myself to a slice of cheese pizza at the cost of fifty cents (sixty if I really splurged and ordered pepperoni on it).  I admit to feeling a little bit of guilt about indulging in the luxury of that hot and bubbly slice of pie – but, darn it was good.

The theory that those on the left (and those like Ms. Clinton who appear to be on the left to attract primary voters to her cause) espouse is that we can have the money to institute their social programs by merely getting it from those who have either a special talent or ability, have started a small business which might have grown and prospered or those who were fortunate enough to inherit their substantial wealth.

If we lived in a country in which the government, not the citizen, runs programs and determines who should have so much but not more than that, even confiscating all the accumulated wealth of those who have it in their possession currently and redistributing it to those who would like to have it, would “even the playing field” for a second – and then the same inequities would once again start reappearing.

Whether we like it or not, some people are more motivated, more talented, more intelligent and more creative than others.  And like the classic cream rising to the top, those whose wealth had been appropriated by the government would start over and within a short time would again become wealthy whereas those who had been the recipients of their former wealth would again sink back into poverty.

Well, that’s the scenario with a one time confiscation of the assets of the wealthy.  But even proposing that would take more brass than the left has in their admitted operational playbook.  So the reasonable way for them to proceed is to raise taxes on the rich – as a matter of “equity”.  After all, were it not for the government and the tears and sweat of the miserable masses, these people could never have achieved their success.  We all remember Obama’s famous, “You didn’t build that speech”.

According to the economic theories of the left, trickle down economics doesn’t work nor does it improve anyone’s life except for those doing the trickling.  And more importantly, their firm belief is that just because the wealthy worked hard, been creative and took responsibility for their financial future, they have an obligation to those in society who sat back, got fired from a multitude of jobs for performance and who believe the way to wealth is sitting home collecting unemployment while watching the soaps and eating potato chips, taking only a break from this in order to get out with fellow economic failures and picket outside the business du jour demanding a higher minimum wage.

Now it’s an interesting phenomenon that while conservatives believe that lowering taxes increases the number of businesses that are created and because of this may actually result in higher amounts of taxes collected because of higher GDP, they have an interesting ally in the State of New York – headed by Governor Andrew Cuomo (D) who comes from the left’s own tradition.

There is an ad being run by the state of New York which begins, “New York is changing the way we’re doing business by lowering corporate and individual tax rates.”:  The ad goes on to say that manufacturers who relocate to the state will receive a ten year exemption from paying any income taxes.  If I didn’t know better this sounds remarkably like a plan that could have been authored by President Reagan’s economic adviser, Arthur Laffer.

But if the conservatives in this country need further validation of their economic policies, perhaps the strongest example may come from the Commonwealth of Puerto Rico which is asking that Congress pass a law granting them the same ability to file bankruptcy as Detroit, another Democrat controlled stronghold.  Otherwise they warn us that there will most certainly be default on the debt obligations the commonwealth has issued.  But while waiting for Congress to act on this desperate request, the Governor has, among other proposals, found an interesting way to combat Puerto Rico’s insolvency.  He has proposed lowering the minimum wage for hourly workers on the island.

Talk about mixed (and confusing) messages.  No wonder we’ll be at $20 Trillion in “official” debt by the time Obama leaves office.  Well, he promised “Hope and Change” in his drive that landed him in the White House.  And by the time he leaves office, we may all hope that he’ll leave us with some change – even if it’s small change.

THE IRS BASEBALL TEAM

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At the IRS there’s a new catch phrase going around.  It is, “That’s my story – and it’s subject to change or revision at a moment’s notice.”

Setting aside whether it disturbs you that the IRS may have targeted a particular group with a particular political viewpoint, which it should irrespective of your own political perspective, all Americans should be troubled that any organization that has the power to seize your bank accounts, your home and your life savings simply hasn’t the ability to maintain its own records which it is required to do by Federal law – but expects all taxpayers to maintain documentation of the statements they make on their tax returns for seven year

Let’s recap the Congressional investigation into whether the IRS targeted conservative groups, denying or holding up a determination on whether they were entitled to tax exempt status for periods of up to two years.

First, when this news broke we were told that this was a “boneheaded decision” (that comment courtesy of President Obama) which originated from and was restricted to the Cincinnati, OH IRS office.

Second, we found that the order to pay “special attention” to conservative groups actually began in Washington, at IRS headquarters and one mid-upper level IRS bureaucrat, Lois Lerner was at the center of this.

Third, Lois Lerner is subpoenaed to testify and pleads her Fifth Amendment protection against self-incrimination, not a normal procedure taken by someone who has nothing to hide.

Fourth, Chairman Issa’s committee requests copies of Lois Lerner’s emails from IRS Commissioner John Koskinen who replies that it might take one to two years to get this information together.  That is testimony that he delivers before the committee under oath.

Fifth, Koskinen returns to testify to the committee and testifies that Lois Lerner’s hard drive “crashed” and that many of the requested emails were irretrievably “lost.”  Co-incidentally, a number of other IRS employees’ hard drives similarly “crashed” at the same time – people with whom Ms. Lerner would regularly have communicated.

Sixth, the Director of the National Archives testifies before the committee that under Federal law, the IRS was supposed to have furnished his office with all written communications and failure to do so was a violation of Federal law.

Seventh, Koskinen testifies that Lois Lerner’s hard drive was “destroyed” and there would be no way for him to provide the subpoenaed emails.

Eighth, Koskinen testifies that “backup tapes” which might hold the emails exist and that the hard drive which was “destroyed” actually still exists and merely was “scratched” rather than being destroyed.  It is possible that there might be data on it which could be recovered.

That brings us up to date – for the moment.  Apparently, the IRS’ story is subject to change without notice.

With all the different stories that IRS has told thus far, it is not surprising that nearly three out of four Americans believe that Congress should continue its investigation of this agency.  Perhaps the remaining twenty-five percent of us think this is either a waste of time or money and the IRS plays no part in their lives – so why bother?  Well, they’re not only uninformed but they’re wrong.

As you may know, Obamacare affects everyone in the country and many of its provisions fall under the purview of the IRS.  Yes, they’re the folks who are supposed to determine that you might be entitled to a “subsidy” for your insurance premium and they’re the people who are supposed to penalize you if you don’t comply with the law by buying health insurance.  Given their level of either incompetency or downright dishonesty in discussing the Lerner emails, that doesn’t give me a warm and fuzzy feeling about them – not that I had one before now.

Several years ago before I began taking Gracie to the dog park I used to walk her in my neighborhood.  Occasionally I would run in to one man on the next block whom I would greet with a friendly, “Hello, how are you today?” never to receive a response from him.  This happened many times and I wondered if there were something that I had inadvertently done to offend him or perhaps he just didn’t like dogs.  So I mentioned this to a neighbor who lived across the street from this man and his family.  She told me, “Don’t take it personally.  He isn’t very friendly.  And he works for the IRS.”

I hadn’t thought about this man for several years – until the “phony IRS scandal” emerged.  I can’t conclude that the agency engaged in any wrongdoing – but there is that smell to that what with all their changing stories and obfuscation.  It’s a little like living next door to a Limburger cheese factory.  You don’t have to go inside to know that it’s there.

So it occurred to me, what if this man’s immediate next door neighbor and he had a minor disagreement which they couldn’t resolve amicably?  And what if he were a petty person who decided to take things in his own hands?  Well, he knows his neighbor’s name and address and it should prove no difficulty to pull up his social security number and, if his position allowed him, what if he decided to “retaliate” by having his neighbor’s returns audited?  Sounds unlikely, right?  Except that’s precisely what has happened to several individuals involved in Tea Party groups who applied for exemption with the IRS.

The best resolution to this question would be instituting a simple tax code that everyone could understand and with which compliance would be easy – thus eliminating a need for the IRS, or at the least a great reduction in both its size and the scope of its authority.  That’s not likely to happen anytime soon.

The second best option is to find out what really happened at the IRS and, if there is illegality and political profiling, make sure that those who were involved get incarcerated and take steps to make certain  that the agency gets the oversight so that they don’t pursue the same policies in the future.  I have only a moderate hope that happens.

The third best option, and probably the most likely one, is that the agency is truly so internally messed up that they are more than likely to leave us alone through sheer incompetence.  Based on the billions of dollars of bogus refunds IRS pays out, this seems to be the most likely case.

One can only wonder if anyone at the IRS including their commissioner has either a handle on the situation or, if he does, plans to reform the agency.  There doesn’t seem to be much evidence to point to that conclusion.  As for the rest of us, we can amuse ourselves with the classic Abbott and Costello routine and ask ourselves, when it comes to the IRS, “Who’s on first?”

GOBBLEDYGO0K AND FORM 1040

You’ve decided that this year you are not going to wait until the eleventh hour and are going to get your ducks in a row and finish your tax return early.  So you’ve pulled out your shoe boxes full of receipts, gathered your bank statements and have all of your pertinent information at hand ready to tackle the task.  Good luck and God bless you.

One of your co-workers happened to have mentioned that she was entitled to the Earned Income tax credit.  She was ecstatic at this discovery.  So you decide to see whether you might also be eligible to participate in this bounty of government generosity.  You google those four mighty words “Earned Income Tax Credit” and are brought to the following section of the Internal Revenue Code:

26 U.S.C. § 32 : US Code – Section 32: Earned income tax credit

(a) Allowance of credit (1) In general In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount. (2) Limitation The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the excess (if any) of – (A) the credit percentage of the earned income amount, over (B) the phaseout percentage of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the phaseout amount. (b) Percentages and amounts For purposes of subsection (a) – (1) Percentages The credit percentage and the phaseout percentage shall be determined as follows: (A) In general In the case of taxable years beginning after 1995: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 34 15.98 2 or more qualifying children 40 21.06 No qualifying children 7.65 7.65 ——————————————————————– (B) Transitional percentages for 1995 In the case of taxable years beginning in 1995: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 34 15.98 2 or more qualifying children 36 20.22 No qualifying children 7.65 7.65 ——————————————————————– (C) Transitional percentages for 1994 In the case of a taxable year beginning in 1994: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 26.3 15.98 2 or more qualifying children 30 17.68 No qualifying children 7.65 7.65 ——————————————————————– (2) Amounts (A) In general Subject to subparagraph (B), the earned income amount and the phaseout amount shall be determined as follows: In the case of an eligible The earned The individual with: income amount phaseout is: amount is: ——————————————————————– 1 qualifying child $6,330 $11,610 2 or more qualifying children $8,890 $11,610 No qualifying children $4,220 $5,280 ——————————————————————– (B) Joint returns In the case of a joint return filed by an eligible individual and such individual’s spouse, the phaseout amount determined under subparagraph (A) shall be increased by – (i) $1,000 in the case of taxable years beginning in 2002, 2003, and 2004, (ii) $2,000 in the case of taxable years beginning in 2005, 2006, and 2007, and (iii) $3,000 in the case of taxable years beginning after 2007. (3) Special rules for 2009, 2010, 2011, and 2012 In the case of any taxable year beginning in 2009, 2010, 2011, or 2012 – (A) Increased credit percentage for 3 or more qualifying children In the case of a taxpayer with 3 or more qualifying children, the credit percentage is 45 percent. (B) Reduction of marriage penalty (i) In general The dollar amount in effect under paragraph (2)(B) shall be $5,000. (ii) Inflation adjustment In the case of any taxable year beginning in 2010, the $5,000 amount in clause (i) shall be increased by an amount equal to – (I) such dollar amount, multiplied by (II) the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting “calendar year 2008” for “calendar year 1992” in subparagraph (B) thereof. (iii) Rounding Subparagraph (A) of subsection (j)(2) shall apply after taking into account any increase under clause (ii). (c) Definitions and special rules For purposes of this section – (1) Eligible individual (A) In general The term “eligible individual” means – (i) any individual who has a qualifying child for the taxable year, or (ii) any other individual who does not have a qualifying child for the taxable year, if – (I) such individual’s principal place of abode is in the United States for more than one-half of such taxable year, (II) such individual (or, if the individual is married, either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and (III) such individual is not a dependent for whom a deduction is allowable under section 151 to another taxpayer for any taxable year beginning in the same calendar year as such taxable year. For purposes of the preceding sentence, marital status shall be determined under section 7703. (B) Qualifying child ineligible If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year. (C) Exception for individual claiming benefits under section 911 The term “eligible individual” does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year. (D) Limitation on eligibility of nonresident aliens The term “eligible individual” shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (E) Identification number requirement No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year – (i) such individual’s taxpayer identification number, and (ii) if the individual is married (within the meaning of section 7703), the taxpayer identification number of such individual’s spouse. (F) Individuals who do not include TIN, etc., of any qualifying child No credit shall be allowed under this section to any eligible individual who has one or more qualifying children if no qualifying child of such individual is taken into account under subsection (b) by reason of paragraph (3)(D). (2) Earned income (A) The term “earned income” means – (i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus (ii) the amount of the taxpayer’s net earnings from self- employment for the taxable year (within the meaning of section 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f). (B) For purposes of subparagraph (A) – (i) the earned income of an individual shall be computed without regard to any community property laws, (ii) no amount received as a pension or annuity shall be taken into account, (iii) no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account, (iv) no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account, (v) no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and (vi) a taxpayer may elect to treat amounts excluded from gross income by reason of section 112 as earned income. (3) Qualifying child (A) In general The term “qualifying child” means a qualifying child of the taxpayer (as defined in section 152(c), determined without regard to paragraph (1)(D) thereof and section 152(e)). (B) Married individual The term “qualifying child” shall not include an individual who is married as of the close of the taxpayer’s taxable year unless the taxpayer is entitled to a deduction under section 151 for such taxable year with respect to such individual (or would be so entitled but for section 152(e)). (C) Place of abode For purposes of subparagraph (A), the requirements of section 152(c)(1)(B) shall be met only if the principal place of abode is in the United States. (D) Identification requirements (i) In general A qualifying child shall not be taken into account under subsection (b) unless the taxpayer includes the name, age, and TIN of the qualifying child on the return of tax for the taxable year. (ii) Other methods The Secretary may prescribe other methods for providing the information described in clause (i). (4) Treatment of military personnel stationed outside the United States For purposes of paragraphs (1)(A)(ii)(I) and (3)(C), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term “extended active duty” means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period. (d) Married individuals In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013. (e) Taxable year must be full taxable year Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months. (f) Amount of credit to be determined under tables (1) In general The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary. (2) Requirements for tables The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each – (A) for earned income between $0 and the amount of earned income at which the credit is phased out under subsection (b), and (B) for adjusted gross income between the dollar amount at which the phaseout begins under subsection (b) and the amount of adjusted gross income at which the credit is phased out under subsection (b). [(g) Repealed. Pub. L. 111-226, title II, Sec. 219(a)(2), Aug. 10, 2010, 124 Stat. 2403] [(h) Repealed. Pub. L. 107-16, title III, Sec. 303(c), June 7, 2001, 115 Stat. 55] (i) Denial of credit for individuals having excessive investment income (1) In general No credit shall be allowed under subsection (a) for the taxable year if the aggregate amount of disqualified income of the taxpayer for the taxable year exceeds $2,200. (2) Disqualified income For purposes of paragraph (1), the term “disqualified income” means – (A) interest or dividends to the extent includible in gross income for the taxable year, (B) interest received or accrued during the taxable year which is exempt from tax imposed by this chapter, (C) the excess (if any) of – (i) gross income from rents or royalties not derived in the ordinary course of a trade or business, over (ii) the sum of – (I) the deductions (other than interest) which are clearly and directly allocable to such gross income, plus (II) interest deductions properly allocable to such gross income, (D) the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and (E) the excess (if any) of – (i) the aggregate income from all passive activities for the taxable year (determined without regard to any amount included in earned income under subsection (c)(2) or described in a preceding subparagraph), over (ii) the aggregate losses from all passive activities for the taxable year (as so determined). For purposes of subparagraph (E), the term “passive activity” has the meaning given such term by section 469. (j) Inflation adjustments (1) In general In the case of any taxable year beginning after 1996, each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to – (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined – (i) in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting “calendar year 1995” for “calendar year 1992” in subparagraph (B) thereof, and (ii) in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting “calendar year 2007” for “calendar year 1992” in subparagraph (B) of such section 1. (2) Rounding (A) In general If any dollar amount in subsection (b)(2)(A) (after being increased under subparagraph (B) thereof), after being increased under paragraph (1), is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10. (B) Disqualified income threshold amount If the dollar amount in subsection (i)(1), after being increased under paragraph (1), is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50. (k) Restrictions on taxpayers who improperly claimed credit in prior year (1) Taxpayers making prior fraudulent or reckless claims (A) In general No credit shall be allowed under this section for any taxable year in the disallowance period. (B) Disallowance period For purposes of paragraph (1), the disallowance period is – (i) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and (ii) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud). (2) Taxpayers making improper prior claims In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit. (l) Coordination with certain means-tested programs For purposes of – (1) the United States Housing Act of 1937, (2) title V of the Housing Act of 1949, (3) section 101 of the Housing and Urban Development Act of 1965, (4) sections 221(d)(3), 235, and 236 of the National Housing Act, and (5) the Food and Nutrition Act of 2008, any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section 3507,(!1) shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month). (m) Identification numbers Solely for purposes of subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification number means a social security number issued to an individual by the Social Security Administration (other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act)..


Pardon my French and forgive my ignorance but what the hell does that mean?  Although you’ve never taken a course in any Slavic language, you might have had as much comprehension reading the first chapter of Dostoevsky’s, “The Idiot” in the original Russian as you would reading this bit of gibberish.

I like to think of myself as slightly more intelligent than your average pet rock and I think that I have a fair amount of conversancy with the tax code but I got lost somewhere a few hundred words into this document.  How does Joe Blow who is studying to get his GED begin coping with this gobbledygook?

Well, the answer is that either he goes to a tax preparer (who probably has no greater understanding of this government gibberish but who has an automated program which has figured out how to interpret it) or he goes to one of the online tax preparation services which do the same thing as your friendly middle aged lady at H & R Block.

Unfortunately, the example I have presented persists throughout the entire tax code.  You can find the exact same sort of verbiage whether you’re looking to discover how Capital Gains should be reported or whether Social Security benefits are taxable.  Pick any other topic and you’ll get the same wordy, difficult to understand “explanation.”

In the past thirty years the IRC has grown from what was already an impressive 20,000 pages to its present 70,000 pages.  Why?  So little carve outs could be given to the favored few – whether corporately or individually.  Surely there is a better, simpler way to compute our taxes.  It has, after all, been a subject of conversation for the past twenty-five years.

Rep. David Camp (R – MI) has put forward a draft proposal that would greatly simplify the tax code and make it so that your average village idiot could actually prepare his own return, confident that he was complying with the law.  He would reduce the number of tax brackets to three; eliminate a lot of deductions and claims that it would be revenue neutral.  It is just a proposal but it’s certainly a start in the right direction – one that is long overdue.

Of course, conservatives should be aware that there is one giant caveat in tax code simplification.  It would probably allow more IRS employees time to join the witch hunt within that agency which has already targeted them.

THE ASHEN VIZIER AND THE 535 MENTAL MIDGETS

We know that if we give a junkie a dose of heroin she’s going to use it and come back asking for more.

We know that if we send government our tax dollars they’re going to spend them and come back asking for more.

We call the junkie a law breaker.  We call the politician a law maker.  That’s about the only difference between them.

If we apprehend the junkie, we the taxpayers pay for her support either in a rehab facility or a prison.  We the taxpayers who elect the politicians pay their support through our tax dollars to ensure they have ready access to what little they leave us in our pockets.

My friends used to laugh at my view of owning a car.  I summed it up one day on returning from a repair shop where I had some mechanical work done.  As I put it, “Owning a car is like having a vacuum cleaner permanently attached to and sucking at the contents of  your wallet.”

That’s a lot like the way government operates.

Many years ago my father was audited by the IRS.  For three years in a row.  The focus of their pogrom was on determining whether the business deductions he took were legitimate.  The result of these audits were three “No Change” determinations by that esteemed agency.  In other words, dad had documentation for every penny that he claimed and those deductions met the definitions of the Internal Revenue Code.

Nevertheless, it’s always stressful when you are accused of something and are assumed to be guilty until you prove your innocence – which is the approach that the IRS takes with us taxpayers.  So dad dreaded these encounters passionately.  I think that was mostly because he was an honest man and the implication that he was otherwise challenged his sense of decency.

At dinner one night, I believe it was at the conclusion of the second audit, my father told us that he had said to the auditor, “Wouldn’t it just be easier if you took everything I made and then just refunded what you think my family and I are entitled to live on?”  Little did he know that would be the direction this country would turn a half century later.

As we are now little more than three weeks from the much touted precipice of the “fiscal cliff,” who is in charge of making rational decisions to repair the folly we have already wrought?  It should not surprise you that it is the very people who have brought us here in the first place.

Our players consist of the Ashen Vizier and the 535 Mental Midgets – a cartoon cast that would be the envy of both Walt Disney and Cecil B. DeMille.  (My apologies to the twenty or so responsible people in Congress who have a pulse, a brain, common sense, and the moral courage both to understand and to tell the truth).

So here’s where we are.  Stuck over defining who’s “rich” and who should pay more of their “fair share.”  As though that matters any more than renaming a school in honor of Horace Mann will provide the students inside with a better quality education.

The facts are (and amazingly both sides agree on this) that if we follow the Ashen Vizier’s plan and start taxing the “rich” more, we will raise less than three percent of the money we need to balance our budget.  In other words, this “plan” leaves ninety-seven percent of our problem unresolved.

Since it’s hard for any of us to contemplate something that has burgeoned into the size of our deficits with all those zeroes, let’s look at this from a standpoint which we all can understand because we all have to deal with it.  A family and its budget.

You and your spouse have been wasteful and indulgent of the kids.  You’ve let your finances get out of control – but you’ve finally decided it’s time to deal with reality and get yourself back on the right path.  (Those annoying phone calls from creditors might have given your decision some impetus).

So you go down to Ashen Vizier & Associates credit counseling service.  You’ve seen their ads on television (a lot) and they promise that they have the solution to your financial woes.

The nice receptionist asks you to fill out a profile of your monthly income and expenses and then you are brought in for an audience with the Vizier himself.  He is a very self-assured and impressive sounding chap.

After he reviews your situation, he astutely points out that you are spending one thousand dollars a month more than you are taking home.  You and your spouse, in awe at this wisdom, nod your heads in agreement.  Okay.  The Vizier has identified your problem.  That’s a great start.  But, you ask him, “What do we do about it?”

As he stands up from behind his desk and completes the putt he was working on when you came into his office, he says, “No problema.”  He turns to the reference library which is on the wall behind him, filled with hundreds of the largest books you have ever seen.  He immediately pulls one down from the shelf and turns expertly to the middle of this tome where he finds the solution to your difficulty.

On page 462, Paragraph 7 he shows you a program which the Federal Government has developed just for people who are like you.  All you need to do is complete the paperwork and every month thereafter you will begin receiving a special allotment of thirty dollars.  It’s the program called “A Little Something Extra For The People Who Are A Little Short Each Month Entitlement.”

it is with some trepidation that you point out that will still leave you nine hundred seventy dollars a month deeper in debt.  But the Vizier grins broadly at you and says, “Don’t worry – that will take care of itself.”

Armed with this wisdom (and the promise of an extra thirty dollars a month) you and your spouse leave the office in an upbeat mood.  You decide to go to a movie, buy some popcorn and a few sodas and spend the thirty dollars you will soon be getting plus a little more.  Like your old hero, Alfred E. Neuman and your newly found one, the Vizier you are comforted with their life-guiding principle, “What, me worry?”

Somewhere I have quite a few copies of “Mad Magazine” stored away.  I think I know where they are.  Talking about all this financial stuff always makes me a little dizzy.

If I can find them, maybe I’ll curl up with a couple and drift off to sleep.  As I think about it, they are nearly forty years old and may be worth something.  Which is more than I can say for the Ashen Vizier and the 535 Mental Midgets.

SILLY RABBIT

Once upon a time a rabbit came into a tidy sum of money by winning the jackpot in a lottery drawing.  He was very happy at this good fortune, of course.  He was fixed for life with the certainty that he could buy more carrots than he could ever eat.

Not only did he not have to forage for himself – at the risk of receiving a load of buckshot from Farmer Jones’ shotgun – he could just hop over to the grocery store’s produce section where his favorite vegetable was readily available and all nicely pre-packaged.  The rabbit thought this indeed was Nirvana.

After awhile, he thought to himself, “Why should I stay in this cramped little burrow?  I should buy a house and live in style”  So he did.  He bought a beautiful house. It had all the most modern amenities which, of course, included a very large entertainment center.  The rabbit really liked that and spent hours watching it.

Of course, when he tuned in to the Playboy Channel, expecting to see stories about Flopsy and Mopsy and Cottontail, he was a little startled at what he saw.

One day while he was watching television he noticed an advertisement for a local company that sold a food that was called a donut.  The rabbit had never tasted one of these – but they looked good.  So the next time he hopped down to the grocery store he bought a dozen of them along with his supply of carrots.  He liked donuts even better than carrots and was determined that he would never go another day without eating some.

Well this went on for some time when a horrible thought occurred to him.

“What if the donut company should go out of business?  How would I get my supply of donuts?  I should buy the company and make sure that I will always be able to get enough donuts to satisfy my wants.”

So, since he had a lot of money available from his prize winnings, he purchased the donut company and took over the business.  He felt good about his decision.  Not only would this give him a certain supply of donuts, the exercise of running a business would probably help him lose the weight he had gained from sitting on the couch, eating and watching television all day.

The rabbit knew nothing about running a business but he was a bright chap.  He realized that maintaining the size of each donut’s hole was critical to his being able to make a profit.  The more dough he sold, the less dough he made.

So he turned his attention to making sure that the equipment that regulated the size of each donut’s hole was in perfect working order.  Sadly, he didn’t pay nearly enough attention to the other aspects of his business.

One day someone stopped by from something called OSHA.  They cited the rabbit’s company with a lot of violations of regulations which he didn’t even know existed and fined him a great deal of money.  The FDA claimed that the nutritional information on his packaging was incorrect and demanded that it be revised.  A  few days after that some people came by from the EEOC.  They told the rabbit that he was being sued because he didn’t have enough Slimy Toads working in his factory.  The drivers for his company demanded that they be represented by the Teamsters Union and until he recognized their right to organize would make no more deliveries.  And finally the IRS levied his bank account because the previous owners had unpaid taxes which they considered to be the rabbit’s responsibility.

This was more than the rabbit could bear.  He was last seen hopping away from the donut factory in search of a new burrow where he could live out his remaining days in peace and security, foraging for his daily supply of carrots.

The company closed its doors, putting the employees on the unemployment rolls and causing the plant to decay to the point that it was such an eyesore that it was razed at the taxpayers’ expense.

Moral:  The hole is sometimes greater than the sum of its parts.

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DIRTY LITTLE SECRETS

What really is in Mitt Romney’s years of tax returns that he has not released for public gawking?  Apparently only he, his wife, their accountants, the IRS and Sen. Harry Reid really know.

You may recall that about a month ago the good Majority Leader of the Senate made the declamation that “he had proof” that Mitt Romney hadn’t paid any taxes for ten years.  Having laid that unsubstantiated bombshell on the public, there has been nothing further forthcoming from Sen. Reid on the subject.

Frankly, neither I nor the intelligent segment of the American public really cares whether that is true – other than to point to the incredible stupidity of our massive tax code which no one can understand – including Treasury Secretary Timothy Geithner, who failed to pay his own taxes correctly.  The Tax Code should be overhauled so that it is not only equitable but understandable to the average Jane Citizen.

A few days ago Sen. Reid was “involved” in a six car collision here in Las Vegas.  Not only was his vehicle damaged but two that were being driven by Capitol Police and two Metro Police cars, all four of which were “escorting” him were involved.  Now I do not know if the Senator was at fault in causing this accident since the media coverage conspicuously avoided describing the circumstances surrounding it.  But if the Senator’s driving skills are as compelling as his ability to bringing a budget to the floor of the Senate, I think that is a good possibility.

I’m not sure who the occupant of the last car was, but you can be pretty certain he was a Republican who had not yet participated in early voting.

Throughout this campaign, President Obama’s ads have leveled charges that Mr. Romney isn’t “paying his fair share” – or more accurately – “his fair percentage.”  This makes for good sound bytes and gets people riled up and angry – which has been a hallmark of the achievements of the Obama campaign.

People who couldn’t, with or without the use of a calculator, tell you what percentage 87/299 is,are totally stoked by this inequity.  The fact that Mr. Romney and his wife paid $3 Million or so compared to their $10,000 doesn’t seem to impress those who buy into this rhetoric as being “fair”.  Again, you can hardly lay the blame at Mr. Romney’s feet when it deserves to be leveled against those who wrote the code under which he made his contribution to the welfare of the nation.

Frankly, if I had been an advisor to Mr. Romney, I would have simply said, “Show them the returns and let them have fun with them.”  I would also have used that as an opportunity to address the fact that we need, not to revise, but to re-do the tax code.

Just think about all the jobs we could eliminate at the IRS, and H & R Block and public accounting firms if we had a flat tax.  We would no longer need those handy dandy tax software preparation programs nor would the firms that provide them need software developers.  And the amount of paper that we would save!  We could cut back on the number of loggers and employees at paper manufacturers as well, even as we were saving some of our remaining trees and forests.  And let us not forget that with the reduction in advertising all these tax preparation services, we could slash quite a few jobs in the media as well.

Earlier today I put up a post, “What’s Sauce For The Goose Is Sauce For The Gander”.  And given all the criticism which has been leveled at Mitt Romney and his tax returns, I thought it was only fair to turn the tables and look at some “dirty little secrets” that President Obama is keeping from us.  Specifically, I refer to his college transcripts.

Let me begin by saying that when it comes to the subject of Donald Trump, the most complimentary thing I can say is that he must be suffering from a perennial “bad hair day”.  I watched one episode of “The Apprentice” and was mildly horrified at the glee with which he pronounced the fatal words, “You’re Fired”.  I don’t care for the gentleman – but his offer to contribute $5 Million to a charity of President Obama’s choosing if he reveals his college record does underscore a point.

If the President has nothing to hide, why is this such a deep, dark secret?  For exactly the same reason that I believe Romney should have just given us his tax returns to diffuse the subject, the President could put to rest all the innuendos regarding himself by revealing the contents of his academic background.

It troubles me when unsubstantiated statements are made about anyone – including President Obama.  If those statements are intentionally fabricated with the intent to do harm to another, they are called liable and slander.  No one should be subject to that sort of calumny – and when those assertions lie about the shoulders of the person who is the leader of the free world, it does him and all Americans a tremendous injustice.

I have read several pieces which claim that when the President was at Occidental College, he attended as a “foreign student” from Indonesia under the name he used at the time, Barry Sotero.  Further, these reports indicate that he received grants to attend as a foreigner.  I do not know, nor does anyone other than the President and the Registrar at Occidental College whether this is true.  But if it is then it is certainly disturbing.  And I believe that the American people have the right, and the President has the responsibility, to put these matters to rest.

I try to keep my own counsel and share those things about myself with friends whom I trust when there is a reason for them to know.  I think that is good advice for most of us to follow.

But if you’re a public figure, there is a slightly different set of rules.  We should have the confidence that those in public office are telling us the truth about their personal life experience and conduct so that we can fully get behind them and support their efforts on behalf of the country.  Anything less is both unproductive and unpatriotic.

I find being on the same side of an issue with Mr. Trump to be a little disquieting.  But I must admit that he does throw down an interesting gauntlet.  I hope that President Obama takes it up, collects the $5 Million for his favorite charity, and puts to rest the suspicion and ends the talk about his “Dirty Little Secrets”.

I DID THE MATH

And the answer is 92,690.  I checked my calculations several times and I am certain this is correct.

You may ask, “What was the question?”  So here it is:

“What is the grand total of all the numbered IRS forms which Mitt Romney and his wife Ann had to include in their 2011 Individual Income Tax Return in order to comply with the Internal Revenue Code for filing?”

Yes the Romneys, with the assistance of Price Waterhouse Coopers had to file fifteen separate forms, each bearing its special IRS identification number and if you add the numbers on the forms up you get 92,690.  (In addition there was an alphabet soup of other forms included).  The total number of pages for this return was 104.

I have to admit that my favorite was Form 8082.  It is entitled, “Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).”  What in the name of all that is holy does that even mean?  Was this form invented by a psychopath whose real goal in life is to confuse us with his mind games?

But back to our subject …

While this number of pages might not have been sufficient to call for the downing of one of the ancient redwoods in the Pacific Northwest, I suspect the axe fell on at least one small birch or elm to provide the sacrifice and the paper to complete the return.

If you choose to review the return you will find out something we already knew.  Mr. and Mrs. Romney are successful people – at least as far as we measure success by the amount of money a person earns.  They reported an Adjusted Gross Income of $20,908,000 for year 2011 and paid Federal Income Tax in the amount of $3,227,000 on that.

I can hear the groans from the left of the auditorium.  That is only 15.4% of their income paid in tax.  That doesn’t seem fair when the average taxpayer pays at a higher effective tax rate.  Much could be said in favor of that point of view.  A flat tax would make it “fair” in an absolute sense for each of us.  We would all pay the same rate.

However, the problem with that is that paying 15% of your income as a minimum wage earner has a far more dramatic effect on your ability to live than it does for a person who earns millions per year.  (And I think we would get a lot of flak from CPA firms like Price Waterhouse Coopers, not to mention all the folks at IRS who suddenly would be out of a job).

There is one other item in the Romneys’ return that I would like to point out to my readers.  They voluntarily donated $4,020,680 to charity.  Their $3 Million payment in tax was compulsory.  Their donation of $4 Million was voluntary.  If you consider both of these in toto as a “payment to American society” – the percentage of their income which they handed over to others represents 34.6% of their income.

One of the allegations leveled against candidate-presumptive Romney is that as a wealthy man he has no concern for the ordinary person.  The amount of his and his wife’s charitable donations suggest otherwise.

I did the math.  Feel free to check my figures.

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