The American Dilemma and How We Can Fix It

Archive for the ‘Taxation’ Category

KEATS AND THE TAX MAN

“My heart aches, and a drowsy numbness pains
My sense, as though of hemlock I had drunk,
Or emptied some dull opiate to the drains
One minute past, and Lethe-wards had sunk …”

Beginning of First Stanza of “Ode to a Nightingale”

– John Keats

Senior year in high school and the public speaking contest was two days away.  My English teacher encouraged me to participate and I agreed.  The only problem was that I hadn’t selected a piece for recitation.  In my (limp) defense, during the three weeks prior to the actual competition I had considered a number of pieces but had, for various reasons, rejected all of them.  And now the deadline was looming and my only defense for my lack of preparation was that I had been working on the third movement of the Mendelssohn First Piano concerto.

I browsed through the books in the family library and happened to pull out a volume of John Keats’ works.  I came across “Ode to a Nightingale” and was fascinated by the beauty of his imagery in the poem.  I decided, “This is it.  This is the piece for which I was looking.”  So I set about memorizing it.

As it turned out, I lost the competition, coming in second.  My rendition of Keats was defeated by a soliloquy from “A Long Day’s Journey Into Night.”  I chalked this up to the fact that Eugene O’Neill was in vogue – although I must admit that the chap who delivered this oration was nothing short of captivating.  Only for a fleeting moment did the thought that if I had spent a bit more time in preparation, I might have carried the day for John Keats.  Responsibility – what a burden.

This poem came to mind yesterday.  I opened my mail and saw that I had received a letter from the California Franchise Tax Board.  They are apparently the people who collect California Income Tax as I learned when I perused the letter.  In it they claimed that I had an unpaid balance due them in the amount of $891.00, plus penalties and interest all of which totaled $961.65.  All of this was for the tax year 2013.  I thought that was rather strange since I have never lived in California, haven’t visited the state for about thirty years and certainly had no earned income which derived from any employment in that state.  Rather than procrastinate as I had with my public speaking project (I am trainable), I decided to have a cup of coffee and take the bull (or if you prefer the bully) by the horns – and call the toll free number listed on the form letter.

The opening line of this notice began as follows:

“Our records show you owe a balance.  We previously billed you for the balance, which remains unpaid.”   Since I had received no such previous notification, I presumed this was merely step one in the “intimidation” process that most tax agencies normally consider the way to conduct business.  This was confirmed as I read the notice’s second paragraph.

If we do not receive your balance payment in full within 30 days from the notice date, we may take collection action against you, such as file and record a Notice of State Tax Lien against your property and garnish a portion of your wages.”  Warmer words were never penned by poet laureate or bulbous bureaucrat.

I sighed as I dialed the number.  It was not a question of how difficult it would be to speak to a live person but how many hurdles I would have to leap to do so.  It appears that whoever designed the California FTB’s automated answering system holds an advanced degree in telephonic obfuscation.  There was no option given to dial “0” for operator or anyone resembling anything human.  “Perhaps they, like their federal counterparts at the FCC are too absorbed looking at pornography to deal with the tax paying public,” I thought.

Having found that selecting option “1” for individual taxpayers and that led me to a circular recitation of the five options available to me, I decided to try option “2” which is reserved for tax preparers and professionals.  Interspersed with my time on hold, a total of twenty two minutes, were various veiled threats about what this agency could do in terms of seizure of property if the deadbeat on the phone didn’t pay up.  As I don’t speak Spanish, I don’t know if this same threat was repeated in that language.  For all I know they were telling the Hispanic caller a great recipe for a taco salad – or how to sign up for California’s various generous welfare programs.

Finally, I was connected to a soft spoken man with an Indian sub-continent accent, making our exchange all the more challenging.  He identified himself by name, Mear and I off-handedly asked if I were speaking with him in Sacramento.  He assured me that, rather than New Delhi was where he was located.  I was going to speak the one phrase of Hindi that I know, “Opka bagicha bahooth sundar hai,” but I couldn’t find a way to work telling him that “You have a lovely garden” into the conversation.

I explained that this notice, contrary to its statement that it was  a follow up was my first such notice.  I further explained that since I had never derived any income from or in the state of California, this notice was obviously intended for someone else.  Mear immediately and without hesitation said, “You are obviously the victim of ‘identity theft.’”  (They have a form to resolve this sort of problem – so I suspect, particularly in light of yesterday’s announcement that Russia has been able to hack into nearly two billion user names and passwords – that this happens all the time.)

In addition to completing FTB 3552 (Identity Theft Form), Mear explained that I needed to make out a police report, make a copy of my Social Security card as well as copy my Driver’s License or other state issued ID.  When I had all that information gathered, I was to call back and they would give me the FAX number to which that all should be sent.

It naturally occurred to me that once upon a time, Social Security cards were issued with the inscription, “Not for Identification Purposes.”  Apparently they are adequate for identity fraud and may be used for that purpose.  And with all the brouhaha about Voter Identification, you can’t even speak with a tax collection agency until you have verified that you are who you claim you are by presenting a valid form of government issued picture identification, but in many states can vote.

Being a curious person I wondered why someone would file a phony tax return using someone else’s social, name and address if the return showed that there was a liability due.  I asked Mear how much income I had purportedly reported on this return – and I expressed my confusion about why someone would file such a return if they were not receiving a refund.  Of course, dutifully protecting my sensitive financial information, Mear said he could not give me any information until after they had received my fax.  In fact, he wouldn’t even give me the fax number until I had assembled the required documents.  I have to call back in order to get that number – but now at least I know how to beat their system.

My guess is that someone in California probably used this information to get some kind of government benefit during year 2013.  That is, of course, just a guess, but I can think of no other reasonable alternative.  Hopefully when I get all the required documents together later today and after the California FTB has had an appropriate amount of time to shuffle those around, I will get an answer – although I think the likelihood of this is about fifty/fifty.

In the meantime, I can console myself with a recitation of Keats’, “Ode to a Nightingale.”  The good news is that in my fervent effort to memorize that poem for the public speaking contest, I still remember all eight stanzas.

“Fade far away, dissolve, and quite forget
What thou among the leaves hast never known,
The weariness, the fever, and the fret
Here, where men sit and hear each other groan;
Where palsy shakes a few, sad, last gray hairs,
Where youth grows pale, and spectre-thin, and dies;
Where but to think is to be full of sorrow
And leaden-eyed despairs,
Where Beauty cannot keep her lustrous eyes,
Or new Love pine at them beyond to-morrow.”

Keats and the tax man.  Given a choice, I’ll stick with the poet.

CRISIS MISMANAGEMENT

If you either owned or worked for a small business you probably have a number of expectations.  For example, the owner of the business expects that his or her clients will pay their invoices in a timely manner so that they in turn can pay their suppliers and their employees.  The employees expect that if they show up for work and accomplish the tasks assigned to them, they are going to walk in on Friday and be handed their check – which they will be able to negotiate at their bank so that they can pay their bills.

Unfortunately, “The best laid plans of mice and men …”.  Sometimes things simply do not go as planned.  The company’s clients might be experiencing a downturn in their business and their cash flow and pay their bills more slowly than usual.  This puts a strain on the small business owner who is depending on those payments so he can make his own payments both to his suppliers and workers.  Without having a contingency plan to counter this, that small business owner might either be late in paying his own bills and employees, or simply write checks which he knows perfectly well will be returned for “Insufficient Funds.”

No one is so prescient as to be able to predict the future accurately one hundred percent of the time.  But no business would survive if it developed a business plan which was incorrect one hundred percent of the time.  The free market has a simple, unyielding way of dealing with this level of incompetency.  The business shutters its doors and its employees have to find new jobs.

Now one can understand how a new business owner might stumble and be unprepared for an unexpected aberration from what he has forecast.  These sort of mistakes are actually good because they cause the thinking entrepreneur to plan against such future situations – if he survives the first lesson.  But if he survives a business-threatening event and fails to learn a lesson, he is likely to find himself in a crisis situation the next time around.

We can only make the same mistake once.  The second time it’s a choice.  One might argue that barring an extraordinary, once in a lifetime external event, say having a two mile wide meteor crash into Earth, the only reason for having to deal with a crisis is failure to having taken the steps to avoid it in the first place.  Thus, virtually all crises are the direct result of either inattention, ineptitude, ignorance or arrogance.

I would argue that government is a business – one that enjoys advantages that no other business has.  In fact it is the biggest business in the country with more than 22 million employees.  Compare that to Walmart, generally categorized as the largest employer in America with a total of 1.4 million workers.  In terms of longevity, government in America has been around for well over two hundred years while Walmart is a relative newcomer with only fifty-two years under its belt.  There is one even more important difference between these two employers.  The government consistently runs a deficit.  Walmart consistently makes money – and then is taxed on its profitability to fund the deficits that government compiles.

Reasonably, one would expect that government with its length of experience would easily implement programs which would actually work.  But counter-intuitively, just the opposite seems to be the case.  Not only is government wasteful, it does not see this as a disincentive to engaging in yet more waste.  The simple reason is that it has an unlimited checkbook, no accountability for the ineptitude of its executives and can (or so it believes) continue to run perpetually at a loss.  It justifies these deficits as being necessary in the “social interest.”

The “social interest” was well defined in the Declaration of Independence – a separation from what until its signing had been the government of the colonies.  “Life, liberty and the pursuit of happiness” were considered the basis of the “social interest” as it applied to each person.  Anything constraining, hindering or impairing that was an expression of injustice.

And so the colonists set on a path which resulted in the greatest crisis  that Great Britain had ever experienced and which resulted in a nation and a world that for the first time recognized that it was the individual, only as he or she gave consent to the existence of the state, who was most to be considered in determining what was right or wrong and what was good or evil.

There are many in this country who earnestly believe that the solution to government incompetence is to have more of it.  In many cases their conclusions are reached, not as the result of great thought, but because in the short term they see themselves reaping the benefits of wasteful policy by way of personal economic gain.  And as long as they can vote for and pressure those who represent them into increasing these benefits at whatever ultimate cost, they will continue to empower people whose only interest is in advancing their own political careers while all the time making the specious argument that what they do is in “the public good.”

There comes a tipping point, as there did in Boston Harbor in 1773, when those who are productive, mind their business and want no more than to be left alone from the intrusions of others finally have had that final straw laid on their backs and they will say, “Stop.  Enough is enough.”  And that will be the final crisis which our government will have the opportunity to mismanage.

ROSSINI AND THE TAX MAN

As we are on the eve of that fateful day, April 15th which will usher in a total eclipse of the moon, the beginning of Passover (good Lord deliver us) and, of course, the deadline for filing our individual tax returns, it seems appropriate to ease the burden of all this weighty stuff by listening to a little soothing music.

The overture to Gioachino Rossini’s two act opera, “La Gazza Ladra,” (The Thieving Magpie) seems especially appropriate – particularly as it relates to the third of the events enumerated above.  I make that statement not so much because of the wonderful music but because of the title of the piece.

Those last minute tax preparers will probably identify with the sense of urgency that the music builds as it rushes to its final climax.  And, of course, we must not overlook the famous “Rossini crescendo” which the composer incorporated into virtually all of his work.

So sit back, enjoy, get a pot of coffee going, pull out all the papers you’ve stored in shoe boxes and know that you’re engaged in a patriotic duty as you get ready to figure out how much money you are going to send to the IRS so that Ms. Lois Lerner can enjoy a comfortable retirement.

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 POLITICS OF POVERTY

It is certainly a tribute to my parents that neither Mom nor Dad ever encouraged me to choose, as my life’s goal, finding the lowest paying job that was on the market.  In their view, low-paying jobs were the rightful province of the uneducated.  Mom could speak to this from personal experience as her father was one of those poorly educated men who dug ditches in New York for a dollar a day – that is, when the work was available.

Because my parents recognized that education was the gateway for a child to achieve the American dream, they made sacrifices in order to send me to private schools.  Mom got a job at a time when most mothers stayed at home and ultimately she owned her own business.  Dad was in sales and traveled forty weeks a year.  I think it’s fair to say that I didn’t fully understand what they gave up in order to give me the best opportunity to do something productive with my life.

I grew up at a time in America when people generally understood that opportunity was limited only by a person’s initiative, optimism and perhaps a little bit of extra insight that others might not have discovered in themselves.  It was a time that while each of us worked to get a little bigger piece of the pie, we also knew that there were many pies that had yet to be baked in which all of us could share.  It was a time of personal accountability and a time when we recognized and applauded each other and were recognized and applauded by others for personal achievement.  It was a pre-socialist, pre-Obama America.

Obama and his party of the left will spend much of this year talking about social inequity and financial injustice.  The centerpiece of this conversation will revolve around increasing the minimum wage.  The argument being made is that it is inhumane and certainly un-American to pay people less for their labor than what is necessary for their survival.  It’s hard for me or for anyone with an ounce of compassion to refute that – unless we scratch the veneer of that concept.

Let’s consider a basic principle.  Why would any rational person accept a position at a level which forced him to struggle for mere survival if he could work at a better, higher paying position?  Despite my best efforts I have been unable to come up with an answer to that question other than that the person holding what we used to refer to as an “entry level” position does not have the skills to hold a better paying job.

Let’s look at the person who is, as an adult, trying to survive, holding one of these minimum wage positions.  He or she is in a job that has little or no opportunity for growth either in responsibility or in earnings.  This person’s only prospect for making more is finding a second job, probably at the same low wage, the beneficence of his employer increasing his hourly rate or the intervention of some governmental jurisdiction passing a unilateral increase in the wages of him and all others in his earnings class – in other words, an increase in the minimum wage.

Whether or not we pass an increase in the minimum wage which will do little to alleviate the plight of wage earners who are cheering for such an outcome,  this debate does raise several important issues.

The first is that we are not preparing a significant segment of our population through our educational system to do anything other than the most menial, unskilled work and are consigning them to a life of impoverishment and envy of those who are more successful – which by definition – is everyone who is earning anything more than they are.

The second is that they have no future and no American dream – at least not one in which they can have a hope of participating through the old principles of self-sacrifice and hard work.  What incredible psychological damage that must cause.  And as a result we should not be surprised that those who have no hope of succeeding through traditional, legal means turn to violence to seize what they envy in others.

Sadly, astute political manipulators – and we have far more than our fair share of them – recognize that an uneducated mob can easily be swayed with small sops and shallow promises.  If we wonder why our educational levels have slipped so dramatically we have only to turn to the lessons we learned from the slave owners in the pre-Civil War South who made it illegal to educate their human chattel.  There really is no incentive for the new slave owners to improve the educational quality they offer their human livestock, their public outcries about the shocking state of education notwithstanding.  Their real goal is to keep their constituents ignorant – and they have done well in achieving that goal.

Many of those minimum wage, uneducated workers live in our inner cities.  That is if they are not part of our vast minority population whose unemployment rate is nearly twice that of the general population.  We have designed massive programs which bleed the productivity of those who work to “assist” these poor souls in their impoverished condition – a status which has now become generational in nature.  Meanwhile those who purportedly champion the underclass that they have created can be assured that they will continue to be re-elected to political office by their barely literate electorate.

So now these good liberals, portraying themselves as the benefactors of the poor and downtrodden are offering up an increase in the minimum wage.  And those who need opportunity and education far more than a few extra dollars which government will ultimately suck out of their pockets by encouraging them to play the lottery as the path to salvation will wave their handwritten signs as they picket the only businesses who will hire them.

Perhaps, if they have even thought about it, they believe that if their employers fire them or they are replaced by automation, their “friends” in high places will develop even newer and better programs to allow them to live at the subsistence level which they and their parents have endured and to which they condemn their children.

What they don’t realize is that what little they have comes from those who have been productive and who are becoming increasingly resistant to contributing even more than they have been conscripted to donate.  And when the tipping point comes, and it is near, even those who are most generous will hold up their banners with the phrase, “Enough Is Enough” inscribed on them, the spigot to the Fountain of Freebies will run dry and all of us will be expected to be productive to survive.  And that will include those who are in the pulpit preaching their dialectic on the Politics of Poverty.

THE JOURNEY TO NATIONALIZED HEALTH CARE – DAY ONE

Well, we’ve survived the first day of partial government shutdown.  As I had no intent to go to the Statue of Liberty today or any of our national parks, the impact has been limited for me.  And as I don’t have a civilian job with the Federal Government, my paycheck is unaffected.  My sympathy to those Federal employees whose checks will be delayed.  But if previous shutdowns are any indication, they will get paid retroactively for their time off and have a little extra unscheduled vacation.

I was up until the wee hours this morning, listening to all the rhetoric over the shutdown.  This was good for the Obama administration, clouding as it did, the “rollout of Obamacare” as the state insurance exchanges opened for business this morning at 5:00 local time.  I couldn’t wait until they were up and running so that I could make a first hand analysis of the goodies that they had on display.

In all fairness, any new computer program is likely to have “glitches.”  That is neither a surprise nor is it a reason for condemning Obamacare.  There are plenty of other reasons to do that.  But the intelligent IT department is going to make sure that they have subjected any new system to extensive beta testing before making it public.  Perhaps that is what happened with the state exchange programs, but if so, the State of Nevada, whose site I checked, needs to hire people with better skills than those who put this program together

My first encounter with the system was that it simply didn’t respond to my clicking on their links.  I thought to myself, “Perhaps they are overwhelmed with inquiries, more than the system was designed to handle.”  Maybe that is what happened.  So after repeated attempts, I was about to give up when the system finally responded.

What I had in front of me was a list of all insurers whose insurance plans were approved for sale in the State of Nevada for calendar year 2014.  These plans, many from insurers of whom I had never heard, all indicated the level of coverage – Bronze, Silver, Gold and Platinum, as well as Catastrophic.  Not all insurers offered every plan – but in toto there were well over 100 for sale in the state.

Rather than work through that extensive a list, I decided to go to the insurance exchange only plans to get an idea of what was being sold.  There were four providers, three of whom I had never heard.  The only insurer who was recognizable was Anthem – Nevada’s version of Blue Cross Blue Shield.

By the time I had progressed this far, I did learn something.  There is a new, PC term that has entered the vocabulary.  That term is “Cost Sharing.”  Once upon a time, this was called co-insurance and was the amount that an insured person would have to pay out of pocket for covered medical services.  For someone purchasing a Bronze policy, the amount of Cost Sharing is 40%; for Silver policies, 30%; for Gold policies, 20% (this used to be the standard for co-insurance for every policy I purchased for myself and my employees); and for Platinum plans, 10%.

So, I randomly clicked on one of the Silver policies to get the details.  As we all know, the devil is in the details – but, unfortunately, the only detail was the monthly premium cost and no specifics as to what was covered, what was not, how much of a deductible applied to this policy and what, if any, was the maximum out-of-pocket cost to the insured in the event of a serious medical condition.  In other words, it was impossible to make any sort of intelligent decision as to whether this (or any of the other policies listed) was appropriate.

In my business, I handled all the benefits for my employees – so I believe it is fair to say that if I am having difficulties navigating this system, the less conversant consumer is going to have a more difficult and frustrating time.  And while we might realistically expect some improvement over time, there is one underlying factor that will determine the success or failure of this Obamanation of a law.  That is whether younger people will actually sign up for this at overly-inflated rates in order to subsidize the undersized premiums being charged to those who are older or who have significant health problems.  I predict that if it means giving up their Starbucks lattés, we shouldn’t expect to see a massive influx of young eager people looking for health insurance.

Perhaps you’ve had some experience reading the rules and regulations issued by the IRS to “assist” us in preparing our individual tax returns.  Oh, wait – they’re the ones who are involved in writing the regulations that pertain to Obamanationcare.  So the following regulation which determines whether someone is entitled to receive a “subsidy” should feel very familiar to you:

42 CFR–PART 435

View Printed Federal Register page 77 FR 17206 in PDF format.

Amendment(s) published March 23, 2012, in 77 FR 17206

Effective Dates: January 1, 2014

22. Section 435.603 is added to read as follows:

§ 435.603 Application of modified adjusted gross income (MAGI).

(a) Basis, scope, and implementation. (1) This section implements section 1902(e)(14) of the Act.

(2) Effective January 1, 2014, the agency must apply the financial methodologies set forth in this section in determining the financial eligibility of all individuals for Medicaid, except for individuals identified in paragraph (j) of this section and as provided in paragraph (a)(3) of this section.

(3) In the case of determining ongoing eligibility for beneficiaries determined eligible for Medicaid coverage to begin on or before December 31, 2013, application of the financial methodologies set forth in this section will not be applied until March 31, 2014 or the next regularly-scheduled renewal of eligibility for such individual under § 435.916 of this part, whichever is later.

(b) Definitions. For purposes of this section—

Code means the Internal Revenue Code.

Family size means the number of persons counted as members of an individual’s household. In the case of determining the family size of a pregnant woman, the pregnant woman is counted as herself plus the number of children she is expected to deliver. In the case of determining the family size of other individuals who have a pregnant woman in their household, the pregnant woman is counted, at State option, as either 1 or 2 person(s) or as herself plus the number of children she is expected to deliver.

Tax dependent has the meaning provided in § 435.4 of this part.

(c) Basic rule. Except as specified in paragraph (i) and (j) of this section, the agency must determine financial eligibility for Medicaid based on “household income” as defined in paragraph (d) of this section.

(d) Household income —(1) General rule. Except as provided in paragraphs (d)(2) and (d)(3) of this section, household income is the sum of the MAGI-based income, as defined in paragraph (e) of this section, of every individual included in the individual’s household, minus an amount equivalent to 5 percentage points of the Federal poverty level for the applicable family size.

(2) Income of children and tax dependents. (i) The MAGI-based income of an individual who is included in the household of his or her natural, adopted or step parent and is not expected to be required to file a tax return under section 6012(a)(1) of the Code for the taxable year in which eligibility for Medicaid is being determined, is not included in household income whether or not the individual files a tax return.

(ii) The MAGI-based income of a tax dependent described in paragraph (f)(2)(i) of this section who is not expected to be required to file a tax return under section 6012(a)(1) of the Code for the taxable year in which eligibility for Medicaid is being determined is not included in the household income of the taxpayer whether or not such tax dependent files a tax return.

(3) In the case of individuals described in paragraph (f)(2)(i) of this section, household income may, at State option, also include actually available cash support, exceeding nominal amounts, provided by the person claiming such individual as a tax dependent.

(e) MAGI-based income. For the purposes of this section, MAGI-based income means income calculated using the same financial methodologies used to determine modified adjusted gross income as defined in section 36B(d)(2)(B) of the Code, with the following exceptions—

(1) An amount received as a lump sum is counted as income only in the month received.

(2) Scholarships, awards, or fellowship grants used for education purposes and not for living expenses are excluded from income.

(3) American Indian/Alaska Native exceptions. The following are excluded from income:

(i) Distributions from Alaska Native Corporations and Settlement Trusts;

(ii) Distributions from any property held in trust, subject to Federal restrictions, located within the most recent boundaries of a prior Federal reservation, or otherwise under the supervision of the Secretary of the Interior;

(iii) Distributions and payments from rents, leases, rights of way, royalties, usage rights, or natural resource extraction and harvest from—

(A) Rights of ownership or possession in any lands described in paragraph (e)(3)(ii) of this section; or

(B) Federally protected rights regarding off-reservation hunting, fishing, gathering, or usage of natural resources;

(iv) Distributions resulting from real property ownership interests related to natural resources and improvements—

(A) Located on or near a reservation or within the most recent boundaries of a prior Federal reservation; or

(B) Resulting from the exercise of federally-protected rights relating to such real property ownership interests;

(v) Payments resulting from ownership interests in or usage rights to items that have unique religious, spiritual, traditional, or cultural significance or rights that support subsistence or a traditional lifestyle according to applicable Tribal Law or custom;

(vi) Student financial assistance provided under the Bureau of Indian Affairs education programs.

(f) Household —(1) Basic rule for taxpayers not claimed as a tax dependent. In the case of an individual who expects to file a tax return for the taxable year in which an initial determination or renewal of eligibility is being made, and who does not expect to be claimed as a tax dependent by another taxpayer, the household consists of the taxpayer and, subject to paragraph (f)(5) of this section, all persons whom such individual expects to claim as a tax dependent.

(2) Basic rule for individuals claimed as a tax dependent. In the case of an individual who expects to be claimed as a tax dependent by another taxpayer for the taxable year in which an initial determination or renewal of eligibility is being made, the household is the household of the taxpayer claiming such individual as a tax dependent, except that the household must be determined in accordance with paragraph (f)(3) of this section in the case of—

(i) Individuals other than a spouse or a biological, adopted, or step child who expect to be claimed as a tax dependent by another taxpayer;

(ii) Individuals under the age specified by the State under paragraph (f)(3)(iv) of this section who expect to be claimed by one parent as a tax dependent and are living with both parents but whose parents do not expect to file a joint tax return; and

(iii) Individuals under the age specified by the State under paragraph (f)(3)(iv) of this section who expect to be claimed as a tax dependent by a non-custodial parent. For purposes of this section—

(A) A court order or binding separation, divorce, or custody agreement establishing physical custody controls; or

(B) If there is no such order or agreement or in the event of a shared custody agreement, the custodial parent is the parent with whom the child spends most nights.

(3) Rules for individuals who neither file a tax return nor are claimed as a tax dependent. In the case of individuals who do not expect to file a Federal tax return and do not expect to be claimed as a tax dependent for the taxable year in which an initial determination or renewal of eligibility is being made, or who are described in paragraph (f)(2)(i), (f)(2)(ii), or (f)(2)(iii) of this section, the household consists of the individual and, if living with the individual—

(i) The individual’s spouse;

(ii) The individual’s natural, adopted and step children under the age specified in paragraph (f)(3)(iv) of this section; and

(iii) In the case of individuals under the age specified in paragraph (f)(3)(iv) of this section, the individual’s natural, adopted and step parents and natural, adoptive and step siblings under the age specified in paragraph (f)(3)(iv) of this section.

(iv) The age specified in this paragraph is either of the following, as elected by the agency in the State plan—

(A) Age 19; or

(B) Age 19 or, in the case of full-time students, age 21.

(4) Married couples. In the case of a married couple living together, each spouse will be included in the household of the other spouse, regardless of whether they expect to file a joint tax return under section 6013 of the Code or whether one spouse expects to be claimed as a tax dependent by the other spouse.

(5) For purposes of paragraph (f)(1) of this section, if, consistent with the procedures adopted by the State in accordance with § 435.956(f) of this part, a taxpayer cannot reasonably establish that another individual is a tax dependent of the taxpayer for the tax year in which Medicaid is sought, the inclusion of such individual in the household of the taxpayer is determined in accordance with paragraph (f)(3) of this section.

(g) No resource test or income disregards. In the case of individuals whose financial eligibility for Medicaid is determined in accordance with this section, the agency must not—

(1) Apply any assets or resources test; or

(2) Apply any income or expense disregards under sections 1902(r)(2) or 1931(b)(2)(C), or otherwise under title XIX of the Act, except as provided in paragraph (d)(1) of this section.

(h) Budget period —(1) Applicants and new enrollees. Financial eligibility for Medicaid for applicants, and other individuals not receiving Medicaid benefits at the point at which eligibility for Medicaid is being determined, must be based on current monthly household income and family size.

(2) Current beneficiaries. For individuals who have been determined financially-eligible for Medicaid using the MAGI-based methods set forth in this section, a State may elect in its State plan to base financial eligibility either on current monthly household income and family size or income based on projected annual household income and family size for the remainder of the current calendar year.

(3) In determining current monthly or projected annual household income and family size under paragraphs (h)(1) or (h)(2) of this section, the agency may adopt a reasonable method to include a prorated portion of reasonably predictable future income, to account for a reasonably predictable increase or decrease in future income, or both, as evidenced by a signed contract for employment, a clear history of predictable fluctuations in income, or other clear indicia of such future changes in income. Such future increase or decrease in income or family size must be verified in the same manner as other income and eligibility factors, in accordance with the income and eligibility verification requirements at § 435.940 through § 435.965, including by self-attestation if reasonably compatible with other electronic data obtained by the agency in accordance with such sections.

(i) If the household income of an individual determined in accordance with this section results in financial ineligibility for Medicaid and the household income of such individual determined in accordance with 26 CFR 1.36B-1(e) is below 100 percent FPL, Medicaid financial eligibility will be determined in accordance with 26 CFR 1.36B-1(e).

(j) Eligibility Groups for which MAGI-based methods do not apply. The financial methodologies described in this section are not applied in determining the Medicaid eligibility of individuals described in this paragraph. The agency must use the financial methods described in § 435.601 and § 435.602 of this subpart.

(1) Individuals whose eligibility for Medicaid does not require a determination of income by the agency, including, but not limited to, individuals receiving Supplemental Security Income (SSI) eligible for Medicaid under § 435.120 of this part, individuals deemed to be receiving SSI and eligible for Medicaid under § 435.135, § 435.137 or § 435.138 of this part and individuals for whom the State relies on a finding of income made by an Express Lane agency, in accordance with section 1902(e)(13) of the Act.

(2) Individuals who are age 65 or older when age is a condition of eligibility.

(3) Individuals whose eligibility is being determined on the basis of being blind or disabled, or on the basis of being treated as being blind or disabled, including, but not limited to, individuals eligible under § 435.121, § 435.232 or § 435.234 of this part or under section 1902(e)(3) of the Act, but only for the purpose of determining eligibility on such basis.

(4) Individuals who request coverage for long-term services and supports for the purpose of being evaluated for an eligibility group under which long-term services and supports are covered. “Long-term services and supports” include nursing facility services, a level of care in any institution equivalent to nursing facility services; home and community-based services furnished under a waiver or State plan under sections 1915 or 1115 of the Act; home health services as described in sections 1905(a)(7) of the Act and personal care services described in sections 1905(a)(24) of the Act.

(5) Individuals who are being evaluated for eligibility for Medicare cost sharing assistance under section 1902(a)(10)(E) of the Act, but only for purposes of determining eligibility for such assistance.

(6) Individuals who are being evaluated for coverage as medically needy under subparts D and I of this part, but only for the purpose of determining eligibility on such basis.


You’ve got to say one thing about the IRS – they’re never at a loss for words.  But if anyone reading this post can explain in simple English what that regulation actually means, I look forward to your elucidating me.  Sadly, I don’t have an advanced degree in Governmentalese.  Perhaps that’s something I should add to my “to do” list.

Oh, one last thought.  One of the “waivers” that Obama has “granted” is that the IRS will not need to verify the income that an Obamanationcare insured puts on his/her application in order to obtain a “subsidy.”  So this entire regulation, probably written by multiple IRS employees over multiple hours is moot.

Perhaps a government shutdown isn’t such a bad thing after all.

“FAGIN” GOVERNMENT

There have been no lack of stories retelling the events of the year 2012 A.D.    There never is a dearth of these reviews at year end.  Suddenly, everyone becomes an historian.  Since part of my educational discipline is in history, there is one thing that I learned from my studies in this field.

There are lessons which history teaches us – but those lessons have no value unless we absorb them and take guidance from them to build a better future.

America has a unique history among the countries of the world which we have seen come and go over the centuries.  It was founded on the principle of individual freedom and liberty as the most precious human right that a government could guarantee to its citizens.

That is a concept that many of us have forgotten – and many more have never learned.  In part, that is because we now have school systems which depict the patriots at The Boston Tea Party as thugs, willfully destroying the property of others.  How strange that on July 4, 1973, the U. S. Post Office issued a series of four stamps commemorating this very event of thuggery.  A lot can happen to our thinking in four decades.  And a lot has happened.

At the end of 1973, our National Debt stood at $458 Billion and our Gross Domestic Product stood at $1.4 Trillion, a ratio of 33%.  At the end of 2012, it is estimated our National Debt will be $16.1 Trillion and our GDP will be $15.8 Trillion, a ratio of 102%.  In other words, we have simply stopped being productive – both as individuals, taken as a group, and as a country. And we have been wasteful.

In some ways, we have cast ourselves in the role of Norma Desmond in “Sunset Boulevard” – the aging actress who relies on her past triumphs and has an expectation that because she was once great and admired, the world owes her a living and the next starring role.  Unfortunately, the world has a different view.

This transformation didn’t happen overnight, notwithstanding all the media hype over the fiscal cliff.  Whatever is or is not resolved in that matter will really be of little importance in the long, historical view of things.  Some patchwork quilt “solution” will be hammered together by the short-sighted whom we elect to their respective seats in the Washington establishment.

If we are to take the Biblical injunction, “By their works shall ye know them” to heart, then we have managed to content ourselves with electing women and men to public office who have a fundamental philosophy of concupiscence and self-interest.  Their concern is not for their constituents but for their own re-election and they will say or do anything that is necessary to insure that – no matter how the country might suffer as a result of their acts.

That mindset is thoroughly entrenched in the vast majority in the Washington oligarchy.  And while that is frightening, what is yet more frightening is that we, the people, not only tolerate it but endorse it by re-electing these real thugs in election after election.  It’s as though we are smiling as they hand us the shovel with which we have to dig our own grave before they mercifully put us out of our misery by shooting us in the head.

We didn’t get here overnight and we’re not going to get out of this mess overnight either.  Of course, if we pursue our present path, we’re never going to extricate ourselves but will keep digging our grave deeper and deeper.  At least that may be a good thing for the hardware stores that sell shovels.

I can think of no finer summary of our government’s modus vivendi than the following song from the musical, “Oliver” in which the thief Fagin explains his philosophy to his troupe of admiring young crooks.

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