Category Archives: Taxes

Tax Wars

Cost of Tax Compliance

Cost of Tax Compliance

A 2005 Tax Foundation study on the cost of complying with our incredibly complex tax code estimated that individuals, businesses and nonprofits would spend an estimated 6 billion hours complying with the federal income tax code and an estimated compliance cost of over $265.1 billion. The compliance cost is an estimate based on the time spent on tax preparation valued at the compensation rate of the filer or his tax professional. This represents about 22% of federal income taxes and is equivalent to more than half the revenue of Wal-Mart. The time spent working on taxes is equivalent to a workforce of 2.8 million workers, which is about the same as the number of soldiers, sailors and airmen in the US military on active duty and in the reserves.

Italy Calls in Military to Protect Tax Collectors

Italy Calls in Military to Protect Tax Collectors

Essentially, our tax code has created the equivalent of a large second army that has been fighting a costly war for longer than any other war in American history. And the costs have been increasing. You can think of the IRS and its workforce as the equivalent of the Pentagon, which provides direction and control of the army. The accountants, tax attorneys, and other tax professionals are the junior officers, NCOs and regular soldiers following orders and participating in the tax battles and skirmishes that take place all year long. The rest of us, small business owners and individual taxpayers, are the part-time reserves and militia providing part-time service when the tax army mobilizes for its annual spring offensive every April.

Income Distribution of Tax Compliance Costs

Income Distribution of Tax Compliance Costs

In monetary terms, for every dollar in taxes you pay, the equivalent of 22 cents is wasted. These costs do not even include the additional costs of tax planning, tax audits and litigation. This burden falls more heavily on small businesses and individuals who earn the lowest amount of income when measured as a percentage of their income. This is because they file most of the tax returns. Larger corporations and wealthier individuals may have higher compliance costs, but they also earn more, so it is a lower fraction of what they earn. Therefore, tax simplification would most help those who pay the least in taxes. Nobel Laureate economist Gary Becker provides an excellent overview of the economics of tax complexity.

Tax Compliance Costs per Employee

Tax Compliance Costs per Employee

The Tax Foundation study estimates costs based on the value of your time. Certainly, your time, or the money you spend having someone else prepare your taxes, has value. But how does that compare with more concrete costs? For reference, the 2013 budget request for the IRS is $12.9 billion. Intuit, maker of Turbotax and other accounting software and services, earned $4.15 billion in 2012. H&R Block, a large tax preparation company, earned $3.04 billion in 2012. These are certainly a lot less than the tax compliance cost estimates above, but also do not take into account other costs.

The actual cost of salaries, equipment, or software paid for in-house accountants or attorneys who work on tax-related recordkeeping or preparation is unknown. According to the US Bureau of Labor Statistics, average annual employment in tax preparation services was 113,000 in 2009, but this excludes Certified Public Accountants and companies that provide accounting, bookkeeping, billing, or payroll processing services in addition to tax preparation services.

For reference, here is a sample of relevant 2010 job and income statistics:
Tax examiners, collectors and revenue agents: 74,500 jobs at a median $49,360 per year
Tax preparers: 59,180 jobs at a median $39,410 per year
Personal financial advisors: 206,800 jobs at $64,750 per year
Accountants and auditors: 1.2 million jobs with a median pay of $61,690 per year
Bookkeeping, accounting, and auditing clerks: 1.9 million jobs at $34,030 per year
Financial examiners: 29,300 jobs at a median $74,940 per year
Financial managers: 527,100 jobs at a median $103,910 per year
Financial analysts: 236,000 jobs at a median $74,350 per year

The above occupations account for over 4 million jobs and $233 billion in salaries. While only a fraction of the people in some of these occupations work on tax planning and preparation, the direct economic cost of tax preparation and management, including private and government salaries, equipment, software, and other expenses, but not counting the cost of your time, has got to at least be in the tens of billions, if not much, much more.

Tax Compliance Costs

Tax Compliance Costs

Of the 140 million individuals and families who file tax returns each year in America, 60% pay someone else to fill out forms for them, while 29% buy tax-preparation software or online services. It is possible that automated electronic tax preparation and filing software has and will continue to reduce tax preparation costs for small businesses and individuals. However, tax complexity still requires more time spent on tax preparation and planning that would otherwise be necessary.

How many of you dread the process of filing a tax return and worry about paying too much because you didn’t know about some special deductions you might have been able to take advantage of? It is extremely likely that many people do not take advantage of legal deductions. Research by the Government Accountability Office and Internal Revenue Service indicates that between 15% and 25% of households who are entitled to the Earned Income Tax Credit do not even claim their credit, or between 3.5 million and 7 million households. Simultaneously, others are able to fraudulently claim a credit.

Another side effect of tax system complexity is an increased ability to evade taxes through use of loopholes. The more complex the system, the harder it becomes to detect fraud or the more it costs to monitor tax returns and other tax-reporting data.

Is there a way to reduce these tax compliance costs and put the money back to productive use? Of course, but special interests will fight it every step of the way because everyone is looking out for their own self interest. Most of the lobbying comes from large businesses and tax-exempt charities. So, it makes sense to take them completely out of the equation by eliminating all income taxes on organizations and passing through all taxes to the individuals who earn the profits. If large organizations have no interest in the tax code, they will not try and influence legislators to give them special exemptions. This will help stop the practice of using the tax code as a system for rewarding those who are able to convince legislators to give them special benefits. After all, large organizations are just collections of individuals who are the ultimate beneficiaries of any profits they earn. Corporate taxes are just taxes that could be passed through to individual investors, where they can be taxed at their appropriate rate, without all the corporate tax manipulation.

IRS Revenue Sources

IRS Revenue Sources

Automation will also help to reduce compliance costs as well as tax evasion. Sales taxes are fairly well automated, although elimination of all sales tax exemptions would make it even more so. Tax-exempt charities will have to pay sales taxes. An agreement between states to resolve the issue of inter-state sales taxes would eliminate the complexity of sales versus use taxes and provide businesses with a simpler way of collecting and reporting sales taxes. For instance, everyone should pay either an in-state sales tax or a flat inter-state sales tax.

I know this sounds like just another tax, but the objective is to reduce overall rates, not to generate more revenue. The inter-state tax could be distributed to the states according to where the purchasers reside, thus effectively enforcing the “use taxes” that most states have on the books but cannot currently enforce. Overall, the result will not be an increase or decrease in tax rates, but a more efficient system that will reduce the burden on businesses and end the inter-state fights over sales and use taxes.

The payroll tax is already a highly automated method for collecting income taxes. However, better automation of all forms of income, including automatic withholding of investment income, would help to make automatic year-end calculation of income taxes possible. If income tax calculation were simple enough to be automatic at the end of the year, the cost of tax compliance would plummet.

What about income from cash transactions? We know that cash-based businesses are notorious for under-reporting income. We can’t just eliminate cash, even though there are other fringe benefits. Studies show that paper money is costly to produce and also tends to carry bacteria that can make you sick. The growing use of electronic payments is already quickly reducing the number of cash transactions. We could further encourage this trend by providing tax benefits to anyone who uses such forms of payment.

For instance, electronic transaction networks could be required to collect, report, and deposit all sales and use taxes. This would help businesses by automating and eliminating their sales tax-collection burden. At the end of each month, the amount of sales tax paid could be automatically applied to each individual’s income tax withholding as a deduction. If they are in a low-income bracket, they will finally gain a benefit that high-income earners normally get when they itemize deductions. Those who end up with a credit could opt to have it deposited into an investment account or receive an automatic electronic refund.

Any other remaining expenses that are tax deductible, such as home mortgage interest and refinancing costs, or state and local taxes, should be automatically credited to an individual or joint tax account, with excess payments invested or refunded monthly. Any other forms of investment income should, similarly, be collected automatically and invested or refunded monthly. At the end of the year, a simple income tax calculation will be automatic.

This kind of automation and simplification is desperately needed. Special interests will fight it because they only care about themselves, but the overall effect will be to lower average rates by eliminating loopholes, tax evasion and tax compliance costs. Will it be fair? There is no such thing, so let’s stop talking about fair and start talking about what is efficient, reasonable, and transparent enough that people finally know what they are paying in comparison to everyone else.

Putting wasted assets to more productive use will make America stronger and more competitive with the rest of the world. Higher standards of living come from increases in productivity and are dragged down by waste and inefficiency. We are capable of amazing technical feats, so I’m confident we can design a simple, efficient, progressive tax system that will take more from the wealthy, but not enough to reduce the incentive to produce or to take extraordinary measures to avoid or evade taxes. Imagine if we could redirect some of the billions of dollars in annual compliance costs to pay down the national debt? Is that worth your vote? Does anyone in government have the guts to push for a revolutionary simplified tax system that can achieve this goal?

I don’t want to end this with nothing to show for it but a bunch of useless complaining. What is the point of complaining about something if you don’t have something better in mind? So, here are a few simple, yet revolutionary, recommendations on how to rebalance the tax system and thereby our economic and political system. Politics is all about money and power, so let’s start by talking about where our tax money comes from. It might not be what everyone agrees is fair, but at least it will be simple, transparent, and efficient, without a lot of waste or hidden loopholes. I don’t really believe there will ever be such a thing as a “fair” tax code, but if there were, this would be a big leap in that direction.

It’s time to stop fighting a tax war and demobilize the tax army. Support our tax troops by bringing them home! What will all those IRS workers, tax accountants, tax attorneys and other full-time tax professionals do when they lose their jobs in the tax army? How about a new GI Bill to get them into new and productive jobs that will make our country even stronger!

Bring the Tax Army Home!

Bring the Tax Army Home!

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Pay to Play

Pay to Play

Pay to Play

What would you call an organization that conspires with member businesses to avoid having to pay a fair market-based wage? That’s easy–an illegal monopoly in violation of the Sherman Anti-Trust Act. What about an organization that completely prohibits the payment of ANY wages? I guess that would be fine for a non-profit, or maybe even for an internship, but not for a business raking in tons of money and abusing those same people. Anyway, no could possibly get away with such a policy, right?

So, how is it that the National Collegiate Athletic Association (NCAA) has managed to ban college athletes from receiving any compensation aside from a tightly controlled amount of scholarship money? How have they managed to do this even while they cheat athletes out of the education they promised by dumbing down their courses or even making up fake courses just to keep them in school? How have they held onto a valuable tax dodge that exempts them from federal taxes on sports-related revenue?

As non-profit organizations, NCAA colleges and universities are mostly tax exempt. That includes the huge profits that are generated by many big football and basketball programs. These profits go to support enormous salaries for coaches, bowl game officials, top NCAA executives, athletic department staff, impressive facilities, and so on. Sure, at some schools, some of it goes to support non-revenue sports, but that can’t excuse the massive corruption that pervades revenue sports.

From 1973 to 2012, the NCAA even banned schools from offering 4-year scholarships. In 2012, they lifted the ban even though a majority of the schools still wanted to keep it. Schools are now allowed to offer 4-year scholarships, but they are still able to withdraw scholarships after the first year. It is a myth that most athletes can even get a full ride scholarship.

College Sports Profits vs. Scholarships

College Sports Profits vs. Scholarships

College Sports Expenses

College Sports Expenses

Something about this smells bad, and it isn’t the athletes after a hard practice. The big NCAA schools just don’t want to share their enormous income on the athletes themselves and justify this by saying it will kill amateur sports, or favor some schools over others. Hmmm, if they are implying that the NCAA somehow ensures that all schools are equal, they are feeding us a load of BS. There will always be inequality in college sports because alumni and other donors can give as much money to their school as they want in order to make their school more attractive to students and athletes. Some schools already have an enormous advantage and sports revenue follows the winning teams.

After pretending for years that the Olympics was limited to amateurs, the rules were finally changed to allow paid professional athletes to participate. We always knew that Russia, China, and plenty of other countries effectively paid their athletes to pursue an “amateur” sport. It just took a while to finally admit it and stop the ban on money for athletes. The Olympics didn’t come crashing down. As for NCAA athletes, the lucky ones effectively get paid too–by those parents who are willing and able to support them all the way to the pros.

College Athletes

College Athletes

Nobody stops individuals or businesses from paying other college students. You can get a scholarship or grant for just about anything today. If you are smart, you can even raise money on your own or sell your virginity for tuition, but not if you are an athlete at an NCAA school. It makes no sense. Actually, it does. The pretense of amateurism allows schools to get out of paying taxes on billions of dollars of income. Some say that athletes will never be paid because, if they were paid by the schools, they would have to be considered employees, which would cause the schools to be subject to all kinds of tax headaches.

Athletic departments would lose its tax exemption under Internal Revenue Code Section 501(c)(3). Currently, athletic departments (which are generally a separate legal entity from the university), athletic foundations/booster clubs, and bowl games all enjoy tax exempt status because they “promote amateur athletics,” which is an exempt purpose under the Code. If college athletes were compensated and found to be employees, this tax exempt status would most likely be revoked. Moreover, they would likely lose 25-50% of donations since donors would no longer being able to make tax-deductible contributions. No only that, but large donors would then have to pay a gift tax on donations over $13,000.

Even if they didn’t lose their tax-exempt status, they might still have to pay tax on income from athletics if they are ruled to be unrelated to the primary activity of the school. Congress created the Unrelated Business Income Tax (UBIT) so that income from regularly carried on business activities that do not further the organization’s exempt purposes would be taxed as though earned by a for profit corporation. Colleges and universities, which were established to provide an education, are getting a free ride on the UBIT right now, but this could change. Maybe this whole issue is nothing more than another unintended byproduct of our broken system of taxation that could be easily fixed by tax reform. Another reason to simplify the tax code.

The Most Expensive Game in Town

The Most Expensive Game in Town

We often think of sports as a way for poor kids to make it. But preventing them from getting paid at all actually undermines this opportunity. The fact is, families who are serious about sports probably end up paying more out of pocket than they could ever hope to get back in a sports scholarship. That’s right. It’s expensive to play amateur sports. Many school districts don’t even have public sports programs at the elementary or middle school level, so kids have to pay to join club sports teams to even have a chance. If they are good, their families have to pay for uniforms, equipment, field time, tournament fees, and all the other stuff that comes along with being on a youth sports team.

A supportive community may help to raise the funds for poor kids, but such opportunities are not guaranteed. It can cost $1,500 to $5,000 dollars per year, depending on the sport, just to get the chance to play at a competitive youth level. Some say it is even higher–like $9,000 to $12,000. The youth sports industry is estimated to be worth $5 billion. These teams are mostly where college athletes are now recruited. The limited availability of scholarships and limits on payments to athletes probably benefits wealthy families who can afford private teams and coaching that can help them get to the 10,000 hours of practice that some say is vital to the development of an elite athlete. But it doesn’t provide a level playing field for everyone. Now, if colleges would help to fund the costs of promising amateur high school athletes, instead of offering empty promises, that would help to level the playing field.

Some lawsuits have challenged NCAA compensation rules. As the result of lawsuits that ruled the NCAA has violated anti-trust law, athletes are now allowed to receive a small share of profits from their school’s use of their likenesses, but it is capped at $2,000 to $5,000, depending on the school. It’s a small step, but still a pittance that does nothing to change the face of college athletics.

I think the time has come to stop the NCAA from banning monetary incentives for athletes (e.g. full scholarships, stipends, bonuses, or whatever). If not, there is certainly justification in the tax code for using the UBIT against them, as noted in a recent study of tax law:

“ there are precedents in tax law for (1) attaching conditions on the use of proceeds from an exempt activity (e.g., a requirement that big-time athletic revenues be used to subsidize other charitable outputs, such as increased athletic opportunities in non-revenue sports or for women); (2) expenditure limits such as caps on coaching salaries, and (3) expanded disclosure via a schedule to Form 990, similar to the new Schedule H for hospitals, that would require both the NCAA and universities with athletic programs to provide more information regarding their programs and the academic progress of student-athletes.”

As parents, we already know we have to pay to have our kids play, but it is a burden we would gladly share with others who are more than willing to help. Our kids are already willing to play their hearts out for nothing but the opportunity to have fun and maybe, if they are the best of the best, to make it to the pros. But doesn’t mean we have to let the big colleges take advantage of them and make their journey even harder. It’s time to get back to this country’s free market roots. Pay to play is the way to go, baby!

Pay for Play

Pay for Play

Pay to Go Away

Renouncing US Citizenship

Renouncing US Citizenship

Americans have always enjoyed the freedom to travel without restrictions within the country and, for the most part, abroad. No, we still can’t travel to Cuba on vacation, only for business. How this makes any sense, I don’t know. The embargo against Cuba, enacted in 1960, was the result of a federal temper tantrum resulting from our humiliating inability to overthrow Fidel Castro’s communist regime sitting just miles from the US coast. I would think we’d be over it by now, considering how Americans can travel to just about any other crappy dictatorship on the planet. But that’s another story. This one is the flip side to my Pay to Stay idea for dealing with illegal immigrants.

Our freedom to life, liberty, and the pursuit of happiness usually comes without a price tag. Well, that is, aside from the cost of national defense and the loss of life required to defend it. We are even free to vote, thanks to the Voting Rights Act, without having to pay any kind of poll tax or anything else that smacks of a tax–even an ID card.

You would think, therefore, that we would also be free to leave the country without having to pay a tax. After all, taxes are financial barriers that can stop people dead in their tracks. If you can’t afford to pay a tax, your rights are effectively limited. This is one reason why it is so important that our founding fathers prohibited taxes on interstate commerce, thus ensuring free trade throughout the country. But are we really free leave the country? As long as you plan to come back, sure, but if you renounce your citizenship and try to leave for good, sorry but no, you can’t.

Americans Renouncing Citizenship

Americans Renouncing Citizenship

American citizens who give up their citizenship may have to pay an exit tax, depending on the amount of their assets. Green card holders (lawful resident non-citizens) also have to pay an expatriation tax. If you are a U.S. citizen or long-term resident who expatriated on or after June 17, 2008, the tax law treats you as having sold all of your worldwide property for its fair market value the day before you leave. Even if you don’t sell your assets, the IRS will tax you on what you would have gotten if you had sold everything. This, of course, is based on a complicated process that requires appraisals and additional out of pocket costs. If the theoretical gains add up to more than $651,000, it is subject to U.S. tax at the capital gains rate.

I guess we could call this the “kick in the pants on your way out” tax. I guess the idea is that we have to allow you to leave, but you can’t take everything with you. That doesn’t sound quite right to me. For wealthy Americans with dual citizenship, however, it is a small price to pay to avoid the estate tax that will drastically impact their heirs.

Obviously these taxes are not very well known since not many Americans give up their citizenship and move out of the country. But the first quarter of 2013 saw 670 Americans to date doing just that. This is the largest number since the IRS began publishing figures in 1998. Isabel Getty, daughter and heir to the Getty oil fortune, and Eduardo Saverin, Facebook co-founder, are some of the latest ex-Americans.

What does the IRS have to do with citizenship? They are the ones to tax you on the way out, of course. It seems that the leading reasons for giving up US citizenship are US tax laws, including the estate tax and the taxation of worldwide income instead of just income that is earned within the US.

The US is the only industrialized country in the world that imposes taxes based on citizenship, meaning worldwide income and assets. Of course, they don’t get double taxed by countries that have a tax treaty with us, so it isn’t as bad as it might seem. The IRS has been on a witch hunt to find Americans who earn money overseas and do not declare it, so some wealthy individuals who have dual citizenship or spend a lot of time overseas are just deciding that it isn’t worth the cost to continue to be an American. I know what you are thinking, good riddance, right? Why shouldn’t they pay their fair share just like the rest of us in order to enjoy the benefits of citizenship?

Taxation of Foreign Income

Taxation of Foreign Income

Good point. But wealthy citizens already pay far more than the average American and, when you already live overseas or are faced with the prospect of paying millions of dollars you otherwise don’t have to, the benefits of citizenship can start to fade. Do we really want to be the country that penalizes its’ most successful and wealthy citizens or do we want them to move to other countries that will not impose onerous taxes? I do believe that the wealthy can afford to pay more and that our country benefits from the use of progressive taxation, but there has got to be a reasonable limit. Some countries, like Canada, will not even let you in unless you have a million dollars in the bank or highly employable skills. The United States will let just about anybody in but will tax the wealthy on the way out.

Atlas Shrugged movie

Atlas Shrugged movie

Obviously, this is of no relevance to 99.9% of the country, because most of us don’t plan to leave and even if we did, there wouldn’t be much to tax. Why Congress has bothered to even impose excessive personal taxes on foreign earned income, but continues to exempt multinational business income that is not brought back into the US, I don’t know. We’d be much better off focusing on the non-paying people right here in the country who are currently getting a free ride. So, let’s propose a new tax plan to Congress called Pay to Stay, Not to Go Away!

In case this doesn’t work, I have a plan to establish a new nation on a rising volcanic island or a sea platform. It keeps looking better all the time. With a few wealthy sponsors, I should easily be able to fund its development and settlement. Anyone who is willing to pay a tax to leave the country probably has enough to invest in a better alternative. I’ll call my new nation Atlas and the national salute will be a shoulder shrug. When Elon Musk gets his rockets working a little more reliably, we’ll move it to a platform in orbit and then to Mars.

Atlas Stage 1: Sea Platform

Seasteading Platform

Seasteading Platform

Atlas Stage 2: Space Platform

Elysium Space Station

Elysium Space Station

Atlas Stage 3: Mars Colony

Mars Colony

Mars Colony

No Rain Tax for the Shire

The Shire

The Shire

News spread quickly through the Shire today as the inhabitants received word that the central government will not apply the new Rain Tax to their hobbit homes, provided that they continue to bury them underneath the ground and do not pave their porous dirt and rock roads.

To date, Maryland is the only state to impose the rain tax, otherwise known as the Stormwater Remediation Fee, to home and business owners who have “impervious units” of surface area that is claimed to contribute to the problem of contaminated water reaching the Chesapeake Bay. The rain tax permits counties to impose a tax based on the square footage of buildings, driveways, or other man-made materials that do not allow rain to be absorbed into the ground. Not all counties in Maryland are affected and some charge more per impervious unit than others.

Rivendell

Rivendell

The debate continues as to whether or not Rivendell should be granted a similar tax exemption. While it clearly does possess many impervious units of surface space, most of it was constructed off the sides of a mountain waterfall, extending from steep inclines. The elves claim that their structures have had no impact on the environment, including the purity of the water flow, and that they are not responsible for any man-made problems.

Minas Tirith

Minas Tirith

To date, Minas Tirith has been the most severely affected by the new tax. Although it covers a relatively small horizontal space, it consists of 100% impervious units and has been proven to cause a massive water runoff problem in the valley. On the bright side, some say the stench of the runoff of human and animal excrement, not to mention decomposing plant and animal matter, is enough to kill an orc! Yuck!

Orc

Orc

Legislators had been expecting a bit of blowback from Mordor, but aside from a bit of smoke and rumbling, the fortress has so far been unexpectedly quiet.

As Paul Harvey would say: “And now you know the REST of the story.”

All is Quiet in Mordor

All is Quiet in Mordor

 

New Tax Schemes

New Tax Schemes

Plucking the Goose

Follow the Money to Congress

Follow the Money to Congress

How much fairness is there in our current tax system? Let’s just admit right from the start that taxation isn’t about being fair. Since fairness is a relative and very subjective concept, we will never, ever, have a system designed to be fair. Politicians privately never even seriously discuss what is really fair and only come up with trivial measures of wealth that do not reflect the complexity of reality. So, how can anyone expect to ever agree? The best we can do is to discuss what is tolerable and workable. People who disagree and are intelligent or wealthy enough will usually find some ways to get around the tax system. The tax system is really about power.

The Art of Taxation

The Art of Taxation

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” – Jean Baptiste Colbert, Minister of Finance under King Louis XIV of France

For years, people watching Congress have complained about the lack of effective campaign finance reform and how it is needed to stop corruption in Congress. The group Citizens Against Government Waste publishes an annual compilation of the pork-barrel projects in the federal budget. In their 2010 Congressional Pig Book, they identify 9,129 projects at a cost of $16.5 billion in the 12 Appropriations Acts for fiscal 2010. While this figure has been higher in the past, it is still chump change when compared to other benefits that can be bestowed by Congress on its supporters.

Tax Reform

Tax Reform

Campaign finance reform is a Red Herring. It is merely a futile attempt to limit what members of Congress can receive in return for the favor of campaign contributions. However, it fails to address the way in which favors can be granted that drive contributors to donate to their campaigns in the first place. It also fails to address the issue of favors granted for financial benefits that an elected official expects to receive after leaving office. In other words, it addresses the symptoms of the problem (campaign donations) without addressing the cause of the disease (the power of Congress to grant favors). The tax code is one method that empowers corrupt legislators, so it stands to reason that another way of reducing government corruption is to reduce the power that Congress has to mis-use the tax code.

Income Tax Criminals

Income Tax Criminals

“The income tax created more criminals than any other single act of government.” – Former Senator Barry Goldwater

According to the Center for Responsive Politics, the pharmaceutical and health products sector spent at least $855 million on lobbying from 1998, through June 2005. They also gave nearly $107 million in federal campaign contributions. According to IMS Health, the top 20 pharmaceutical firms had nearly 77 percent share of the $253 billion United States prescription drug market in 2005. What benefit did they gain from such expenditures?

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 barred the federal government from negotiating on prices of drugs supplied through Medicare. In January 2007, the Senate failed to act on a bill that would have allowed the Secretary of Health and Human Services to negotiate directly with pharmaceutical companies to negotiate lower prescription drug prices for Medicare beneficiaries. In May 2007, a drug-import plan that would have eased the process of importing cheaper prescription drugs into the country from Canada and other foreign countries was defeated. In November 2007, legislation that would have prevented reverse payment, or the practice of brand-name drug companies paying generic drug manufacturers to delay market entry of generic medications, stalled in Congress.

One of the largest underfunded benefit programs in the federal budget is Medicare, yet Congress has blocked initiatives to lower the cost of prescription drugs because it would have reduced the profits of the largest pharmaceutical companies. They would rather drive up the deficit and the national debt than allow any attempts to lower prices.

Tax Revenue History

Tax Revenue History

In 2004, President Bush signed into law a bill that created a special low tax rate that a coalition of 60 corporations had spent several years and about $1.6 million lobbying for. It reduced the tax rate on earnings from foreign operations for one year from 35% to 5%, saving them about $100 billion in taxes. Some backers say $100 billion overstates the savings because some of the foreign deals would not have been made without the lower rate, which was essentially taxpayer-subsidized business.

What was so great about the above deal other than the money the lobbyists made? It was the fact that the tax break was only a temporary measure, meaning that they would have to come back and lobby or donate some more if they want future benefits. Their ability to pass temporary measures fuels the power of Congress to extract more money from its supporters later.

Invasion of the Lobbyists

Invasion of the Lobbyists

Why are the lobbyists so powerful? No only are they extremely well paid to influence Congress, they also include former members of Congress and well-connected staffers. As of a 2005 report compiled by a watch group called Public Citizen, 43% of the 198 members who have left Congress since 1998 and were eligible to lobby have become registered lobbyists (86 lawmakers).

While departing Congresspersons are restricted from lobbying for one year after they leave office, they often “advise” other lobbyists during that time. They also have the special privilege of retaining access to the House and Senate floor as well as private gyms and restaurants available only to Members of Congress.

Approximately $2.1 billion was spent on lobbying in 2004, but for organizations to spend that much money, the expected return on investment would have to be several times larger. For instance, the Carmen Group Inc., a mid-size lobbying firm, annually publicizes its clients’ costs and compares them with the benefits they receive. In 2004, Carmen claimed to have collected $11 million in fees while delivering $1.2 billion worth of benefits to its clients.

The bottom line is that pork barrel spending is only the tip of the iceberg when it comes to the benefits that paid lobbyists are looking to exploit. The tax code, which is responsible for the generation of trillions in revenue per year, holds the key to a much larger source of potential financial benefits. This is why tax reform isn’t so much about fairness as it is about the ability of incumbents to acquire wealth and power.

Cost of Tax Breaks

Cost of Tax Breaks

Campaign finance reform can only hope to try and limit the ways in which Congress can be influenced, and is most likely to fail because of a little thing called the first amendment as well as the innate human ability to avoid or evade rules or get special loopholes. But tax reform is a way to eliminate the power they have to make campaign donations worthwhile in the first place. There is no point in bribing someone who has no power to help you, is there? So, let’s start thinking about how we can implement tax reform in such a way as to reduce the power of Congress to reward supporters.

I don’t care if you think a simple tax system is going to be fair. No tax will ever seem fair. If it is able to reduce corruption in Congress, I’d pay double because it will eventually save us from financial ruin and allow the people to take back its government.

Fix Broken Tax Code

Fix Broken Tax Code

Death, Taxes, and Digital Rights

Digital Identity

Digital Identity

You can’t take your stuff with you when you die, so the last act of any individual is usually to specify who gets their stuff. Much of it may be taxed to death, depending on where you live, but that is only if the government can find and value it. We know that your real property and accumulated wealth will be taxed (unless it is small enough to hide from the tax authorities), but what about your digital property?

The current generation is probably the first one to ever consider the likelihood that, when we die, we may have accumulated a very large stash of digital content or even money. For all intents and purposes, that content will be as perfect as the day it was downloaded or created, unless someone creates new formats that makes the old formats unusable or undesirable. This is likely as we move to video formats with even higher resolution (4K) and music formats that have better sound quality than MP3 (which is actually much worse than old, uncompressed CD files). The content will still have at least some value and would probably command a reasonable price. Even a digital identity in an online game may have value to other gamers, who would otherwise need to spend years to achieve the same level of success or acquire the artifacts one gamer has managed to accumulate.

Digital Media

Digital Media

But can your digital property be passed on to your heirs? Will each heir be able to get their own copy or will only one copy be legal to pass on? Will it be taxed? If so, how will that be possible and how will it be valued? Can content even be sold to someone else in order to generate the money needed to pay the tax? Could it be that the issue of digital rights will actually force a change in our obtuse tax code, which requires that everything we own be shared with the government first before it can be passed on to the friends and family that most likely have been enjoying our stuff for years? I know they will try to find and tax digital money, but will the government try and tax digital content?

You can’t tax what has no market resale value, so might the IRS try and force Apple and Amazon, for instance, to value someone’s digital music library and allow its transfer to an heir and its resale to others so that they can take part of its value in taxes? Imagine that Apple sells, say 1 million copies of a song each year, but 10,000 of copies of the same song end up in the accounts of newly-deceased customers. To tax those 10,000 copies, the government would have to ensure that ownership of the property could be passed on and that there exists a marketplace in which it could be sold. Would Apple be required to put those 10,000 copies up for sale again? That effectively means they would have to subtract the value of those 10,000 copies from their new sales and disburse the proceeds to the inheriting owner and the IRS. The same applies to movies, e-books, and all other forms of digital content.

Identity Theft Tax Fraud

Identity Theft Tax Fraud

I know, it sounds ludicrous, but if the government can find a way to tax something, it probably will try. But considering that the IRS paid out over $5 billion in fraudulent refunds to identity thieves in 2013 and can’t seem to stop themselves from giving away taxpayer money, I doubt they have the capability to even think about finding and taxing digital content.

It it were possible to easily transfer or resell digital content, this would eventually lead to the proliferation of copies until there was no longer any demand left for the purchase of new copies. All existing digital content would lose market value and become free. Isn’t this the trend anyway? The cost of computer processing, storage and bandwidth is already headed towards free. The only thing stopping content from following them down the road to free is the artificial restriction we place on its transfer to other individuals. How long can content owners expect to receive royalties for their work? 1000 years from now, will Michael Jackson’s descendants still receive royalty checks? I doubt it, but his estate currently earns $145 million per year. How long will the gravy train last?

Should the government even try and tax digital content? Will anybody claim that there is a need to prevent the next generation from inheriting collections of music, movies, digital books, digital art, and other treasures lest there be a permanent gap between the haves and have-nots of knowledge and culture? Probably. We already hear about the “digital divide” between kids who have access to computers and the Internet and those who do not. I can hear the complaints now about access to content. “It’s not fair that rich kids have access to all the world’s best entertainment and educational content, leaving the poor with nothing, even though the marginal cost of bits is zero. Besides, information wants to be free!

Cloud-Based Content

Cloud-Based Content

Digital rights schemes were originally devised in such a manner that the right to an object was assigned to a particular piece of hardware. However, the movement to cloud-based storage and applications means that content is now mostly assigned to a digital identity (i.e. a person), not a particular piece of hardware. But how is a digital identity managed? Does it die when we die? No, there is currently no connection between our digital identity and our real identity unless it is tied to real property such as your home or bank account. Our digital stuff, and our rights to that stuff, could theoretically continue forever. I could pass on all my accounts and passwords to everything I own to one or all of my heirs, as long as the cloud-based service providers do not take steps to obtain my real identity and limit access to purchased content after I die.

In real life, we share stuff with our friends and family, including books, movies, and music. We don’t share them with millions of people, just a few. So, how can we ensure that our digital stuff can just as easily be shared within this circle after we die? Most music now consists of unencrypted MP3 files, but the same cannot be said of movies or e-books. I don’t know of any current way to transfer digital content from one digital identity to another. You can buy a Kindle e-book and give it to someone else as a gift, but you can’t give away your entire Kindle library.

Bitcoin

Bitcoin

Bitcoin is a new kind of digital property because it is digital money that is tied only to a digital identity. There is no requirement to tie it to your real identity, so there is no sure way for the government to find and tax it. You can store it in a digital file or print it out on paper. You can pass that file or paper to your heirs with nothing more than an account and a password and be able to pass that value secretly to anyone you choose. Of course, you had best make sure you don’t forget to pass on the information or it will be lost forever. In other words, put the account details where your heirs will find it.

I predict that, in the coming years, people who are organized enough will ensure that their digital identities live on so that their heirs can benefit from their digital property. Estate planners may even recommend transferring some assets into Bitcoin or other digital currency. Once it is in digital form, it can be divided, moved and hidden. Sure, the government will be able to watch bank transfers into and out of Bitcoin, but I’m sure that other, more secret, methods of converting money will arise. Will the desire to hide money from the government without the need for a Swiss bank account (which, by the way, is no longer a safe place to hide from the US government) drive up the value of Bitcoin over time? It is already being driven up in value mostly by speculation as to its future value.

This means that people will need to leave, in their will or another private document, a list of accounts such as Bitcoin accounts, email addresses, Amazon.com account, AppleID, Google Play account, etc., so that their digital property can be preserved. Eventually, I suspect that content owners will attempt to move people from an ownership model to a pay-for-access model for digital content. Examples include Netflix or Amazon Prime for movies and Pandora or Spotify for music. This kind of model will ensure that digital rights die with you, since somebody will still need to pay for them to ensure continued access.

Transcendence

Transcendence

Will anybody be able to buy a lifetime membership anymore? Not if a business can’t tell if you are dead or alive. My father has been dead for years, but my mother continues to receive the magazine that comes as a part of his lifetime membership in the NRA. I wonder how long it will be before they figure out he’s probably dead, or will they ever? Maybe digital content providers will try and move towards biometric authentication, in which case you may need to keep your loved one’s finger or eyeball to ensure continued access to their digital property. Is this a business opportunity? Hmmm. “Hey dad, I made an appointment for you with Digital Immortality. They will scan your entire body, take video and audio samples, and then store you in digital form so we can keep you around forever! For now, we’ll keep you on my iPad, but eventually we may be able to buy a customized robot that looks and sounds just like you! Isn’t that cool?”

I’ve already begun the process of storing myself digitally. Photos, videos, music, books, writings, ideas, scanned art and artifacts, and anything else I can get into digital form. Where will it be stored? In the cloud, I presume. I plan to have my digital identity live forever. This blog may never die, assuming someone wants to inherit the account and keep it going. Maybe I’ll write a year’s worth of stories and write a program to post one of them every week. Maybe I’ll integrate it with an news-writing algorithm to make it look current. Eventually, the bots will write our news and you will not be able to tell the difference anyway.

Digital Persona

Digital Persona

Nothing used to be certain but death and taxes, but I think we can add another thing to the list. Within a couple of generations, all old digital content will probably become free. When this finally happens, my digital identity will be able to rest in peace. In the meantime, I’m going to try and make it live as long as possible.

Diminishing Returns on Wealth

Capitalism vs. Marxism

Capitalism vs. Marxism

“To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.” – Thomas Jefferson

“From each according to his ability to each according to his need.” – Karl Marx

The visions expressed above represent the ideals of capitalism and socialism. Reality for most of the world lies in between, as most forms of government incorporate both ideals in different amounts. Generally, the more capitalistic a society, the more wealthy it is, but the larger the inequality between groups of individuals. Is there a perfect balance? Hmmm, another timeless question I would be happy to solve for you. Now, where is my blindfold and my darts?

Should the rich pay more in taxes than the poor? Most people will say yes, especially since most people are not rich. That’s what I call a no-brainer question because there is only one expected answer. Why people to continue to ask this question on surveys, I’ll never know. So, how about this one: how much more is enough? Sorry, but this is the opposite of a no-brainer. It is, in fact, impossible to answer not just because it is subjective, but because we have never really defined what rich is and the different ways in which it could be measured.

Cost of Living by County

Cost of Living by County

Quiz: What does a resident of Brownsville TX earning $165,000 have in common with a resident of New York City earning $450,000? Answer: They have about the same purchasing power according to Kiplinger’s 2012 Cost of Living Index. But do they pay the same in taxes? Of course not! Why would they? The person in New York is rich while the person in Texas is not, right? What if the New Yorker has ten kids and the person in Texas has none? Too bad, the federal child tax credit is phased out for the higher earner. He can also forget about qualifying for any need-based financial aid according to the federal formula that is used to calculate the expected family contribution.

What if the New Yorker has to work an 80-hour work week and never takes a vacation? Sorry, but the tax laws place no value on your time or your health. If you choose to sacrifice one in order to earn more money to support your family, that’s your choice. If both parents work and place their kids in day care, resulting in less time for family and chores and higher expenses for transportation and necessities for the workplace, the result is a decrease in quality of life. Aside from a small child care credit that gets phased out if your income gets too high, you will get no sympathy or credit for these choices.

In fact, some families would actually be better off financially if one adult stayed home with the kids. Unfortunately, it is hard for everyone to figure this out because the calculations can be complex and nobody wants to believe that their hard work may, after taxes, actually be worth very little. This is too bad not only because they are paying a high price for working, but also because somebody else who is unemployed might gain far more than you if they could only have your job.

What if you are self employed and work yourself to death when the economy is good because you know that your income may plunge when the economy tanks? Sorry, but you still have to pay the higher tax rate for the calendar year when you did well, but you don’t get any sympathy or credit when you are down. Even if your average income over multiple years is the same as someone in a lower tax bracket, you could easily pay more in taxes overall.

Tax Paid by Income

Tax Paid by Income

Life is complicated, but it is even more so when we try and set a simple standard for who is wealthy and what is fair. I’m really tired of hearing how the “rich” aren’t paying their fair share. There is no such thing as fair. It is a relative term that depends on your perspective. When Nelson Rockefeller was asked how much money is enough, his answer was “just a little bit more.” That used to be exclusively a rich person’s joke. Now it also belongs to the government and to those who continue to expect ever higher government benefits that are paid for by somebody else. It is no longer a joke.

For those who pay higher taxes, there are at least some unintended benefits. Because charitable donations are tax deductible, those in the higher tax brackets get the pleasure of having their donations subsidized by all other taxpayers, who ultimately have to pay more. Yet, those who bestow the donations still get all the benefits of being someone’s benefactor, whether that be social recognition, political influence, the ability to attend fabulous charity balls, or other side benefits. This is another economic, political, and social distortion caused by the tax code.

Every year, the American republic celebrates its independence from the English crown and its system of inherited privilege. During the past two centuries of independence, some claim that a new kind aristocracy has arisen in America, the super-rich, who also have acquired significant political influence. The wealthiest Americans contribute to political campaigns and receive in return subsidies, tax breaks and protection against reform. Do we now have an aristocracy of wealth and a permanent underclass of poverty? Let’s put that question on hold for now until we can examine how wealth is acquired and maintained in America.

Distribution of Wealth

Distribution of Wealth

How much wealth is enough? Should there be a cap on personal net worth? A million dollars? No way, you can’t even live well today on the interest. A billion? That is a lot of money, so it really does seem excessive. I suspect that somewhere in between would be just fine with 99.99% of people. But the question really should be, is the government capable of doing a better job of redistributing wealth than the wealth owners themselves? Based on its record, I would say probably not.

We certainly don’t want to take away the incentives to work hard and produce. But isn’t there a middle ground? Would it be reasonable if someone owned everything? No. Is it reasonable if nobody can own more than anyone else? Again, no. So, the answer lies somewhere in between. Any cap on income or wealth would have to be high enough that people still can benefit greatly from their hard work for the rest of their lives and pass much of it on to their heirs, while those at the bottom would have a reasonable minimum standard of living with incentives to pursue honest work to improve their situation.

Andrew Carnegie believed in the Gospel of Wealth, that persons of wealth should not live ostentatiously, should provide moderately for their dependents, and return all surplus revenues to the community through philanthropy. Warren Buffett has the same basic philosophy. But not everyone lives this way and they have enough political influence to ensure it stays that way.

French Revolution

French Revolution

If the nation continues to thrive, but most of the prosperity is held in the hands of a small fraction of the population, do we believe that aids or hinders the search for life, liberty, and the pursuit of happiness? Wouldn’t the lives of the wealthiest citizens be less desirable if they were surrounded by stagnation and hopelessness? I would rather be a middle income earner living in the United States than a rich person living in a poor third-world country, surrounded by poverty. At some point, isn’t there a diminishing return on wealth?

Corn is a 4-Letter Word

Corn Subsidies

Corn Subsidies

Before we allow the government to make more health care decisions, let’s look at some of the ones they’ve already made. Take the decision to spend billions of dollars to subsidize farmers growing corn. What–you don’t think that was a health care decision? Of course it was, even though it was sold as a way to help out the corn farmers in the Midwest. Nobody actually thought (or cared) about the unintended effects of making corn cheaper than just about anything else we could ingest.

Sure, we could have just paid corn farmers to grow nothing, which has served us well in other parts of the country, even though it pisses us off. But cheap corn has given us high fructose corn syrup, a processed food additive that has replaced sugar with something even worse and has probably made as big a contribution to the decline of our national health as the Big Mac. Granted, sugar isn’t good for you, but we have plenty of choices when it comes to artificial sweeteners. Most of them, at worst, may give you cancer later in life after you have already become a burden on society. But a sweetener made from corn? That will take you down slowly but steadily starting when you are young, with diabetes and a fat old belly. It is bad enough to be pissed off at the thought of wasted tax money, but it is even worse to be sick, fat, or dead.

Hemp Seeds

Hemp Seeds

If we have to subsidize anything, hemp is a much better product than corn, since hemp seed is actually good for you, with all the essential amino acids and fatty acids necessary for a healthy life. It can even be used for paper (e.g. the Declaration of Independence was written on it), thus reducing the need to cut down trees, and is a good replacement for cotton clothing. Best of all, it requires few pesticides and no herbicides, making it a naturally green, healthy product. Have you seen anyone wear clothing made of corn lately? Hah! Hemp has you beat!

Besides, when more states decide to legalize marijuana, and they eventually will, we’ll probably also have a corresponding increase in the supply of hemp crops. Actually, hemp plants are not the same plants used to produce marijuana. That association was contrived by William Randolph Hearst and the forestry industry in the 1930s so they could ban hemp and reduce their competition for the production of paper. By the way, banning marijuana was another health-related decision the government made. It’s a much better alternative to alcohol from a public health perspective, yet it gets the worse rap. Have you ever heard of someone getting into a bar fight or beating his wife after smoking a few joints? Or getting a huge gut from the munchies? It just doesn’t happen. At worst, you’ll have a relaxing evening and lose a few brain cells, though the evidence is questionable on the brain cell loss and it hardly compares to what alcohol can do to you.

Food Subsidy Pyramid

Food Subsidy Pyramid

Unfortunately, it is nearly impossible to remove a subsidy once granted or to legalize something that has been banned for years. Possibly the only way to reverse the effects of a subsidy is to enact a tax with equal but opposite force. As in physics, every action has a reaction and so it is with politics. I’ve never met a politician who didn’t love a new tax at least as much as a subsidy. They both result in a happy constituent or two and some very confused taxpayers. So, instead of removing the corn subsidies, we could impose a tax on high-fructose corn syrup, ethanol, and any other corn byproduct that has nothing to do with the nutritious vegetable we know and love. The tax proceeds could be used to fund health care to mitigate the adverse health effects of corn subsidy-induced diabetes and overall weight gain.

It could also be used to fund green energy projects that have to deal with the competitive threat of subsidized ethanol, which is not even environmentally friendly when you add up all the energy that has to be expended to convert corn into fuel. Ethanol harms lawn mowers and other small engines, drives up gasoline prices, reduces automotive mileage, and corrodes engine parts. Across its life cycle, ethanol production and use also releases more carbon dioxide per gallon than gasoline. The fertilizer and pesticide runoff causes algae blooms and marine dead zones. The US Geological Survey estimates that 153,000 metric tons of nitrogen fertilizer and other nutrients flowed down the Mississippi and Atchafalaya Rivers in May 2013. That was 16% more than the average amount over the previous three decades and is primarily from the use of corn for ethanol.

Since the price of corn has risen dramatically now that Congressional mandates and subsidies have caused it to be put into everything from gasoline to cookies, taxing it will cause demand to drop and prices to fall as manufacturers go back to products that were previously more expensive but actually make more sense. Eventually, the corn farmers will find something else to grow that will yield a higher price, which is what should have happened decades ago.

Iowa Caucus

Iowa Caucus

On second thought, this is all too complicated. Let’s just force Iowa to move its presidential caucus from January to February so that when our political leaders get the courage to cut the corn subsidies, farmers (or rather, agricultural conglomerates) will be free to scream all they want and nobody will care. Could it really be that simple? Could our leaders be so shallow? I’d like to find out for sure, but my sense is that they are. New Hampshire should always be first primary state because they never want anything except to live free or die!

You see, I just figured out how to save billions of dollars while simultaneously improving the health of the nation after only about an hour of research. If only we had one or two government employees working on this full time, imagine what we could do! We just have to keep in mind that politics isn’t about finding the best way to improve the well being of the citizens. It is to acquire power in order to woo women and skim as much money off the taxpayers as possible. Nevertheless, whatever is given away by our dear leaders can be taken back in some other way, so I think the best solution to a bad subsidy may just be an equal and opposite tax.

The Saint Taxes

Got Milk?

Got Milk?

Most people are aware that products and services considered by some to be morally bad, such as alcohol, tobacco, drugs, candy, sugar-based soft drinks, fast food, coffee, and gambling, are taxed under what are referred to as sin taxes. But there are also taxes on things that are allegedly good for you. I call them the saint taxes.

The Federal Commodity Promotion, Research and Information Act of 1996 established at least 18 programs for taxation of products such as dairy products to support generic advertising campaigns. Milk producers currently pay a milk tax that is used to fund the Got Milk? advertising campaign promoting the consumption of milk. Because both the dairy industry and the government agree that milk is good for you, all milk producers (and thereby consumers) must pay for generic advertising to get out the word. Otherwise, people might just drink alternatives like fruit juice. Unfortunately, citrus growers haven’t bothered to convince the government to impose an advertising tax on them too, so they are SOL.

I can see where this is going now that our government is officially a milk pusher. Don’t be surprised to hear this the next time you have to renew your license. “Please take a number and have a seat. Would you like some milk with that? Since you will be waiting for quite a long time, please feel free to take advantage of the dairy bar. Milk is for everyone, you know. If you quality for food stamps, the cheese is free!”

Of course, the Got Milk ad campaign fails to distinguish the differences between milk produced from free-range cows that eat pesticide-free, nutritious grass or those that have been injected with growth hormones and forced to ingest foods that cows would normally never eat and have been produced with high levels of pesticides. So, it’s not exactly a saint tax. It’s kind of like subsidizing the sale of White Russians since the benefits of the milk far outweigh the questionable addition of vodka.

Raw Milk Prohibition

Raw Milk Prohibition

However, it seems that our government isn’t completely on the milk bandwagon. Milk was consumed for perhaps thousands of years before pasteurization was invented, and some people even prefer to drink it unpasteurized because they believe it is more nutritious before undergoing the pasteurization process. Yet, even though it is perfectly legal for the Amish farmers of Pennsylvania to sell unpasteurized “raw” milk to eager, well-informed consumers who are aware of the risks of bacteria, the Food and Drug Administration has decided that it should be illegal to sell across state lines and that these rogue farmers should be prosecuted. At the same time, the FDA is perfectly willing to allow drug companies to sell medications with horrendous side effects and questionable benefits. I guess we can look forward to prohibition-style milk raids and roadblocks to ensure that all the bad milk is kept inside the state. Pretty soon, we might see the price of raw milk skyrocket and we’ll have milk-smuggling gangs selling the stuff on street corners. “Would you like some raw milk with your fries?”

Lupin Says Chocolate is Good For You!

Professor Lupin Says Chocolate is Good For You!

Unfortunately, while plain milk is exempt from state sales tax, flavored milk such as chocolate milk is taxable, since it is not considered a necessity. However, medical research (as well as Professor Lupin, Defense Against the Dark Arts teacher at Hogwarts School of Witchcraft and Wizardry) suggests that dark chocolate actually is quite good for you, so maybe we can push through a tax exemption for dark chocolate milk.

Christmas Tree Tax

Christmas Tree Tax

Can there be a better example of a saint tax than the new Christmas Tree Fee? Yes, a Federal regulation just took effect in April 2014 to tax real live Christmas trees in support of yet another advertising campaign in favor of real vs. fake trees. What should this ad campaign be called? How about Got Christmas? No, I really don’t think that will fly, except maybe down south. I guess it should not really center on the promotion of Christmas itself, just the chopping down of perfectly good, oxygen-producing, life-supporting trees. To be neutral on the promotion of religion, the ads could also promote Hanukah bushes, Buddha bushes and, who knows, maybe even a Ramadan bush. Since many of the teachings of Islam follow in the footsteps of the Old Testament, we could try and promote a new tradition called the “Burning Bush of Ramadan.” It could be decorated with hated foreign flags and set on fire at sunset.

The Christmas Tree tax, of course, does not apply to artificial trees that can be reused year after year! Somebody has got to save the loss of American tree-farmer jobs to low-wage Chinese factory workers. Besides, we can’t just sit by and watch the family tree farm lifestyle disappear. Pretty soon young tree farmers will leave the farm or convert it to the production of government-subsidized corn for use in unhealthy corn syrup, cow food, and ridiculously inefficient ethanol.

It occurred to me that there are probably a lot of other saintly products and services that are generic enough that they also ought to be promoted by the government.

The Taste of Skinny

The Taste of Skinny

How about a skinny tax on clothing to promote a Got Skinny? advertising campaign? As they say, nothing tastes better than skinny feels. Combined with a fat tax on unhealthy foods, it could be give the old one-two punch to obesity!

Believe it or not, there is a product even more saintly than Christmas Trees. What could be better for you, or at least for babies, than mother’s milk? It only stands to reason then, that something so good for you absolutely should be taxed for our own good!

Did you know that there is a significant demand for mother’s milk since not every mother can produce any or do so in sufficient quantity? Yes, there are people who donate their own breast milk to provide for babies that otherwise would be unable to get it. There is an organization called the Human Milk Banking Association of North America that has established regulations for the construction of milk banks. Some hospitals have begun to establish these milk banks to offer better nutrition to premature babies whose mothers are not able to breast feed.

Unfortunately, the IRS has decided that breast milk donations cannot be deducted from income taxes since they are considered to fall under the category of human tissue. You know, like organs and embryonic stem cells, which also by the way happen to be very useful for saving or improving human life. We are, in essence, discouraging the donation of mother’s milk by excluding it as a valuable, tax-deductible product. Supplies such as breast pumps are deductible as medical supplies, but not the valuable product itself.

Human Milk Bank

Human Milk Bank

So, if mother’s breast milk is better for babies than cow’s milk, why not just slap on a tax to pay for some advertising to promote if as well? Got Mommy’s Milk? But what happens when you reduce the supply of a thing (no tax write-offs) and then stimulate more demand for it (advertising)? Economics 101 would say the price of that item would go way up! I think we just found a way for mothers to start a business that will generate a steady cash flow from selling their milk. Never mind donating it, America is the land of capitalism. Maybe they can even write off the cost of their raw materials (food), especially chocolate. What other taxes actually help to stimulate the economy? I think a new tax on mother’s milk could be a real winner!

UPDATE on Sin Taxes:
Danish lawmakers killed a controversial “fat tax” one year after its implementation, after finding its negative effect on the economy and the strain it has put on small businesses far outweighed the health benefits.

Products such as butter, oil, sausage, cheese and cream were subject to increases of as much as 9% immediately after the new tax was enacted.
“What made consumers upset was probably that an extra tax was put on a natural ingredient,” said Sinne Smed, a professor at the Institute of Food and Resource Economics.

The fat tax came to an end after netting an estimated €170 million ($216 million) in 2012 in new revenue. Danish lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue. The lawmakers also decided to reverse an earlier decision to create a sugar tax.