The Most Sensible Way to Solve the Budget Deficit

I'm about to cure over half of the projected budget deficit over the next decade. Theoretically, at least.

This doesn't involve tax hikes. We won't even need to decrease spending. We might actually raise spending a little. In the end, we'll shave the deficit by several trillion dollars over the next 10 years.

Sound impossible? It's not. Unlikely, yes, but keep reading. This should start to make sense.

Tax evasion added $3 trillion to the deficit over the past decade alone, an average of $300 billion a year, according to IRS data. This isn't revenue lost from legal tax write-offs, like the mortgage interest deduction. It's not even, as the IRS notes, "taxes that should have been paid on income from the illegal sector of the economy." That $300 billion represents the amount of revenue lost from people deliberately cheating on their taxes every year. This includes underreporting income, hidden offshore bank accounts, sham trusts, and other ways to illegally stiff the IRS.

Put that money in perspective. Tax evasion in the last decade cost an amount roughly equivalent to the Bush tax cuts, the Obama stimulus, and the wars in Iraq and Afghanistan ... combined. That $300 billion is more than four times the Department of Education's budget and 10 times what we spend on science and technology. It's amazing more people aren't outraged about this stuff. Rather, they likely would be if they knew about it.

Some more figures: According to the Congressional Budget Office, the cumulative projected budget deficit over the next 10 years is $6.97 trillion. That's how much additional debt we'll rack up if current laws are left unchanged.

Now extrapolate last decade's tax fraud into the next, and adjust it for inflation and economic growth. We're probably looking at $4 trillion in tax fraud over the next 10 years.

And there it is. Without raising tax rates or reducing spending, we could eliminate more than half of our projected deficit over the next 10 years by simply eliminating tax cheats.

That's irrational, of course. It will never happen. Like I said, this is theoretical. There will always be tax cheats. But pointing these numbers out is important for a few reasons.

1. Prioritizing
I've often said that any politician serious about tackling the deficit should focus on just one issue: health-care costs. That's where essentially all the long-term budget pressures are. But after reviewing tax-cheat data, I think there's a new qualifier: cracking down on tax evasion should be a top priority in the short run. Areas that have been getting deficit-reduction attention lately pale in comparison to what could be saved by ramping up tax enforcement. Cracking down on tax cheats is also probably the most politically feasible way to reduce the deficit. It's simply enforcing existing rules, rather than setting up a fight by changing rules in ways someone will find biased and unfair.

2. Investing
A deficit-reduction plan earlier this year proposed cutting $603 million from the IRS's budget. The cut was eventually scrapped, and for good reason: IRS commissioner Douglas Shulman noted that the cuts would reduce tax collections by $4 billion annually, increasing deficits by a factor of six-to-one. This stressed an important point. IRS agents can be very good investments for taxpayers. An enforcement agent making $60,000 a year who cracks one big case pays for his entire career. Any comprehensive deficit-reduction plan should increase the IRS's budget.

3. Learning from others
Greece is a good example of what happens when tax evasion is ignored. Greece's current status as a near-bankrupt slave grasping at its creditors was caused by many factors, but one of the largest was an endemic culture of tax cheating. Only chumps followed the rules. Emphatic disregard for the tax man became the norm.              

Michael Lewis did a wonderful job exposing this culture in an essay published last year in Vanity Fair. "Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to the income tax goes officially unrecorded," Lewis writes.

He continues: "The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year -- which meant, because incomes below that amount weren't taxable, that even plastic surgeons making millions a year paid no tax at all."

In one Greek town, 324 residents admitted to having swimming pools -- an asset that increases property taxes. A satellite photo showed the actual number of pool owners was 16,974. Small wonder Greece found itself where it is today when 98% of the population cheats on their taxes.

Could we be next?

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 21, 2011, at 10:48 AM, timeinthewind wrote:

    As a sign of how cynical we've become, the first thought your article brought to my mind was how much will it cost to put s good chunk of these tax cheats in jail if we can't otherwise get them to pay up? Would the cost of discovering, investigating, processing or prosecuting and collecting or jailing the cheats be bigger than the recovered tax revenue? I hope not but fear so.

  • Report this Comment On April 21, 2011, at 3:23 PM, outoffocus wrote:

    Maybe if we simplified the tax code there would be so many "loopholes" to go through.

  • Report this Comment On April 21, 2011, at 5:56 PM, CaptainWidget wrote:

    Fortunately there's a template for this. The flat tax has at LEAST quadrupled tax revenues in every country it's been implemented. The opportunity cost of evading taxes is higher than the monetary benefit in a low tax, high transparency, egalitarian system.

    There's no way the US will ever even REDUCE tax evasion with a "progressive" rate, multi-tiered multi-reduction system.

  • Report this Comment On April 21, 2011, at 9:41 PM, Awebb33 wrote:

    Kind of agree with outoffocus...maybe a simplified code with no deductions, credits or complex laws (loopholes) is the way to go to bust the crooks and help to right the ship.

  • Report this Comment On April 21, 2011, at 10:22 PM, thisislabor wrote:

    so now you cheat on a simplified code... how does that stop people from cheating on a code?

  • Report this Comment On April 21, 2011, at 10:25 PM, paizon wrote:

    Ok, I read the article. This most likely will NEVER happen, so lets look at something else. Why do people feel the need to cheat the IRS? What, in Greece causes so many to understate their earnings and property? Is this a moral problem, or ...have the people lost faith in the government system that has been put in place to garnish wages (legally I might add)? Is it because said system (the IRS) is not a respectable, much less viable "business" entity? Stories of bullying and harassment by the IRS are flush, and when the reason our monies are being retrieved are other than causes we may personally agree with or support where is the incentive to willfully give the share I am required? It's hard to give a dollar when you know the crack head is just going to buy crack. Why fund the addiction?

  • Report this Comment On April 22, 2011, at 1:37 AM, idoru99 wrote:

    There is another way to fix the US taxes that is like another implementation of the Flat Tax. It will collect those uncollected taxes from illegal immigrants and from people working "under the table." The IRS budget can actually be cut, however the taxes will still be collected. This implementation will virtually kill the "culture of cheating" on taxes in the U.S.

    The FairTax. Of course, it's only viable if the Constitutional amendment authorizing the collection of income taxes is repealed. If that amendment is not repealed, the government can start collecting both. The FairTax is the way to pull the pull the power out of Washington and give it back to the people. The FairTax will virtually kill "class warfare." The rich will pay more tax revenue by virtue of what and how much they buy. Don't want to pay taxes? Buy used, not new.

    Take an honest look at the FairTax, be Foolish and do your research on it. I believe you will agree.

  • Report this Comment On April 22, 2011, at 3:18 AM, benthalus wrote:

    Morgan,

    Very useful information. I wonder if, by extension, Douglas Shulman could provide numbers for how much more tax revenue could be collected by investing in the IRS? Obviously there will be diminishing returns, but as long as the ROI is 1:1, more jobs as tax agents will be created and our fellow cheating citizens will be held accountable for their irresponsible actions.

    Also, the rest of you need to listen to thisislabor. Do you think the cheaters are going to say, "Oh hey, there's a new tax code, I think I'll go ahead and pay my taxes now." The solution to tax fraud is enforcement, not different taxes.

  • Report this Comment On April 22, 2011, at 10:15 AM, TMFHousel wrote:

    A flat national sales tax has its benefits, but I'm not sure ending tax evasion is one of them. Two words: black market.

  • Report this Comment On April 22, 2011, at 4:47 PM, RobertC314 wrote:

    Do you have a reference for the tax-cheat numbers at hand? I'm feeling too lazy to go on a scavenger hunt through a government website right now.

  • Report this Comment On April 22, 2011, at 5:37 PM, Spook72 wrote:

    Some sort of a flat consumption tax would be a vast improvement but as long as we are spending $2 for every $1 in projected income the increasing interest on the accumulated national debt is going to eat up any marginal savings.

  • Report this Comment On April 22, 2011, at 9:35 PM, FutureMonkey wrote:

    Misanthropic greed, selfishness, and adherence to a Randian objectivist philosophy that I deserve to keep what is mine and grab what I can get away with, results in society wide cheats - not just on taxes (friend actually bragged about their ability to hide money from their bank until their short sale got approved - made me want to vomit).

    Taxes are patriotic. Taxes are our admission price to our society. I earn what I do because of a stable interdependent society that is sustained by public and private enterprise. Without the society I earn nothing. With the society I earn enough. I take pride in the wages I earn and the taxes I pay. And yet, expressing this idea gets me routinely chided by friends and more publically, certain 2008 GOP vice presidential candidate that starts with a P, ends in an N and has an ali in the middle, actually scoffed at the notion that there are people that view taxes as patriotic.

  • Report this Comment On April 23, 2011, at 8:56 AM, xetn wrote:

    If I stick a gun in your face and force you to give me all your money, that is a crime of theft. When government does it, it is call taxes and is legalized theft. Hence, there is no such thing as "fair tax" or "fair share" because all theft, private or government is unethical.

    It might be instructive to understand why Hong Kong consistently ranks as the freest place (out of 183) on earth each year by the Heritage Foundation.

    http://www.heritage.org/Index/Country/HongKong

    contrast that with the 9th (and declining) ranked US:

    http://www.heritage.org/Index/country/UnitedStates

    The major differences are taxes, regulations and government interference in private lives. In short, HK makes it easy to do business and at the same time allows you to keep most of the fruits or your labor.

    Freedom drives business and results in higher returns. Government produces nothing, it only takes and for every dollar it takes from the private sector, is one less dollar available to invest and produce.

    Stop thinking about increasing taxes and start thinking about reducing spending and legalized theft!

    I assume you are all here because you want to maximize your returns. If that is true, less government results in more/higher returns on your investments (other things being equal).

  • Report this Comment On April 23, 2011, at 10:19 AM, TrumanTrout wrote:

    I'm with FutureMonkey. The US government is not perfect, but it performs useful functions that are worth paying for. Imagine the US without adequate banking regulations, for example; well, bad example, we screwed that one up. But seriously, federal highway money, environmental protection, social security, medicare, .... These are programs that do a lot of good for everyone.

    To me it's not too much to ask people who have a lot of money to give a percentage to take care of the less fortunate. With this in mind, I put forth to the proponents of the flat tax that we already have a flat tax. It's called FICA and it runs in parallel with the income tax. A major problem with it is that the Social Security portion of it is capped. This means that the CEO of McDonald's pays a trivial percentage of income, while the McMinimum wage worker pays a meaningful percentage of income. That's not right and any serious deficit reduction plan ought to correct this injustice. Let me hear your praise, flat tax fans. Love it or leave it. Show your love by paying your taxes.

    TrumanTrout

  • Report this Comment On April 23, 2011, at 10:33 AM, TMFHousel wrote:

    xetn,

    <<If I stick a gun in your face and force you to give me all your money, that is a crime of theft. When government does it, it is call taxes and is legalized theft.>>

    You use this argument on an almost daily basis. I don't understand it at all. People vote for the politicians that set the tax rates. It's democracy.

    <<The major differences are taxes, regulations and government interference in private lives. In short, HK makes it easy to do business and at the same time allows you to keep most of the fruits or your labor.>>

    From the list of freest countries, Australia, New Zealand, Switzerland, and Canada are ahead of America. All have significantly higher taxes. I think you're being unfair to taxation as the key variable here.

  • Report this Comment On April 23, 2011, at 3:29 PM, FutureMonkey wrote:

    <<If I stick a gun in your face and force you to give me all your money, that is a crime of theft. When government does it, it is call taxes and is legalized theft>> Nonsense, criminals don't give you anything in return.

    Try not to pretend that you, me, and private businesses don't benefit from the relative stability of our society,educated workforce, infrastructure, safety and protectionprovided by the taxes paid in to local, state, and federal government.

    The claim that <<Government produces nothing>> is not substantiated by the facts -- I defy you to make dollar one in the private sector without utilizing something directly or indirectly derived froma government product -- how many dollars have been generated by companies and individuals dependent on traffic on the Oakland Bay Bridge? Product of the Government. Think SF/Oakland would be the economic dynamo if people still took ferries? Think Vegas could have become the dynamic engine of growth for Nevada without the Hoover Dam? Think about all the GPS and communication satelites used daily by virtually every person and business -- yep, I guess you must believe those satellites sprang spontaneously into existence and that NASA didn't produce any technology or innovation that supported those engines of economic growth at all. Internet???? -- yep US military innovation from the 1960s that grew and developed from ancestral ARPANET (Dept of defense, UCLA, Stanford, and others) and standardized TCP/IP protocols developed by the National Science Foundation (psst a government agency) in the 1980s to the dynamic cash, career, business generating phenomenon for the 21st century .

    Most innovations, benefits, and business growth comes from some form of partnership between private and public enterprise. So, pretty much, unless you born without the benefit of modern medicine, taught yourself everything you know from scratch (no schools or libraries), and hacked your existence out the wilderness with your bare hands and gumption, I'm not so interested in complaints that government produces nothing and that taxes are theft.

  • Report this Comment On April 23, 2011, at 5:41 PM, David369 wrote:

    TrumanTrout

    Good Point! Never thought of it that way.

  • Report this Comment On April 23, 2011, at 7:28 PM, CaptainWidget wrote:

    <<You use this argument on an almost daily basis. I don't understand it at all. People vote for the politicians that set the tax rates. It's democracy.>>

    Where in the US Constitution do you see the word "democracy"? Now do you see where the argument stems from. You're proclaiming that phenomenon in government are justified via right of governance that our country doesn't utilize.....

  • Report this Comment On April 23, 2011, at 8:25 PM, TMFHousel wrote:

    <<Where in the US Constitution do you see the word "democracy"? Now do you see where the argument stems from. >>

    No.

  • Report this Comment On April 23, 2011, at 8:48 PM, CaptainWidget wrote:

    The US is NOT a democracy. No where in the US Constitution, or in any of the 50 states constituions does the word "democracy" appear. This country is NOT a democracy. End of story. You use the argument "that's what happens in democracy"....well that's well and good unless you're talking about the US, which is a constitutional republic. Very different things.

    In a republic: majority does NOT rule

    Therefore the argument to support something constitutionally 'iffy' by saying "well that's a democracy and that's what you voted for" is outright false. Legislation isn't passed democratically and the people do no have authority over the law of the land.

  • Report this Comment On April 23, 2011, at 9:16 PM, TMFHousel wrote:

    Accurately defined, you're correct. In the context of the comment, and in the way the word democracy is commonly used, I'm sticking with it. People vote for politicians. Politicians set policies. Calling taxation legalized theft at the point of a gun is mad and, importantly, adds nothing useful to the debate.

  • Report this Comment On April 23, 2011, at 9:43 PM, whereaminow wrote:

    FutureMonkey ,

    Your argument is incorrect. Usage precedes law. This is a universally recognized fact. Laws aren't passed for non-existent things (except Earth rights lol).

    Your argument is circular. I could claim that every government program must rely on a private invention.

    However, since usage precedes law, I'd actually be correct.

    TMFHousel,

    I didn't vote for a single politician who wanted to tax me in over 15 years. I vote Libertarian, if I bother to risk my life driving on dangerous government roads to engage in the useless religious ritual called voting - which changes nothing. Never has. Never will.

    So no, I didn't vote for the politicians that tax me. Therefore, I have had my money taken involuntarily. Even overseas, I must pay a portion of my income to the American empire.

    Speaking of which, what is truly fascinating is that you clearly have no problem (at least in comparison to those naughty tax evaders) with the mass murder machine that is currently taking life after life in the Middle East.

    Slaughtering brown people is worth $300 billion! But don't you dare try to cheat your taxes (and hence, deprave the warfare state of its much needed revenue.)

    Such moral depravity is appalling. No wonder you don't understand xetn's argument.

    One might be interested in a book or two. The first would be a little backdrop, and even though it is fiction, it is far more historical that many textbooks. I would recommend a re-reading (since you should have already read it once in your life) of Charles Dickens' "A Tale of Two Cities." See what the world was really like when all your revenue was confiscated through taxation and a government plundered and waged war wtih no end.

    The second would be Herbert Spencer's "Man Versus the State." If you follow Dickens' book with Spencer's you will see how liberalism swept Europe and America by REMOVING government intrusion into lives brought upon by vicious and uncaring aristocrats. Then he will show you how those same liberals went about putting those exact same policies back in place, one-by-one, throughout Europe. And what was their justification? It's ok, because we are for the people and the aristocrats were not. But if the policies are the same, what difference does it matter who is taxing and regulating your life?

    And so the religious and fanatical love of the state was born. Take off your hat. Wave your flag. Sing your anthem. Stand for the judge. Kneel before the state. And send your children to the slaughter for the glory of their country.

    And whatever you do, pay your tribute. Because despite the state's glory and omnipotence....and its very own printing press..... it always seems to need more money!

    David in Qatar

  • Report this Comment On April 23, 2011, at 9:43 PM, whereaminow wrote:

    FutureMonkey ,

    Your argument is incorrect. Usage precedes law. This is a universally recognized fact. Laws aren't passed for non-existent things (except Earth rights lol).

    Your argument is circular. I could claim that every government program must rely on a private invention.

    However, since usage precedes law, I'd actually be correct.

    TMFHousel,

    I didn't vote for a single politician who wanted to tax me in over 15 years. I vote Libertarian, if I bother to risk my life driving on dangerous government roads to engage in the useless religious ritual called voting - which changes nothing. Never has. Never will.

    So no, I didn't vote for the politicians that tax me. Therefore, I have had my money taken involuntarily. Even overseas, I must pay a portion of my income to the American empire.

    Speaking of which, what is truly fascinating is that you clearly have no problem (at least in comparison to those naughty tax evaders) with the mass murder machine that is currently taking life after life in the Middle East.

    Slaughtering brown people is worth $300 billion! But don't you dare try to cheat your taxes (and hence, deprave the warfare state of its much needed revenue.)

    Such moral depravity is appalling. No wonder you don't understand xetn's argument.

    One might be interested in a book or two. The first would be a little backdrop, and even though it is fiction, it is far more historical that many textbooks. I would recommend a re-reading (since you should have already read it once in your life) of Charles Dickens' "A Tale of Two Cities." See what the world was really like when all your revenue was confiscated through taxation and a government plundered and waged war wtih no end.

    The second would be Herbert Spencer's "Man Versus the State." If you follow Dickens' book with Spencer's you will see how liberalism swept Europe and America by REMOVING government intrusion into lives brought upon by vicious and uncaring aristocrats. Then he will show you how those same liberals went about putting those exact same policies back in place, one-by-one, throughout Europe. And what was their justification? It's ok, because we are for the people and the aristocrats were not. But if the policies are the same, what difference does it matter who is taxing and regulating your life?

    And so the religious and fanatical love of the state was born. Take off your hat. Wave your flag. Sing your anthem. Stand for the judge. Kneel before the state. And send your children to the slaughter for the glory of their country.

    And whatever you do, pay your tribute. Because despite the state's glory and omnipotence....and its very own printing press..... it always seems to need more money!

    David in Qatar

  • Report this Comment On April 23, 2011, at 10:00 PM, IagoYugo wrote:

    WTF is Morgan Housel? When did he appoint himself Ethics and Morals czar? MH thinks that the USA is Greece!

    In Greece, tax information is voluntary, with no way to check earnings! Here, in the good ole USA, we have MANDATORY income reporting, where income IS checked against earnings. What MH doesn't take into account is the 514,000 page tax code that engenders so called 'tax cheats'.

    Call for REFORM of our tax code to a NATIONAL sales tax, or the FAIR tax, (If multi-millionaires pay accountants 6-figures to save them millions) - all legal, don't whine against the small businessman doing what he has to to survive!, My god, man!

    How F'N STUPID you are!

    If you went to a NATIONAL sales tax you could ELIMINATE the IRS entirely! How many half trillion sums could be saved then, huh, A-hole? EVERYBODY would pay a fair tax - OMG!, even the poor! Who right now don't pay ANY taxes, but live FREE off of everyone else!

    MH's next complaint would be against women who abort, (are they 'responsibility cheats'?)

    LEAVE THE SMALL BIZ GUY ALONE!

    My guess is that Morgan Housel LOVES carrying Barry's water...

  • Report this Comment On April 23, 2011, at 10:04 PM, TMFHousel wrote:

    ^ Your caps button appears stuck.

  • Report this Comment On April 23, 2011, at 10:17 PM, CaptainWidget wrote:

    <<Accurately defined, you're correct.>>

    Yes I am

    There's a huge distinction between "people rule" and "legal rule". In the US no law can be passed without consent of the Constitution, regardless what percentage of the population want it to happen.

    That's why the US is, in COMMON usage, a Republic. Not a democracy. Not in any way are we a democracy. Not in vernacular, not in the neo-classic sense. Not in theory. The US is NOT a democracy. Period.

    You elect politicians who wish to raise taxes, I don't. Your vote wins, and I have to pay higher taxes against my will. That's coercion, not voluntarism. There's no way to get around it. I have to pay for your public policies because somehow the uneducated with an agenda to push (ahem: you) have convinced the country that we are a democracy, not a republic and think it's acceptable to take money from citizens and pay for Federal programs not delineated in Article 1, Section 8 of the constitution.

    If the Federal government takes your money and uses it to pay for something aside from the 17 issues in that Section, it's theft against my will. I agree to those items by choice of citizenship. Everything else I have a right to speak out against as unconstitutional and immoral.

  • Report this Comment On April 23, 2011, at 11:34 PM, FutureMonkey wrote:

    Sigh...Do you neo-Randians all read from the same playbook?

    Morgan made the point that we could shave $300B off the deficit without raising taxes or cutting spending by collecting on deadbeat Americans that cheat on their taxes. I don't recall him promoting any specific "uneducated" agenda to promote federal programs not delineated in Article 1, Section 8 of the Constitution. Must have been a different article.

    I made the point, that the pervailing negative attitude towards taxes and government coupled with misanthropic selfishness, predisposed people to cheat on taxes. I proposed a counterposition that paying taxes is a patriotic duty and something we should be proud of participating in as priveleged members of our society.

    Several commentors proved my point by claiming that taxes are theft and government provides no product.

    I provided several prominent examples of how government programs resulted in products that lead to exponential growth in the private sector. I went further and argued that public-private partnership is the formula for a thriving society to the benefit of all.

    My specific point was that we live in an interdependent society and the ability to earn income as individuals, business, or multinational corporations is dependent on the benefits derived from a stable interdependent society. Taxes are in fact a reasonable expectation to support and maintain the system from which you derive your income.

    I am a beneficiary of the opportunities provided by this society and intend to make the most of those opportunities. I am proud of my labor, I am respectful and humble to acknowledge the ability to earn income is dependent on the society in which I live and my business thrives. I find the persistent lack of appreciation or even acknowlegement of this basic realities demonstrates either a lack of understanding or a lack of character.

    The stark reality is that our country could not function without tax revenue and all your precious dollars wouldn't be worth diddly.

    CaptWidget, what Federal Programs are you concerned about being paid by theft against your will that is unconstitutional or immoral --- cuz, pretty much the 17 issues of Article 1, section 8 cover just about everything from promoting arts and sciences to providing for the general welfare. Finally, psst and this is really important, in case you haven't been paying attention, all those politicians that you didn't vote for lowered your taxes for the last 10+ years, not raised them.

  • Report this Comment On April 23, 2011, at 11:55 PM, whereaminow wrote:

    "pretty much the 17 issues of Article 1, section 8 cover just about everything from promoting arts and sciences to providing for the general welfare. "

    Nonsense. That's the interpretation of courts packed with religious etatists that wear robes and demand to be called Your Honor. They are no more honorable than $2 hookers.

    Not a single sponsor of the Constitution, even though they argued bitterly about it, felt that the general welfare clause gave the Congress unlimited authority to do whatever "it" and FutureMonkey wanted.

    The Federalist Papers are online. You can read what they say about the General Welfare clause there.

    http://thomas.loc.gov/home/histdox/fedpapers.html

    "Neo-Randians"

    Heh, nice agitprop term of derision to collectivize us.

    Usage precedes law. I repeat, since you didn't quite capture its essence: EVERYTHING the government can regulate and legislate must EXIST before it can be brought to heel by the beloved overlords. Usage precedes law. The fact is, the only thing the state has ever outsized the private sector in is building weapons of death and using them against enemies and citizens alike.

    So sing it with me, statist, "God Bless America.... Land that I love..... Stand beside and Guide her... Tomahawk missiles into the living rooms of Aghan children.... With Other People's Tax Money... Taken Under Threat of Imprisonment..... Wrapped in Obscure Mysticism.... and Scientific Apologiaaaaaaaaaa..... God Bless America!"

    David in Qatar

  • Report this Comment On April 24, 2011, at 12:00 AM, CaptainWidget wrote:

    <<CaptWidget, what Federal Programs are you concerned about being paid by theft against your will that is unconstitutional or immoral --- cuz, pretty much the 17 issues of Article 1, section 8 cover just about everything from promoting arts and sciences to providing for the general welfare. Finally, psst and this is really important, in case you haven't been paying attention, all those politicians that you didn't vote for lowered your taxes for the last 10+ years, not raised them.>>

    US vs Butler stated quite clearly that the "general welfare" clause you and others like to quote to justify any amount of spending on anything you wish is clearly intended for "the general welfare of the federal government" not "the general welfare of every Tom, Dick, and Harry who puts his hand out and asks for cash.

    I really appreciate the politicians lowering my tax burden from 55% to 45%. Thanks, but they could do a little more.

  • Report this Comment On April 24, 2011, at 12:43 AM, ershler wrote:

    I would like to think of myself as a Libertarian except then I read comments like some of these above and decide to remain undeclared. At least no one here is on the editorial staff of a state university paper, reading his articles I always made me want to do inappropriate things like ask someone I've never met how F'N STUPID they are in an online posting.

    David in Qutar,

    I never had any problems paying taxes when I was working internationally because I had a little blue booklet in my pocket that 99.9% of the people I was around would cut off their own finger to have and I was constantly reminded of all the opportunities I had simply because I where I was born.

  • Report this Comment On April 24, 2011, at 12:46 AM, ershler wrote:

    Also, the article was great. I've been saying the same thing for years to anyone who would listen.

  • Report this Comment On April 24, 2011, at 1:00 AM, whereaminow wrote:

    "I never had any problems paying taxes when I was working internationally because I had a little blue booklet in my pocket that 99.9% of the people I was around would cut off their own finger to have and I was constantly reminded of all the opportunities I had simply because I where I was born. "

    When was the last time you were overseas? Qatar has a far higher per capita than the US, no individual income taxes, and 10% corporate taxes. I can't imagine a Qatari in their right mind giving that up to become part of America's welfare/warfare State.

    And I have to ask, so what? That's Appeal to Popularity and a Logical Fallacy.

    Either a proposition is true or it is not. It doesn't matter whether you support it or how it made you feel.

    Your little blue passport book is just like the branding they put on cows. It brands you as property of the United States government just in case some other cowboy wants to take a run at you.

    You should NEVER have to carry it in the first place (you are human on this planet and should be free to go anywhere as long you don't trespass Private Property, while borders are arbitrary lines drawn on maps by worthless bureaucrats and criminal gangs.)

    That you could derive any feeling at all from a book issued by a government authority that grants you their approval to travel, is a fine example of the religious mysticism of the state I spoke of above.

    It's pieces of paper with stamps on them. Nothing more. It lets the government and other governments know where you've been. It identifies you and allows them to store your information. If you travel overseas today, you are in the database of every country you visit. Sometimes, the Department of Homeland Security shares this information even before you travel, so they have it handy when you stop by the customs agent.

    You heel. They stamp. Or they don't.

    And this makes you feel proud?

    David in Qatar

  • Report this Comment On April 24, 2011, at 3:45 AM, ershler wrote:

    David,

    The countries I was referring to were El Salvador, Guatemala, Kuwait, Iraq, Mexico, Romania, Bulgaria, Ukraine and Indonesia.

    The countries I have been that I liked better than the US were Denmark, Germany and Holland; but I'm sure you would hate those socialist hellholes.

    I been to Qatar, SIngapore and Hong Kong; I like all of them but I think their particular situations don't make them good candidates for comparing to counties like the US.

    I wasn't trying to prove a point, I was simply stating my opinion. You obviously think I'm an idiot/sheeple for having pride in being an American citizen and I am fine with that but I do have a question for you, why are you still one?

  • Report this Comment On April 24, 2011, at 6:52 AM, kandu101 wrote:

    FLAT TAX K.S.S.

  • Report this Comment On April 24, 2011, at 8:29 AM, whereaminow wrote:

    "You obviously think I'm an idiot/sheeple for having pride in being an American citizen and I am fine with that but I do have a question for you, why are you still one?"

    Not an idiot for being one. Just a little brainwashed on religious statism. Patriotism has long been known to be the last refuge of the scoundrel and cheapest currency among citizens.

    There's nothing wrong with loving America, as your home and land. There is definitely something wrong with loving the American state and its trinkets (passports, bombs) and lies.

    Why am I still a citizen? Transaction costs. I would ditch it in a heartbeat. I would carry no passport. But that would allow me no travel, since the entire world is know overrun with criminal states. I could switch countries, but the economic costs to have universally recognized passport in a country that is not interested in owning my labor (St. Kitts and Nevis, for example) are too high right now. For now.

    David in Qatar

  • Report this Comment On April 24, 2011, at 10:36 AM, FutureMonkey wrote:

    Imperfect though it may be, the opportunities provided by America's mixed-capitalism, public-private partnership approach is the reason I have been successful in my business and my yearly earnings. Failure to appreciate the good things you have and acknowledging the people that helped you get there is a sad way to go through life. I am appreciative of my individual tax responsibility and do not resent paying it.

    David and CaptW, I am in total agreement that we can do it better. It is not wrong to strive for lower taxes in the system that could provide better balance to the private-public equation. It is not wrong to work for public policy changes including foreign policy, military spending, domestic spending, etc. But, expression on anger about taxes and comparison to theft, railing against government programs as immoral, or unconstitutional strikes me as hostile and ultimately futile philosophical position not grounded in reality.

    If we could go back to 1894-1912 and debate the 16th Ammendment more then lets have that discussion. However, pragmatically, in 2011 any such rapid reversals would be catastrophic for both individuals in our society and the global economy. Gradual unwinding without loss of functionality is much better approach. For example, don't hack and slash at domestic spending that returns more than it spends until there is a plan for private enterprise or non-profit work to pick up and maintain services in the transition. Much federal spending is engaged in seeding and supporting private-public partnerships where the federal dollars have a multiplier effect in the community (infrastructure projects, nutrition, afterschool programs, planned parenthood, CPB, JPL-Caltech-NASA). Rapid removal of federal spending results in collapse, not replacement, we as would society suffer because of it. Economically, private businesses would suffer as well. Penny-wise, pound foolish is not a smart play.

  • Report this Comment On April 24, 2011, at 12:09 PM, MyDonkey wrote:

    I'm surprised that the story of GE's payment of no taxes hasn't been mentioned in this thread.

    http://www.nytimes.com/2011/03/25/business/economy/25tax.htm...

    Has the topic been beaten to death elsewhere on TMF?

    Apparently, GE made $5.1 billion in profit from its operations in the US in 2010, and not only paid no taxes but actually claimed a tax benefit of $3.2 billion.

    Does this benefit work like a credit to be applied toward future taxes? Or is it a refund? (i.e. did the government, in effect, say: Congratulations on your $5.1 billion profit; here's $3.2 billion more?)

  • Report this Comment On April 25, 2011, at 1:12 AM, TomBooker wrote:

    I live to post after shopping links.

    Here's a good one. The legendary John Paulson's fortune of compensation for his shrewd handling of the securitized mortgage market remains a journal entry in Accrued Tax Payable in his personal ledger. The government hasn't even gotten their measly 15%. Anybody want to talk about the time value of money.

    Of course I don't know the Rube Goldberg tax set-up, but I know how it nets out.

    His compensation is partitioned out of the AUM of the fund. He can withdraw whatever he wants, and pays taxes on that amount.

    Meanwhile, he can use it as collateral or for any other personal asset based deal.

    I only picked Paulson because his number is so public. With the Forbes 100 soon to have a couple of dozen Wall Streeters, i just thought that would be a nice convenient place to start.

    You don't have to go to the Caymans right away.

    And really, who wants to deal with Phil Gramm in Vice Chair at UBS AG in Switzerland. If the DOJ hit them again except in a serious way this time, half of Washington would be borrowing food money from their staffers.

    Nah.

    Congress would have the IRS hire 150,000 people to hide outside of small town trade and service businesses. With NYC and Charlotte buying everything which isn't too hot or nailed down, loans are zip and revolving accounts are declined or repriced. Everybody has to go to a cash basis, literally

    For them to survive, customer payments are check or cash. And everybody is carrying their operating budget folded in-half, with a rubberband wrapped around it , in their pocket. whatever is left in the rubberband at the end of the week is final retained earnings.

    It just keeps getting better and better.

  • Report this Comment On April 25, 2011, at 12:51 PM, SFAmiler wrote:

    "And there it is. Without raising tax rates or reducing spending, we could eliminate more than half of our projected deficit over the next 10 years by simply eliminating tax cheats."

    Of course if your beloved Democrats were serious about eliminating tax cheats, then they wouldn't have nominated and confirmed a tax cheat to be in charge of our Treasury. There will be no real reform under the current administration but you will continue to be a cheerleader for any policies they put forward.

  • Report this Comment On April 25, 2011, at 12:58 PM, Redzfan wrote:

    This whole argument rests on trusting the $300 billion per year figure. The IRS and Congress have every incentive to make this so-called "tax gap" seem as large as possible. If the number is large, it absolves Congress of some of the responsibility for deficits, and it also justifies more government intrusion. Even the IRS, never a loved institution, comes through in a more favorable light if it is seen as fighting such widespread fraud.

    The IRS doesn't know how big the problem is. After all, if they could identify all the unpaid taxes, they would be well on their way to collecting them. So they have to make assumptions. I'm not saying they are making it all up, but I do think there's an incentive for them to make assumptions which make the problem seem as big as possible.

    The biggest thing separating us from Greece is cultural. Modern Greece came of age under control of the hated Turks, so subversion of the government was considered a good thing. The second factor is that Greece has a larger welfare state and higher tax rates that go along with them. Cheating simply pays better in Greece. The IRS and Congress think enforcement is the only difference, but Greece has an IRS, too. It's clear that we can avoid the Greek trap without becoming a police state.

  • Report this Comment On April 25, 2011, at 5:03 PM, DJDynamicNC wrote:

    I'll never understand the "taxes are legalized theft!" argument. If it's legal, then it's not theft. And nobody is forcing you to pay American tax rates. You are free to relocate to Somalia or some other extremely low-taxed country if you wish. Presumably you have elected to remain in this country which means you are willing to pay your fair share of keeping the nation operating (and also enables you to continue to share in the prosperity that our nation makes possible for its citizens).

    It's not even very difficult - I will be getting my Canadian citizenship within a year and it will have come out to a total cost of under $3,000 (USD). Canada is pleasantly socialist and a good fit for me, so I'm putting my money where my mouth is. Which, I find, is a lot more satisfying than bitching on the internet (not that bitching on the internet isn't satisfying sometimes, don't get me wrong).

  • Report this Comment On April 25, 2011, at 7:37 PM, drborst wrote:

    @Redzfan, Thanks. I was enjoying the back and forth about taxes in general when you hit the nail on the head...

    Morgan is usually pretty good about providing data, but he seems to have tossed out a big guess this time (though, that's probably because nobody really knows the extent of tax cheating).

    I'm also curious about how much tax cheating is really intentional. I know I cheated the government out of about $3200 many years ago. I even called the IRS to try and explain the mix up and pay my fair share, but they wouldn't have it.

    The point is a government employee convinced me to accept a $3200 refund i didn't deserve. I think that says the tax code is too complicated.

    Oh and I can't resist this one from David in Quatar

    >>Either a proposition is true or it is not. It doesn't matter whether you support it or how it made you feel. << Who cares if a proposition is logically true? I have defeted my wife logically about 1000 times but still lost 999 of those arguements. With politics, possible beats true every time...

  • Report this Comment On April 25, 2011, at 10:24 PM, ynotc wrote:

    "A Democracy cannot exist as a permanent form of Government. It can only exist until the voters discover they can vote themselves largess of the public treasury. From that moment on the majority always votes for the candidate promising the most benefits from the public treasury with the result that Democracy always collapses over a loose fiscal policy..." Professor Alexander Fraser Tyler writing when the states were still colonies of Great Britain, explaining why democracies always fail.

  • Report this Comment On April 26, 2011, at 11:03 AM, slpmn wrote:

    ynotc - I thought that quote was brilliant when I first heard it in junior high. Such simple logic, how can it be anything but true? Problem is - no democracies have failed from the public raiding the treasury.

    The debate won't get interesting, and problems can't get solved, until people stop holding up these types of simplistic cliches as gospel from the fount of wisdom. Its as if someone in these forums shouted "Buy low, sell high!" in every discussion on investment strategies.

    Its a complex world, folks, and making it better requires complex solutions. Obviously some aren't interested in making it better. Great, please go away and take care of yourselves on your fantasy island where no one pays taxes and "the market" takes care of everyone's needs.

  • Report this Comment On April 26, 2011, at 2:17 PM, actuary99 wrote:

    "I would like to think of myself as a Libertarian except then I read comments like some of these above and decide to remain undeclared."

    Yes! Thank you for saying this. They are the reason the libertarian party will never thrive as it should.

  • Report this Comment On April 26, 2011, at 8:40 PM, pcjerm wrote:

    Do you want a less invasive government tax? Pass a balanced budget amendment to the Constitution and limit ALL FED govt to no more than 10% sales tax on on all goods & services, no exceptions. Then you(employee, business owner or corporation) and your govt's spending habits are immediatley and directly tied to economic activity. Most States have a sales tax system in place to facilitate collection . No need to file extensive reports on every penny that open your private life to govt snooping by the IRS. The govt responsibility to you is to protect your freedom, not enrich itself at your expense. Redistribution of wealth assumes wealth is finite, if you are reading this site you know it is not!

  • Report this Comment On April 26, 2011, at 10:07 PM, idoru99 wrote:

    I apologize for taking so long to respond to earlier comments, I've been away for a few days...

    @TMFHousel - Regarding a black market, you're correct. There is a black market now and will be in the future, under the current tax system or under a national consumption tax, like the FairTax. There is a difference under the two systems. Under a consumption tax, some of the tax revenue will still be collected and flow into the national treasury. For instance, let's look at a fictional character, we'll call him Joe. Joe currently "finds" goods and sells them. Currently, he does not report those earnings and pays no income taxes on those "earnings." Then he goes out and can use 100% of that money to buy any goods he needs.

    Under the FairTax, Joe will still be able to "find" those goods and sell them to whoever he can find. The difference is, once he uses that money to buy the goods he requires (from reputable and real companies), he will pay the consumption taxes. That money will flow into the National Treasury. This example can be adapted for any "under the table" activity you can think of.

    It may not (and probably won't) eliminate a black market, but the US can still collect taxes on that activity.

    @Spook72 - You're correct in your earlier statement. A consumption tax will not correct the currently unsustainable spending by the U.S Government. The FairTax is just a new (and I believe better) way to collect the money that is needed to run the Government.

    @pcgerm - exactly! A consumption tax along with change in the level of spending by the U.S. Government is exactly what I believe the country needs.

  • Report this Comment On April 27, 2011, at 1:41 AM, MyDonkey wrote:

    Apparently, GE made $5.1 billion in profit from its operations in the US in 2010, and not only paid no taxes but actually claimed a tax benefit of $3.2 billion.

    Does this benefit work like a credit to be applied toward future taxes? Or is it a refund? (i.e. did the government, in effect, say: Congratulations on your $5.1 billion profit; here's $3.2 billion more?)

  • Report this Comment On April 29, 2011, at 12:39 PM, Pancho1610 wrote:

    Now in the UK the following are just some of the theft taxes forced from us by our Government. Political Party democracy is of course not democracy at all. Elections are permanently rigged to perpetuate two/three Party control by voting themselves huge amount of taxpayer's money to fund their own election campaigns. Without any authority of their voters of course.

    A hundred years ago we suffered none of the following. Stamp Duty, Tobacco tax, Alcohol Tax,Corporation Tax, Income Tax,Council Tax, Employment Tax, Fishing, Gun Licence Taxes, Fuel Tax,Inheritance Tax,Value Added Tax, Property Tax, Employee and Employer National Insurance Taxes, Vehicle Licence Tax, Vehicle Sales Tax, Workers' Compensation Tax.

    Guess what? Without any of these taxes, Britain was one of the most successful nations ever.

    It had NO national debt,it had the largest middle class in the world and even working class mums could afford to stay at home to ensure a proper upbringing for their kids. If you still think nations cannot succeed without large and increasingly complex tax systems I suggest you read Quicksands of Crime. How anyone can be so complacent about the way we have allowed themselves to be conned by generations of snake oil salesmen politians is depressing in the extreme.

  • Report this Comment On April 29, 2011, at 12:51 PM, jra9999 wrote:

    good article, Morgan. And count me in with FutureMonkey, who pretty much said it all. I can't believe the self-serving nonsense indulged in by some people in these spaces -- fast-and-loose accusations against the IRS and the very notion of taxes themselves. Apparently they think there's such a thing as a free lunch, and all these services that they expect appeared out of thin air.

    So long as this kind of denial and irresponsibility prevail in our national dialogue, the US will continue its sad, terminal decline.

  • Report this Comment On April 29, 2011, at 3:39 PM, infopackrat wrote:

    What about all the people overpaying their taxes for lack of knowledge of credits and shelters? And I bet you could gain nearly as much by cleaning up the Medicare fraud.

  • Report this Comment On April 29, 2011, at 4:19 PM, gamblegold wrote:

    well, that's a useless article . . .

    wait. what? you want to know 'why''? well, because:

    1) it assumes the government doesn't LIE about how much 'revenue' is lost to so-called tax cheats.

    2) it doesn't recognize that the IRS gestapo tend to treat even legitimate deductions as potentially fraudulent.

    3) it doesn't recognize how much money the IRS wastes each year chasing small fry who owe less than several hundred dollars (including egregiously miss-used 'penalties' and government-claimed interest) often the result of mistakes or taking ill-informed tax advice rather than deliberate 'cheating'.

    4) it doesn't recognize that the existing tax code is so convoluted that even the IRS doesn't enforce things consistently nor does it recognize the number of times the IRS has its edicts reversed in court (thus wasting even more money).

    5) the justification claimed by the author is nothing but pseudo-statistics: the claim that he came to understand what the data says is not substantiated with any REAL statistical evidence nor even links to where such evidence may exist.

    6) Vanity Fair -- you're kidding, right? I guess we all know that VF is that bastion of capitalism which dwarfs the likes of Forbes or a hundred other reputable *financial* media sources.

    7) 'learn from the greeks' -- again, you're kidding, right? this is a late april fool's joke or something? let me make this perfectly clear: there is nothing remotely similar to our history, financial systems or degree of public corruption compared with the mess the greeks got themselves into.

    on the whole, this is a REALLY BAD article for the motley fool to put its name onto.

  • Report this Comment On April 29, 2011, at 8:52 PM, ynotc wrote:

    slpmn and others always retreat to the argument that things are complex and that people oversimplify things.

    When trying to understand any problem it is helpful to simplify (Einstien used this method to develop his understanding of the universe)

    If I did what the governements do at my houshold level it would not work and the household would go bankrupt in short order.

    Savings can only go so far, taxing can only go so far but creating an environment that fosters growth is infinite.

  • Report this Comment On April 29, 2011, at 8:54 PM, critter88 wrote:

    The U.S. system is what is known as a "self assessment system." In other words, we self reoprt our income and deductions. Some of the income/deductions are verifiable (e.g., salary income on W2s) while others are not (e.g., rental income from tenants). Similarly, some of our deductions are verifiable (e.g., mortgage deduction) while others are not (e.g., a lot of charitable contributions). Self assessment systems generally have lower compliance levels - aka "tax gap." There is a correlation between the size of the tax gap and the penalty when caught. For instance, Singapore deals with tax cheats, even minor infractions, very harshly so the tax gap is relatively small. The tax gap also increases with the level of complexity. A flat tax reduces complexity, but it's still a self assessment system. A national sales tax is much less of a self assessment system, but it's a regressive tax. Each system has its pros and cons. Other than one raving maniac, I found the discussions quite interesting.

  • Report this Comment On May 16, 2011, at 10:45 PM, Ccerqueira wrote:

    Just a thought...how about a Federal gov't Furlough day? Or maybe a few during the year? Am I missing something, because it seems like an obvious way to save a ton of money?

  • Report this Comment On October 23, 2013, at 12:56 PM, E7mike wrote:

    De-privatize Oil, America is the third largest oil producing country in the world.. Most of which is exported so the companies that pay the US about 300 million a year in mineral rites and than make over 700 billion in revenue not counting natural gas profits don't have to pay taxes on it.. De privatize oil make it a national treasure, put the army engineers and navy in charge of getting it out so safety is first instead of a profit margin.. What happened in the gulf Won't happen again.. It helps 99% of Americans and only hurts about 1%.. The richest 1%

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