Both Sides of Tax Responsibility

Have you heard that radio ad about the tax relief company starring Louie? A man identifying himself as Louie says that he did not pay his taxes for eight years and now he is in trouble with the IRS. No kidding?

Think of all the people who sweat over their taxes every year for fear of being audited. Actually, few people sweat over their own taxes. Less than half file them themselves, and three-quarters of those self-filers use purchased software. Nonetheless, very few are casual enough (or careless enough) to let it go for eight years. 

To be in this situation is slightly understandable for a small business operating on the edge of solvency with inexperienced entrepreneurs trying to keep up on all the paperwork, but Louie sounds like an ordinary individual who is now terrified that the IRS is coming to confiscate his house, his bank accounts and his car.

It’s a little hard to feel sorry for the guy. Everyone else is trying to be conscientious about the annual chore, motivated either by fear or responsibility. Do people like Louie just assume that the rest of us will take up the slack for him and his fellow scofflaws? 

Regardless of the circumstances, in rides that tax relief firm to the rescue. They will negotiate with the IRS and help reduce what he owes based on their experience and understanding of the various hardship and forgiveness programs. So the people that let it ride, if they qualify, pay the firm a fee and pay the government less than what they would ordinarily owe. What a sweet deal! And all the people harping on the issue of not paying “your fair share” are silent about these sorts of arrangements.

These firms, not just one or two of them but over 100 listed on this review website, are proudly advertising ways to not pay a fair share. And it ‘s not some philosophical fair share. It’s a reduction to “pennies on the dollar” from the actual calculation after taking all the legal deductions and exemptions. Where is the outrage?

On the other hand, part of their message if you find yourself in this situation is, “Don’t go it alone.” Don’t try to take on the IRS without an expert. On that point they are right. The government has unlimited resources. They can use both force of law and delays of the legal system and bureaucracy to take your possessions and bleed you dry on appeal.

IRS tactics can be similar to another program called civil asset forfeiture. (This information comes from a news article from Alabama where they tried unsuccessfully to change the law.) “Under civil forfeiture, the government may take someone’s property as soon as they are accused of a crime, without that person having been convicted or, in some cases, even charged.” Suspected criminals can lose cash and physical assets without due process. “Even when charges are dropped or the accused is found not guilty, those accused often find it difficult to get their property back. Some never do.”

So whereas I can look at Louie and people like him and despair over their lack of responsibility – there must be a healthy number of them to keep 114 tax relief companies on the list in business – I can also see the necessity of such businesses to protect citizens from a likely abuse of their rights anytime they are even accused. If everyone in America was conscientious about filing honestly and on time, it would remove the need for these firms to exist, but it wouldn’t eliminate the threat from a heavy-handed government agency in this and other areas.

What is Income Inequality?

What is the opposite of income inequality? It certainly can’t be absolute equality of income. Without being more specific, how can the term mean anything?

For years we have heard about goals like clean water and clean air. The US has been moving in the right directions. According to the EPA, “Since 1970, implementation of the Clean Air Act and technological advances from American Innovators have dramatically improved air quality in the U.S.  Cleaner air provides important public health benefits.” Follow the link to find a graph of nine measured pollutants, excluding CO2. It shows a downward trend since 1990 for all, excluding unusual events like dust storms and wildfires. Overall, pollutants have dropped significantly despite the fact that “Americans drove more miles and population and energy use increased.”

All the pollution levels dropped below a line labeled “Most Recent National Standard” as of five years ago. Note that there is a standard that defines an acceptable level of particles in the air. Totally pure air is not a practical or realistic goal.

Similarly, the 1974 Safe Drinking Water Act “resulted in major changes in the way drinking water is managed and treated in the United States, and it achieved substantial measurable benefits in risk reduction and public health protection.”

On a side note, these facts do not seem to sway Americans influenced by media reports designed to stimulate concerns about hypothetical risks related to drinking water. A survey from 4 years ago showed that 56% of Americans “were concerned or very concerned about their tap water, 77% were regular users of bottled water, and 43% used some type of home treatment device.” The water industry and regulators have their work cut out for them figuring out how to promote acceptance and confidence in public drinking water supplies “and to maintain the public’s support for needed improvements.”

Once again there are measurable standards. Customers of public water systems receive a report from their water utility every year showing how the water supply measures up to various standards. Again, absolute purity is unachievable.

The same is true for lakes and rivers. “Human health ambient water quality criteria represent specific levels of chemicals or conditions in a water body that are not expected to cause adverse effects to human health.” 

Applying this to income inequality leaves critical thinkers puzzled.

The news media emphasizes stories about the shrinking middle class. “A graph from Reason, however, shows that about 50 years ago, 53 percent of people were middle-income, making between $35,000 and $100,000 per year. Although that statistic has since fallen to 42 percent, the reason [behind the change] is that many people moved into upper-income brackets. The share making more than $100,000 rose from 8 percent to almost 28 percent. (These numbers are inflation-adjusted.)” It’s shrinking, but not in the direction the news media and politicians imply.

Stories about income inequality don’t mention this information. Instead they attempt to stir up envy toward the super-rich, at least some of the super-rich. Notice that the emphasis is always on bankers, CEOs and hedge fund managers, not on sports stars, celebrities, Internet influencers or software developers. We are supposed to be irate that some people are rich, undeserving jerks, but others deserve wealth because they entertain us. Often the people who report these stories are rich themselves.

Furthermore, the evidence that income inequality negatively effects economic growth or social mobility is based on correlation, and, as every student of statistics knows, correlation does not mean causation. Whether or not income inequality is a drag on economic growth remains debatable.

But beyond that, it makes no sense to get upset about income inequality until it is defined and a goal it set. Anything that can’t be measured can’t be said to improve (or get worse). With no goal, there is no definition of victory. (This can also be said about so many other vaguely defined points of contention such as diversity, sustainability, and social justice.)

Testing the Validity of Perspective

Continuing from last time on the subject of perspective, I expect some people are skeptical about my advice on moderation and gratitude.  Haven’t we been brought up to believe, with few exceptions, that more is better?  As you know, I endorse skepticism, favoring a show-me attitude over the gullibility that we see so often in our society.  (It's a sign of critical thinking.)  Accordingly, here is an article from the NY Times less then two weeks ago with results from several experiments showing the relationship between money and possessions on one hand and happiness on the other.

The article features the results of several experiments and analyses trying to determine this relationship.  The conclusions are very interesting and consistently supportive of the wisdom of using perspective to guide our behavior.  The questions addressed include:  at what point does making more money stop making people happier; how does the way money is spent affect happiness; and how does moderation play into the situation?

Gallup, the polling organization, collected data from nearly half a million Americans finding that “higher household incomes were associated with better moods on a daily basis — but the beneficial effects of money tapered off entirely after the $75,000 mark.”  Above that point there is no consistent improvement in happiness.  They also noticed that doubling income at lower levels does not double happiness, but does improve it somewhat.  (This represents a very large and significant sample size.)

In answer to the second question, research shows that spending money on yourself, buying the stuff you always wanted, is less effective in terms of making you happier.  They conclude that “you’re better served in many cases by simply buying less — and buying for others.”  Yes, hard to believe but spending money on others and not just buying more stuff often makes people happier.

Other research showed that overindulgence tends to reduce the pleasure associated with an experience, whereas the opposite tends to make that experience more valued.  Getting all you want today decreases the satisfaction of getting more in the future, but limiting quantities today or abstaining for a while will make future experiences more satisfying.   

These findings are interesting, but not surprising.   They merely reinforce the call to exercise perspective as defined last time and in my earlier posts.  It's something we have often heard but easily forget that money can't buy happiness.  As the ancient Greek philosophers and other sources of wisdom reminded us, happiness comes from enjoying "all things in moderation."