Obey the law, benefit your opponent
Withholding Taxes and the Law of Unintended Consequences
| While it may be back to the drawing board for inventors and engineers, politicians can ignore their foul ups. The writer is the author of the novel, Taxman, and is a former IRS employee who specialized in finding people and taking away their things. If you'd like to submit an article, too, please do. |
By D.K. Causey
In the world of US tax law, the dictum “Break the law, go to jail” might be better expressed as, “Obey the law, go bankrupt.” That’s because tax law -- ruled by the higher law of unintended consequences -- creates a competitive advantage for dishonest business. The business that chooses to avoid risking conflict with the IRS, withholds its employees’ taxes then hands them over to the IRS. But those who disobey that law use those ill-gotten gains to price law-abiding citizens right out of business.Check the files in any bankruptcy court in any district in America. You’ll see thousands of cases where businesses got away with our tax dollars. The average American, somewhat cowed by the IRS, might assume that government tax collectors would catch cheaters and make them pay. But as one who once collected taxes, I know better. It will be at least a year before the IRS even knows what is going on.
Congress knows but does nothing. Elected officials speak long and loud about lowering taxes but say precious little about the biggest problem the IRS faces -- collecting those taxes. Since the inception of the withholding tax in 1943 (a war year -- perhaps Ben Franklin meant to say nothing’s more certain than war and taxes), only once has Congress tried to force employers to send in the taxes withheld, in the early 1980s, but they gave up in the late 1990s.
In the hearings on tax abuse circa 1998, the message Congress sent to the IRS was that it was doing too good of a job of locating and liquidating business tax cheats. That indictment for enforcing the law they were created to execute so disgusted the agency that it outsourced much of its collection functions to private businesses. A recent GAO report says that the private collectors do not do as well as the IRS collectors so Congress got exactly what it wanted.
All of which begs the question: why did politicians turn businesses into tax collectors? When they first implemented withholding, politicians claimed that it would be more convenient for the taxpayers -- sort of like electric shears are more convenient for sheep. More to the point might be the old saying about less squawk, more feathers. Taxed people don’t miss as much money they never had in their possession in the first place. Too, politicians understand what sales people learned long ago -- installment buyers pay more because they overlook the total debt and feel only the mild pinch of a weekly, bi-weekly, or monthly withholding.
Politicians, then, see withholding as a relatively painless way of getting most citizens to pay taxes and are more than willing to forgo the unintended consequences of having some businesses gain a competitive edge by cheating. To get rid of withholding and its unintended consequences, we need to change the way we think about taxes. And this is where ideas like geonomics can gain traction.
Let’s begin by pointing out the incredible inconsistencies of the current system. Then offer cogent alternatives. If we’re to live in a functional society whose members share more than a common identity, then citizens must contribute a fair share to the upkeep of social infrastructure.
What makes bearing the tax burden easier -- and taxpayers less resentful -- is making taxes make sense. Presently, most taxes don’t. They impede enterprise or tempt tax dodgers. For example, taxes on buildings breed slums, on sales drive black markets, and on livable amounts of earned income they hinder businesses that might hire more help or in other ways invest. Fortunately, there are alternatives that do make sense.
We could replace counterproductive taxes with charges for excluding others from our parcel of land, for depleting natural resources, and for polluting the environment, all of which would motivate more efficient use of resources and spread prosperity. Put into a slogan, we’d pay for the values we take, not for those we create. Then let’s pray that politicians show more sense in spending public monies than they did in disadvantaging law-abiding businesses.
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Also see: Tax Evasion Attracts the Rich While Others Pay
While an economist talks taxes, smart leaders levy two smart ones
When Will They Ever Learn? |
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