What to Do About Taxes

I have met only two people in my whole adult life who professed a desire to pay taxes: a government professor and a lady canvassing for the League of Women Voters. Everyone else has had a sane dread of parting with large chunks of his money.

This may be why a Supreme Court Justice remarked that "taxes are the price we pay for civilization." Out in the backwoods, where primordial desires are given freer play, the revenooers have a distinctly hazardous job. Snuffy Smith doesn't pay anything on April 15th, and you wouldn't have to either if you wanted to slink off into the woods with your bear rifle.

The one big drawback of this sort of tax avoidance is that all the money you might save does you no good at all because you can't spend it. What you need is a way of avoiding taxes which still allows you to earn and spend as you see fit. The purpose of this article is to point the way toward such a possibility.

There are three means by which you might hope to be delivered of your tax burden. The first two, legal tax avoidance and illegal tax evasion, have the greatest immediate potential. The third, changing the entire system of confiscatory taxation, is mandatory for your long range economic security, but harder to effect. I shall treat the first two possibilities first and get them out of the way, before I lead you into the grim world of tax rebellion.

AVOIDING TAXES…LEGALLY

A forthright discussion of tax avoidance is almost an impossibility, as it involves, inevitably, the complications of the tax code and innumerable IRS rulings. If there were any simple way to legally avoid taxes, Congress would come clamoring into special session and repeal it. The "tax loophole," so-called, originates as much from the fact that private lawyers and accountants are inevitably more clever than the Congressmen who write the laws as it does from the willingness of Congress to favor special interests. As long as the intelligence of the average Congressman remains what it is, tax avoidance is within the grasp of anyone who reads this journal.

One rule of thumb which is often overlooked by taxpayers is that contested tax assessments are generally settled more cheaply than when the taxpayer timidly agrees to IRS demands. In fact, the tax codes are so vague, and the factors in business and life so diverse, that no set tax can be said to be due. The appearance of uniformity in tax collection is only that—an appearance. It works to the benefit of the IRS in the case of the average taxpayer, whose income is garnished at the source by withholding. However, any person who has his money in hand on April 15th is in a good bargaining position. When former Solicitor General Erwin Griswold was Dean of Harvard Law School, he remarked that ordinary wage earners may be the only taxpayers who ever pay the set rates for their income brackets. More flexible rates are in effect for you if you have the ingenuity to use them.

When WALL STREET JOURNAL reporters took identical information to five different IRS offices, the computation of tax owed came back five different ways. This underlines the basic importance of making your business affairs seem complicated. If they are, and you have enough bluster and an accountant, you can get away with paying far less. It is much like poker. If the IRS can make you fold early, you pay a higher rate. If you hold out through the first appeal process, you can settle for an average of 42¢ on the dollar of tax allegedly due. If you can raise the ante still further, and go on to the IRS appellate division, you can settle for an average of only 35¢. As in poker, it pays to have nerves of steel.

The peculiarities of your own circumstance will determine what tax dodge is best suited to your needs. Just remember that, except for the poor sap at the bottom, there is no such thing as "the tax rate." There are many tax rates. It is your task to pick the lowest possible one.

EVADING TAXES

But what about tax evasion? This is a subject which interests many people but which is almost never written about. This is not because it is particularly obscure. Rather, almost everyone who knows about it has more at stake in keeping quiet than in spelling it all out. Not a little consideration is the fear that the IRS will pounce upon the blabbermouth who writes about evasion, thus making him pay dearly for divulging the tricks of the trade. I am not susceptible to this inhibition only because I already expect the IRS to go over my return with a fine-toothed comb.

So what do you do to evade taxes? What you don't do is claim a lot of phony exemptions, although that might work if you have a limited income. Also, don't give your dog a Christian name and enroll it in the university. They'll eventually catch on. You have to play it straight when it comes to number of dependents and other obvious frauds.

If you want to get into tax evasion, do it as the experts do. There are a million ways in this world to make money which cannot be traced. Many of them involve hocus-pocus with foreign bank accounts and transfer of funds internationally. Because most foreign countries don't consider tax evasion a crime there are refuges abroad where you can do business under the name of some company off the MONOPOLY board.

The secret, foreign bank account, therefore, is essential to your evasion scheme. Once income is hidden from the government in some safe repository, such as a Swiss bank, innumerable opportunities arise. For example, after an anonymous deposit is made, the depositor can secure a "loan" (really only a withdrawal) from the bank and then deduct the "interest" payable from his gross earnings at tax time.

Another common and profitable means of earning tax free money is trading securities through a Swiss bank. Since Swiss banks are registered security brokers, a person possessing an account can anonymously trade in securities in the bank's name and then hide any resulting gains from the IRS. When you deal through a Swiss bank, you need pay only Swiss taxes on dividends, while the major profit area, capital gains, remains untaxed. Since Swiss banks account for 20 percent of all trading on the New York Stock Exchange, you may have fallen behind the Joneses if your stock dealings are not already sheltered in Switzerland.

But, if you don't like the Swiss for some reason, don't let that stop you. There are other nations where bank secrecy laws are in effect: the Bahamas, Curacao, Mexico, Panama and Liechtenstein. You can have your funds transferred to one of these exotic and profitable spots through a variety of ruses. One common practice is to write a contract with a foreign exporter to purchase "widgets" at far above the normal price. The invoice is marked up from, say $100 to $200 each. The additional $100 is then deposited by the exporter in your name in a foreign bank (less, of course, his fee for playing along, which he will probably deposit in his own Swiss bank account). Then you can turn around and sell your widgets in the United States. If you can only unload them for $170 each, you have an additional $30 loss for each widget to write-off at tax time. Or you may want to follow an increasingly popular practice of starting your own foreign corporation to serve the function of foreign exporter, thereby eliminating the need for the middleman.

There are many imaginative ways of repatriating the money if and when the time comes. One method is to have the bank, acting as a trust, purchase some valuable asset from you. You get your money back and you still own the property through your trust in Switzerland.

AN INTERNATIONAL PASTIME

These are just a few of the many ways to evade taxes. If you think about it for a while, new and more daring methods will occur to you, of the sort which have been fascinating individuals in most other countries of the world. The belief that tax evasion is wrong is a peculiarly American hang-up. There is no inherent reason why you, as an American, should be any less effective at evading taxes than, for example, an Italian. A parliamentary study there showed that Italians will gladly use any and all gimmicks to evade payment. For about eight million individuals and firms, this includes failing to file any return whatever!

Of course, you probably can't match up to the Italians by suddenly failing to file a return. But you can work up to it through the ultimate evasion—"premature death." You arrange your affairs so that you receive income in cash, perhaps even by shifting businesses temporarily. Then, you pretend to die. You have an estate tax filed, and automatically the IRS halts any investigation it may have had underway for deficiencies in previous years. If you've prepared things properly, all your property and wealth has already been transferred to you through your Swiss bank. When the IRS comes for as much of your estate as can be carried away, they come up empty-handed. And they're not even surprised because so many poor saps in this country die penniless that you're just one in the crowd.

The unfortunate thing about feigned death as a tax dodge is that it almost makes sense. And that is sad. It shows how far we have departed from the concept of a free society as it was known and realized by our forefathers. Now only the most clever, resourceful persons can make it and keep it in an environment choked by government. The vast majority has helplessly watched its living standards decline over the past few years. And with taxes likely to go even higher, this decline will become more sharply evident. Not surprisingly, therefore, people are deeply troubled. Their homes, in many instances, are being taxed away. Their savings and hard work are eroded by inflation. Their small businesses are folding under pressure of taxes and bureaucracy.

CHANGING THE SYSTEM

This brings us to the point where ideology must enter your tax avoidance plans. Let's face it, you're never going to get away with surviving and prospering in a society where everyone else is smarting under the sense of deep personal loss. Envy is always accentuated in times of trouble, as it affords the majority a means, no matter how irrational, of easing its distress over exceptional success while everyone else is failing. The fervor with which popular opinion has turned against so-called "tax loopholes" provides an instructive lesson. Unless there is a revolution in the attitudes of the American people you might as well go out and join Snuffy Smith right now. Because you'll almost have to live isolated in the woods to avoid what's likely to happen when our overtaxed economy finally breaks down. Under such circumstances, which are described quite plausibly in the new book by Roberto Vacca, THE COMING DARK AGE, markets would be interrupted, power and transportation systems would collapse, rioting and violence would be endemic. The only way this can be avoided is through an ideological re-orientation of the American people.

I am not going to tell you it's your duty to take part in this effort. However it is certainly to your benefit. No matter what you have thought or done about political or ideological questions in the past, your own life is a revealed demonstration of your values. If you picked up this magazine to find out how to make money for yourself, whether in bonds, precious metals, or the arbitrage of pork bellies, then you are the sort of person who has a stake in preserving free enterprise.

This means that you would probably find it profitable for the future to contribute a share of your present income, say part of that which you save by more active tax avoidance, to support agitation for a free market. This is a cheap and effective way of forestalling the possibility that you'll have to run off to your country place to live off the land a few years from now. In that case, all the money in your Swiss bank wouldn't do you much good. Unless you have an ocean-going sail boat, you might not be able to get at it.

It has become a cliche among many people that no amount of free enterprise agitation has any effect in retarding the growth of big government. This is false. Actions which failed in the past often were unsuccessful because there was no suitable organizational vehicle. Groups such as the Chamber of Commerce probably set the cause back because their arguments for free enterprise have been too halfhearted. Members of the public have discerned no great principles at work and no benefit to themselves from the sporadic business-oriented campaigns for lower taxes.

But in some circumstances, however, people are willing to listen. A highly principled campaign, appealing directly to the intelligent person's self-interest, may succeed where lesser efforts fail. The task in America is to achieve a progressive movement committed to tax reduction and the free market.

That this is both possible and popular may be gleaned from the success of Mogens Glistrup in Denmark. In only one year since its founding, Glistrup's Progress party has grown to be the second largest in the Danish parliament. The Glistrup platform, popularized at campaign rallies where voters paid $2.50 to hear him speak, includes complete abolition of income tax over a five-year period, firing of 90 percent of all Danish government employees, elimination of government rent controls, abolition of the Danish military, and re-writing of all laws so they are short and clear enough that everyone can understand what they mean.

That Glistrup's message is being heard can be gathered not only from his spectacular electoral success, but from the fact that he has been bitterly attacked by advocates of big government in other countries. Two days after the Danish elections last fall, no less than the NEW YORK TIMES ran a bitter editorial denouncing Glistrup's "quack doctrines" and his appeal to a "mindless following." It is clear from the TIMES' reaction that the good government crowd in charge of its editorial room sees the relevance of tax rebellion to America. If the citizens of the pluperfect Scandinavian welfare states are fed up, Americans might come to be equally upset if they could be induced to sit down with their scratch pads and figure out just what big government does—or doesn't do—for them. Let that day come, as the NEW YORK TIMES fears, and the antitax message of the sort which Glistrup peddles could sell, even in the outlying boroughs of New York City.

A NEW AMERICAN REVOLUTION

Another amazing thing about Glistrup's success is the fact that he is generally considered a progressive in Denmark. To his fellow Danes, he is a man with new ideas and new ways of thinking which challenge old policies. Libertarians here in America can earn that same respect with clear calls for radical tax reduction and elimination of bureaucracy. There is no longer a paucity of evidence about the effects of giant government spending programs. Every day brings some new proof: another study; some more facts and figures buttressing the free market view. This information must be transformed, through agitation and advertisement into a new American Revolution, of the sort which gave our forefathers their start two hundred years ago. John Adams wrote that this Revolution was not a war. Rather, "The Revolution was in the minds and hearts of the people; a change in their religious sentiments, of their duties and obligations.…This radical change in the principles, opinions, sentiments, and affections of the people was the real American Revolution." So said John Adams, who should have known. And so it could be today.

Through support of agitation, tax resistance, local organizing, and court action you can achieve something more important for your future than any technical adjustment of the tax codes, or repeal of the interest equalization tax. You can gain a civilized climate in which to live and trade, one where you can prosper without hindrance or favor.

But if you let the chance to achieve a free market society in America pass without doing anything about it, you'll suffer even if you are clever enough to have stashed away all you need to survive on some mountain top. This is because you'll end up with less than you would have had to settle for otherwise. When society suffers from overtaxation and bureaucratic control, you lose services, inventions, art, literature, entertainment and companionship that might otherwise have been at your disposal. Civilization, as Murray Rothbard has aptly noted, is a "free ride." When everyone is wrapped up in an autistic struggle to survive, the "free ride" won't take you half as far as it should. "The Coming Dark Age" which Vacca describes could really be just that, with insufficient capital to sustain enterprise and little leisure to allow contemplation of any sort. Philosophy and art under such conditions would be impossible. That much Aristotle makes clear in the first chapter of METAPHYSICS.

Rather than allowing life to sink back into the philosophic and moral abyss from which Man has struggled so long to emerge, you can enhance your own life by working to prevent it. Not only will you likely reap material rewards, but you will also set yourself in line for undoubted benefits of a less tangible nature. If you ever had even an inkling of a desire to achieve something noble or useful in your life, working to help achieve a free market could be just that. As John Milton wrote, "What can be nobler or more useful in human affairs that the vindication of Liberty?"

With this in mind you can save yourself money and still help make a new version of the old dictum about taxes and civilization. You can avoid taxes. And you can evade taxes. But opposing taxes is the price you pay for civilization.

James Davidson is Executive Director of the National Taxpayers Union, a libertarian lobbying and political action organization. He was formerly publisher of INDIVIDUALIST.