Money: Taxes Are Revolting

Why aren't you?


As I sit in a Zurich cafe writing this month's column, nothing seems further from my mind than taxes in the United States—or anywhere else for that matter.

In a sense, I am in the position of a blind man advising those with sight. I pay no taxes worthy of mention to any government in the world. That fact, plus the delightful distractions of Zurich, probably accounts for my view that, in a personal sense, the taxes you and the majority of people pay are, at most, a minor irritant.

One thing I do not feel is that my tax-free status in any way contributes to the downfall of a government. According to one libertarian argument, the widespread failure on the part of citizens to contribute to the support of their government would lead to its downfall. But even if everybody utilised every possible legal means of tax minimisation, the government would simply react by closing tax loopholes, increasing tax rates, or imposing new taxes which are difficult to avoid paying.

Indeed, most tax revenue falls into three categories which are pretty secure from the government's point of view:

• corporation taxes;
• income taxes paid by salary earners and
• sales or excise taxes.

In all three cases, the taxpayers have little or no means of escape. The salary earner has his tax withheld before he even sees his money. The corporation is a sitting duck and sales taxes must be paid as a condition of doing business. While it is not impossible for some individuals to avoid most or all of these taxes, it is inconceivable that a majority of such taxpayers can or will do so.

This means that if taxes are to be used as a weapon against government, a tax revolt or rebellion is the only method with any chance of success. As long as the war between government and taxpayer remains secret and individual, no politician or bureaucrat will feel threatened. The only policy change will be to intensify and strengthen the efforts of the tax collector.

An example comes from Italy where tax evasion is a national pastime. The taxman routinely increases assessments by 50-100 percent on the basis that you must have understated your income. Thus, even if you want to pay just what the law says you should, you must cheat to avoid paying more! Though the Italian government is in continual danger of collapse, it is not about to collapse into libertarianism.

While to pay no taxes may be virtuous, to do so legally or secretly is of no political significance. I would go so far as to say that if one pays no taxes, one cannot join in a tax rebellion! To rebel against taxes, to use taxes as a political weapon, one must openly and publicly refuse to pay taxes. Once one takes such a public stance, one invites retaliation by the tax authority. It is this fear of retaliation which prevents many people from joining the tax revolt.

Although tax minimisation depends for its effectiveness on secrecy, while tax rebellion requires open refusal, it is possible to "eat your cake and have it too." Success depends on following a few simple rules, though there always remains an element of risk.

What is the risk? That the IRS will decide to focus its attention on you. Should it do so, your tax resistance would prove a highly expensive undertaking even if you have nothing to hide!

The powers of the IRS are totalitarian and wideranging. Their law is the Napoleonic Code: guilty until proven innocent. They are also willing to spend $1000 to get $10, which weighs the odds severely in their favor. Thus, if you do become the target of an IRS investigation, you could face a long and expensive legal battle to prove your innocence.

In one sense, however, the powers of the IRS are overrated. One hears many stories which give the impression that the IRS knows all about every American's tax affairs. The IRS' awe-inspiring image derives from those widely-reported, but very few cases (as a percentage of the tax-avoiding population) where the IRS has spent virtually infinite resources in constructing such detailed knowledge. The payoff is not in the dollars of tax money collected; the payoff is that millions of Americans live in abject fear and awe of the IRS.

Let's not swing the other way and under-estimate the expertise of the IRS. The United Kingdom tax authorities, for example, have just sent a study team to the United States with the aim of adopting the American techniques against the erring British taxpayer.

The risks involved in tax rebellion are reasonably low if:

• You are confident your tax minimisation arrangements are perfectly secure and secret (if illegal); or entirely within the spirit and letter of the law.

• You are an "average taxpayer" who does nothing illegal.

• Your tax minimization arrangements are perfectly normal methods.

If, on the other hand, your tax arrangements would not stand up under scrutiny; you have not kept your foreign bank accounts or use of tax havens properly secret; if, in other words, there is something the IRS could get its teeth into, you could do the tax resistance movement positive harm. I have no doubt that should the tax rebellion spread, the IRS will do as much as possible to destroy and discredit it. Proving to the public that a few of the people involved (and by implication the movement as a whole) are merely tax evaders seeking to feather their own nests would do much to undercut the movement's ethical base.

One final safety is in numbers: the more people involved, the fewer resources the IRS will be able to direct at you. So which do you want to be: the chicken or the egg?