The Great American Ripoff: The High Cost of Low Taxes

Americans pay almost four times as much as the citizens of other wealthy countries for things such as retirement security and health care on the private market – 10.6 percent of our economic output versus an average of just 2.7 percent among OECD member states.

via The Great American Ripoff: The High Cost of Low Taxes | Connecting the Dots, What Matters Today | BillMoyers.com.

Bill Moyers website has a great perspective on the whole state vs private industry, tax vs pay debate. It shows that Americans for the most part want what the government provides, well-maintained infrastructure, safe food and clean water, efficient firefighting and policing, Medicare and Social Security and virtually every other government-provided service you can name. Most Americans though think that a lower tax bill – especially for federal taxes — The article shows, with figures, that those low taxes actually work against the economic interests of most Americans.

That’s because we pay ridiculously high out-of-pocket costs for things that are provided by the public sector in other developed countries. The difference is quite dramatic.

How Turbo tax is keeping taxes complicated

As we head towards US Tax season and the whole circus that surrounds it, I am as always bewildered how complex and how much effort has to go into filing your annual personal taxes, so much so, I’m behind and won’t be ready again. Worse still, for Tax Year 2012, I have my personal taxes and 2x businesses taxes to file.

Like so many things, Americans make, and thus assume taxes have to be complex. Businesses make marketing campaigns out of tax refund checks, you can get everything from interest free payments “until you get your refund”, to payday loan advances o n your refund check. And we all know that any kind of payday loan is the scum of the earth no matter how broke you are.

So why am I shocked, disappointed and angry to find out that the bellwether of tax filing, Turbo Tax aka owner Intuit, is not only against this, but actually spent some $12-million lobbying against a totally simpler process. It’s a disgrace. However, the longer I’m in the US, the more I’ve become disappointed with how selfish and backward these businesses are, like all businesses, faced with a challenge rather than adapt, and move on; look for new business, they defend their monopolies, or duopolies in this case, since apparently H&R Block also opposed this change.

So, whats the fuss?

  • Most of us in the employment of someone else have taxes taken from our paycheck
  • Many are outraged by this “interest free loan” to the government, but have you checked interest rates lately, good luck making more than the price of postage from the interest you’d get from most monthly tax deducations.
  • It’s your money if you get it back, if you don’t, it wasn’t yours in the first place
  • It’s obvious, if you regularly get a refund check, you should up your witholdings and have less deducted

In the UK it works just the same; only you don’t have the ridiculous end of tax season circus. Yes, the top 20% of tax payers, which included me when I was there, had to file annual returns. Yes, those with stock, shares etc. benefited from filing these returns as you can claim precisely sold, profit, loss, capital gains etc. Obviously those in self employment and those with complicated tax affairs had to file returns, but for the working person, you got a tax code which reflected

  • Previous income
  • Marriage status
  • Number of tax dependents inc. children and other qualifying dependants

The amount of tax deducted from your pay is based on that code. If you need to adjust your code, because of circumstances, or because its wrong, you can. Each year the government sends you a summary account, based on your earnings, deductions, and a new code for the following year taking into account any legal or tax code changes.

If your circumstances or the tax code change significantly, you can end up owing money, or getting a refund. The refunds in rare cases can be big enough to warrant a refund but are more normally handled by changing your tax code for the following year to balance out. If you end up owing the government money, if it’s a small amount, they can alter your tax code, if it’s a large amount, you have to work it out direct with them. And thats all there is to it.

Like so many things, here in America, eveything is a battle, no one trusts the government, and everyone hates paying taxes, even though they are quick enough to demand benefits, medicare or medicaid when they need it, even though most Americans pay less than 2/3 what the average UK worker does in payroll taxes. Honestly, I don’t understand why the taxes are done the way they are.

So it came as a complete shock to find that the US Government has been trying to setup the same process. There is no conspiracy behind it, just a much simpler way to handle the tax affairs of a couple of hundred million Americans. You would:

  • Still be able to file a separate tax return
  • Still be eligible to a refund for overpayment, or owe for underpayment

Think of the time, effort etc. saved once the system was up and running. Both the current President, and before you howl about the plot, and former President, Republican and tea-party icon, Ronald Regan supported simplified filing, using pre-filled forms.

Really, there is no plot, the government does a calculation on your tax anyway, only now it would share the result with you, instead of holding it in secret and waiting for you to file and then using it to decide to audit you.

In 2005, Norquist testified before the President’s Advisory Panel on Federal Tax Reform arguing against return-free filing. The next year, Norquist and others wrote in a letter to President Bush that getting an official-looking “bill” from the IRS could be “extremely intimidating, particularly for seniors, low-income and non-English speaking citizens.”

Unlike say all those very official, fake government letters they get now from loan sharks, life insurance sales, car warranty companies etc. that show up on a regular basis.

If you are considering using Turbo Tax or H&R Block this year to help with filing taxes, think again. They are like drug dealers, making you dependent on a broken system and keeping you there. Go find a local non-profit to help; pay a local tax attorney if you can’t do it yourself. Sure, they won’t help you model your tax return to get the refund check you want, even if you do owe money, but better that than funding lobbyists to keep you dependent.

When heros were not zeros

So the election is over, I’m still struggling with the reality of what candidate Romney said he’d do and what President Romney would have had to do. A couple of recent things illustrate my confusion. Much of what the republicans were doing was looking back, back to a time when America was a producer, not just a consumer. Sure things are made here now, but so much of what we consume isn’t.

Here in Austin, at yesterdays City Council meeting, a big deal was made out of the package of incentives given to Visa to set-up office in Austin. Visa claim to be brining 800 jobs to Austin with an average salary of over $110,000 and in return they are getting some $10-million in tax breaks and other financial incentives. Texas gives away the highest tax breaks of any State in the nation, this week the NY Times ran a story on this, with the winners and losers.

The other piece of news that peaked my interest this week was the news that Apple would start making its’ Mac computers in the USA again, relying on tax breaks, and likely in “partnership with with FoxConn”. We will probably never know what this actually means since all tech companies try to keep their hardware operations veiled in secerecy, given the plummeting cost of hardware, that makes even the slightest improvement in process or manufacturing, potentially worth a fortune.

And there is my dilemma. Two big deals, both dependent on tax breaks, which ultimately either require some to pay more taxes, or services to be cut. The problem I have with Candidate Romneys proposal, was that it seemed to do both. While it made great political grandstanding, to claim to cut benefits and big government, the only way it made any real sense, was if he wanted or believed he could turn America into a low wage economy at the bottom of the stack, making people work for subsistence salaries, rather than get benefits and do nothing.

You could argue either way on this politically and humanely, but it would require huge tax incentives, which would be paid for by cutting benefits and effectively forcing people to work, which many would argue, isn’t a bad thing. However, the real problem is that there is a big difference between make and assemble. Assembling products in America would be entirely do-able. Making them much less so.

And, there’s the rub. In order to make things, you need the raw materials. For the last 20-years, and especially the last 6-years, the Chinese have cornered the futures markets in almost everything you’d need to make anything useful, their futures markets themselves have become essential in day to day trading.

So, I’m guessing Apple will be doing more assembly than making, FoxConn will be doing the making. In the next 4-years the Republican party is going to have to come up with a forward looking strategy, rather than a backward looking one. If that strategy is dependent on manufacturing, then it’s going to need a big government, even if only to cover the tax breaks needed to kick-start it. We’ll need real heroes to do achieve that, not just people who measure their value by the number of zero’s in their net worth.

to Tax or Not to Tax…. debt is the question

Sat watching the BBC News tonight, my heart rate raced a few beats higher as I watch the Chief Accountants from Apple, Google and Starbucks in the UK defend their accounting process which has meant they’ve largely avoided paying UK Corporation tax, and particularly the hapless public policy wonk from Amazon.com, Andrew Cecil.

I’m glad I’m not working at Google in the UK, who at least as far as their management seemed to be concerned, don’t “innovate” in the UK. oops. Interestingly I used to work with Nelson Mattos at IBM, I wonder what he thinks now?

Starbucks came in for some extra questioning since they were paying dividends to shareholders and telling them, their business in the UK was doing fine, while at the same time declaring a financial loss and using the tax scheme, appropriately to shelter their profits from that loss. The BBC News piece is here.

Margaret Hodge, who chairs the parliamentary committee, told the BBC that she thought it was right for customers to boycott the three companies.

As entertaining as this was, and at first watch/read I was inclined to agree with Margaret Hodge over a boycott. After 15-mins of reading revealed a much more open/shut case that the MP’s need to deal with, that effectively shows Ms. Hodge protestations to be little more than a magicians use of mis-direction.

It was Hodge’s peers in the Labor Government which she joined in 1994, that handed over the water industry to the private sector. Where was the rambunctious questioning, hand waving, pointing and questioning while the water industry was moving all it’s money overseas, and steadily doing a better job at avoiding tax?

Thames Water have paid shareholders handsomely, moved money offshore, and burdened their company with so much artificial debt that according to Moody’s, the credit rating agency, says they can no longer afford the debt aka investment needed to do the infrastructure projects like the new $4.1-billion Thames bypass tunnel, proposed to stop sewage draining into the River Thames.

As Will Hutton’s article in the Guardian sums it up the best, Thames Water – a private equity plaything that takes us for fools. Let’s see the politicians doing something about this, and avoiding asking the taxpayer to either underwrite, or bailout Thames Water before going after the “tech titans”, otherwise these hearings remind me of the barn door, shut after the horse has bolted.

TED and Job Creators

Over the past couple of years I’ve watched a few TED videos, they are often educational, always informative and sometimes even entertaining as well. This one showed up in a Yahoo most watched/recommended list on a sidebar on a web search… I’d never heard of Nick Hanauer, but wikipedia and google search have, and he is is an American entrepreneur and venture capitalist and author of the book, The True Patriot.

Nick adds a great link to the chain in so much as I’m able to explain why the current argument over tax in the US positions the 1% incorrectly, but it also adds to my position about the UKs ongoing problem with its’ service economy and my analogy that it is like “eating your own children”. Nick makes the point that the 1% aka the super-rich are not job creators, the middle class are job creators. “Jobs are a result of an ecosystemic feedback loop between customers and businesses”. If the middle class collapses, then there is no one to buy goods; if there is no one to buy goods then the super-rich can’t create businesses to make, sell goods.

Nick also makes a good point that the super-rich really only add jobs as a last ditch effort, not as a first choice. Watch the whole video, it is only 5:50 and well worth your time.

Fiscal fairness, take the money and run

Early this month I posted this entry on “fiscal fairness” about paying taxes. This week two items have come up that show why the tax avoidance situation has become unsustainable here in the US and in the UK.

First up in the US in the story that Facebook founding backer Eduardo Saverin’s renunciation of his U.S. citizenship. It really doesn’t matter what he says, Eduardo benefit from the system in place here in the US, and now he is about to get billions of US$ from the Facebook IPO, On advice of counsel, he’s established residency in Singapore, where there is no capital-gains tax. Eric Liu has a good piece on time.com

Then there is Vodafone in the UK. In the UK Private Eye, satirical and investigative magazine #1312, the Eye has uncovered evidence of what it says is total collusion between Vodafone and the head of the Tax authorities in the UK. There has been lots of coverage of the let-off of Vodafones tax bill, but this is the first news of a link that shows how they did it. They’ve managed to get of billions of UK pounds in taxes by using an offshore tax haven in Luxembourg, and making billions in interest and paying little or no taxes. The problem with this for the US, is that Vodafone owns 45% stake in Verizon Wireless. Private Eye isn’t online, but here is a summary.

The problem with both these examples is that although they may be legal, although thats questionable, in both cases it is in essence asset stripping the economies that enabled to make the money in the first place. If everyone did the same thing, then the countries that are target of this manipulation prohibit the next generation from benefiting the same infrastructure you did.

Eric includes on his article a saying attributed to Bill Gates sr. You can read it in full here. Eric write this as “Bill Gates Sr., the father of the father of the first great high-tech fortune, often points out that there is no such thing as a self-made man. We need a country where the dream isn’t to escape to a tax-free island but to be like the elder Gates: responsible, reciprocal, and a citizen of the United States”.

Think of it this way, paying tax is buying civilization.

Tax, Apple, Buffet, and doing the right thing

image from mainstreet.com
A number of people on my facebook stream have been posting and commenting on the ruckus over Apples tax avoidance, especially as it relates to iTunes, which even a Luxembourg Government official has jumped in to defend the iTunes tax evasion scheme. The other thread that has been running is commentry on the so called “Buffet Rule”, a proposed tax code change to force millionaires and up, to pay a tax rate that is  comparable to the average middle income family, or some such.

I think this is all losing perspective though, although both cases are dissimilar in practice, at their core, the complaints are about the same thing. While Apple is a worldwide corporation, with many share holders, to whom it owes a fiduciary responsibility to maximize profit, how it does it is the same as Buffett.

Changes in laws, it shouldn’t be needed. The billionaires and big companies are master of their own empires, they are not beholden to their accountants and tax advisors. They should move their investments on shore, make sure they are paying a fair wage to all their employees, provide decent health care etc. thats all everone else expects of them. Forcing the goverment to try to inact a law/rule change that is divisive purely because of the polarizing because of what it is trying to do, is just BS. when said billionaires and companies should know that they’d never had made their money in the first place in a weak, unhealthy country that was racked with division, decaying infrastructure, pollution, poorly educated children. JUST PAY YOUR TAXES, don’t avoid them.

Companies recently have spent a lot of time and effort dressing up their annual reports to show their environment and ethical efforts, it is time they did the same for fiscal fairness.

Big Government trust issues

Yesterday I wrote about This American Lifes “What Kind of Country do you want?” at which as was surprised at how much disdain and distrust there was of the US Government. As if by magic, when I got home I had missed a certified mail delivery from the IRS. I collected the letter this morning, it was a demand for $2434.04 with no explanation.

After 18-minutes on the phone, I spoke to one operator who could tell me only that it was late fees and interest. I asked for a statement that I could file with my tax attorney ans she said she couldn’t provide that, she’d have to put me through to some advanced dept. After another 20-mins on hold, a man answered, was polite, asked if it was ok to hold, came back 6-mins later, said his software was slow, and then said “oh there you go it’s come back now I’m talking about it”. He asked if he could put me back on hold, came back eventually and said he’d have to submit a paper request and it would take 30-days.

Note, the fact that I’d only been given another 9-days to pay before the US Government would exercise their intent to seize my property, meant I should just pay it. I submitted the payment via a 3rd party for the $3.49 fee and gave the guy on the phone a payment confirmation number.

I told him I was the Director for Software engineering at Dell; I’d be happy to hang up my boots and come fix their software, my fees were a very reasonable $1,000 per day. He said they have lots of software but his computer was an HP, I passed on the chance to make fun of that. Total call time 58-minutes, 38-seconds.

I’m starting to see that if you grow up and these are the sorts of tales, inefficiencies and hopeless situations, you do indeed become skeptical about big government. I’m going to see the US Customs and Immigration Service (USCIS) tomorrow for my permanent immigration application. Wish me luck.