A self-tax for fiscal patriots

Doug Bandow Senior Fellow, The Cato Institute
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Legislators are battling over extending the Bush tax cuts. Should the “rich” get tax cuts? Congressional Republicans say yes and Democrats say no.

But that’s really the wrong question. What legislators should ask is: do the rich pay taxes? Yes. In fact, the rich pay a disproportionate share of income taxes. The top one percent of earners contributes 40 percent of revenues collected.

So of course the rich should get tax cuts. They pay taxes. It shouldn’t be a hard principle to grasp, even in Washington: tax cuts should go to people who pay taxes, not to people who consume taxes. This confusion recently afflicted the AFL-CIO, which denounced those who allegedly would borrow more money to pay for tax cuts. Obviously, government borrows to pay out money that it doesn’t have — like the abundant social spending now favored by the union leadership. But tax cuts do not mean spending money collected elsewhere. Rather, tax cuts mean reducing the amount of revenue collected. Taxes received automatically pay for tax cuts.

Still, opponents of extending the tax cuts felt emboldened by a gaggle of millionaires who organized to oppose tax cuts for millionaires. None of the people listed among the “Patriotic Millionaires for Fiscal Strength” is particularly famous, but Warren Buffett has separately taken a similar position. Of course, he is unlikely to notice a change in income tax rates. After you’ve made your first 10 or 20 billion dollars, who can keep track of interest let alone taxes? You might as well win public plaudits by lobbying to raise taxes.

It’s always easiest to spend other people’s money. Liberal legislators have proved that for years. Compassion once meant suffering with others. Then it turned into writing checks. Now — at least in Washington — compassion means making other people write checks.

The self-proclaimed “patriotic millionaires” look to be the same sort of hypocrites. While proclaiming the importance of people paying higher taxes, most are probably pocketing their savings under the Bush tax cuts. They want their peers to pay more, but in the meantime they are living the good life.

If they really believe that the federal government needs more money, there’s no reason for them to wait for Congress to raise the rates. The tax year is about to end for most Americans. Those who believe they are undertaxed have a wonderful opportunity to do their patriotic duty.

If you’re a “patriotic millionaire,” or even a “patriotic thousandaire,” it’s really quite simple. Pull out your 1040. Then let your imagination run rampant.

First, don’t claim any dependents. It’s only fair and just that you take care of them yourselves. The fact that you have a big family — contributing to the population explosion, resource depletion, and global warming — certainly should not reduce your taxes.

Next, inflate your wages. Granted, the really rich often don’t draw a standard salary. And the IRS might be confused if your W-2 and reported salary don’t match. But they aren’t likely to complain if you say you earn a lot more than the forms suggest.

Do the same for interest and dividends. But make sure you report extra taxable interest and ordinary dividends. Remember, your objective is to maximize your taxes.

If you’re feeling in an especially creative mood, toss in some taxable refunds and alimony, even if you’ve never been married. Sure, it might look odd to the IRS agent who checks your return, but he or she isn’t likely to press you to prove that you collected something from an ex-spouse on the side.

Next, it’s really easy to simply “sex up” your Schedule C business income. Add a couple hundred thousand in revenue. It will make you feel better and will cost you plenty. And reduce your claimed expenses. In fact, if you’re really serious about being a good financial patriot, don’t report any expenses. Just offer up a big revenue figure and watch the tax obligations pile up.

Capital gains are another great opportunity to pay more. By supporting higher taxes you presumably recognize that you’re part of the exploiter class. Obviously capital gains rates should go up and up, ever up. Since that hasn’t happened yet, you should make up sizeable winnings even if the market has crashed. True, there would be no documentation to back you up. But surely the IRS won’t disallow reported revenue for lack of evidence that it actually was paid.

There are plenty of other opportunities to add income. Are you retired? Then toss in some IRA distributions, pensions and annuities, and Social Security benefits. Have you always wanted to be a gentleman farmer? Then add some farm income. There’s even a line for “other income.” Here’s your chance to be truly creative.

Having inflated your total earnings, you should deep-six any deductions which would cut your adjusted gross income. There’s a potpourri of potential write-offs: educator expenses, health savings accounts, moving expenses, half of your Social Security taxes, self-employed retirement plan contributions, alimony, tuition, and more. You shouldn’t take any of them. Or at least you should radically cut any deductions. All resources really belong to the government anyway, so you shouldn’t deny Washington needed money to use elsewhere even if the law allows you to do so.

Treat deductions the same way. If you are really serious, you will just take the standard deduction. Why should you be able to cut your contribution to the collective because you paid a lot in state taxes, gave a lot of money to charity, or had a lot of unreimbursed business expenses? You should not enjoy privileges effectively denied to those who earn less.

Next, work at directly inflating your tax obligation. Forget the credits which you are allowed to take. If you owe a foreign government money, why should you get a tax break in America? Uncle Sam still desperately needs an increase in his public allowance. Pay up!

Then there are a bunch of special interest credits, for child care, education, and retirement. This is no time to burden the federal government with such responsibilities — especially since you shouldn’t have had all those carbon dioxide emitting kids! Failing to claim them is an easy way to owe more.

Coming up with “other taxes” is almost your last opportunity to do your patriotic duty of giving Capitol Hill as much money as its members imagine in their fondest dreams. Toss in some self-employment levies even if you don’t have Schedule C income. Granted, the IRS might wonder where the obligation came from, but no auditor is likely to turn down the extra cash.

There’s also a line for unreported Social Security and Medicare taxes. You’re supposed to fill out another form too. That’s a hassle, but anyone who believes they are under-taxed shouldn’t be bothered by a little more paperwork. After all, some Americans are fighting to protect our liberty. The least a financial patriot can do is fill out another form.

You can also make up some extra levies under IRAs and even the broad category of “additional taxes.” Some household employment taxes are a must. Imagine the domestic staff to which you believe you are entitled, and pay Uncle Sam accordingly.

Finally, don’t claim all of your earlier payments and possible credits. Admittedly, it would be hard to “forget” your withholding or quarterly estimated payments — the Feds probably would match your Social Security number and count it anyway. (Too bad you aren’t a Tea Party activist: then you could refuse to use the number for anything but Social Security. No self-respecting “patriotic millionaire” would complain about Uncle Sam violating his solemn promises and constitutional authority!)

There also are the child tax, education, and homebuyer credits. None are good policy. Only an economic illiterate in Congress could come up with the idea of taking money from people who already bought their homes to pay other people to buy houses when doing so would mostly shift the time of purchase of those already planning to buy. Are you really a fiscal patriot? Then suck it up and pay for the house yourself. The same with credits for school and especially for kids, who further burden an already over-crowded planet.

If you’ve done the job right, you will have greatly increased your tax liability. Take a deep breath, flash a self-satisfied smile, and pat yourself on the back. You have fulfilled your duties as a true financial patriot.

But be honest if the bottom line is still too low. Remember, if you are greedily treating the money you earned as the money you earned, you are denying the federal government critical revenue for corporate welfare, income redistribution to clamorous interest groups, unnecessary wars, unproductive federal research, pay-offs (“grants”) to state and local politicians, pork barrel projects, and middle class welfare in the form of Social Security and Medicare. Why should your needs take precedence over politicians who have a multitude of better ways to spend your money?

Take your tax form and start again at the beginning. This time really work at increasing your tax liability. After all, it is your patriotic duty!

Next up will be your state income tax. Governors and state legislators need love — and money — too. Be generous.

The tax cut extension battle is raging. Do you believe the government needs more money? Don’t push for tax hikes on the rest of us. Instead, give yourself a personal tax increase. It is a self-tax for the fiscal patriot who regrets that he has just one wallet to give for his country.

The time for action is now. Your country needs you.

Doug Bandow is a Senior Fellow at the Cato Institute and a former Special Assistant to President Ronald Reagan. He is the author of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).