Friday, September 30, 2016

Does NOT Paying Taxes Make You Smart?

Nobody loves paying taxes. Even the most liberal Hollywood celebrity who can be counted on to support every big government project has accountants on his/her payroll whose job it is to avoid paying them as much as the law allows. I'm no celebrity and I can be counted on to oppose most big government projects, and have an accountant who is charged with the same task. But, I feel compelled to make it clear that if my accountant presented me with a legal scheme that would lower my tax bill to zero, I would decline it. Why? Let me try to explain the unexplainable.

When I heard the Donald in the debate the other night say that if he paid no federal taxes on his alleged 600 million dollar income, that would make him smart, it touched a nerve with me. I don't know the first thing about Trump's finances. Although my gut tells me that when someone talks about his personal wealth so much it usually means that he isn't as wealthy as advertised. But, for our discussion let's assume that he truly is as loaded as he claims. Does avoiding taxes on a multi-million dollar income make him smart?

I find it easy to believe that someone with a great accountant, especially someone in the real estate business could, in fact, find a legal way to avoid paying federal income taxes. That's because our Rube Goldberg contraption of a tax code, with its 7000 pages of addendum, codicils and waivers lends itself to this sort of thing. When lobbyists and politicians and lawyers write the laws, what would you expect? So, it's probably legal. But is it smart? No. Here's why.

Let's imagine that Mr. Trump lived under a flat tax of 17%. That would mean he would owe the Treasury roughly 100 million on a 600 million dollar income. By not paying, the burden of funding the government's latest boondoggle falls to someone else. But the funding of the legitimate functions of government falls to someone else too. That aircraft carrier doesn't pay for itself! So, guess who ends up paying the freight? Not the poorest Americans. Not even the lower 45% of earners who currently pay no income taxes because of things like the earned income tax credit and the home mortgage deduction etc. etc. Yes, you guessed it, the middle class, specifically the upper middle class.

But, there's another reason why not paying your taxes is not smart. It means you are a lousy citizen and even worse, an ingrate. We live in the greatest nation on this planet. There is more opportunity here than anywhere else in the world. We live a life of comfort, plenty and ease unimaginable in most of the rest of the world. I thank God every day for allowing me to be born an American. One of the things that makes America work is a functioning government. As a citizen, although I may not like how my tax dollars are spent and although I may think our tax code stinks to high heaven, it's my job to pay what I owe. Somebody has to defend us, somebody has to administer our system of justice, someone has to build bridges, hospitals and highways. When I pay my taxes, I participate in providing the funds that allow my country to work. When I  weasel out of paying, I become a fake citizen, in essence . . . A freeloader.

Yes, I allow my accountant to claim my mortgage interest deduction. Yes, I keep my business receipts. Yes, I established a c-corporation years ago to help lower my tax bill. But, I have declined other, more imaginative schemes to avoid taxes, partly because I didn't understand them, but partly because I feel blessed in this life. America has been one of the greatest things to ever happen to me and I did nothing to earn the title American. It was an accident of birth. But the prosperous life I've built here is no accident. It has come about in no small part because the freedoms I enjoy here, and freedom isn't free, my friends.

So, on the fifteenth of every month, I make sure there's enough money in my business checking account to cover the IRS draw. I complain about it. I grumble and moan. But I pay, and a part of me feels good and grateful. If that makes me dumb, so be it.