April 15, 1998
Mr. Outrage was confused. He had just filed his income tax forms and was reviewing them, as well as his overall income and expenses for 1997, with his financial advisor. Their conversation follows:
Advisor: Look, we’ll go through it step by step. Maybe that will help. First of all, the city says your house went up in value, so your real estate taxes increased.
Mr. Outrage: What do I pay those for? I send my kids to private school because the local public schools are teaching that Martin Luther King led the troops at Valley Forge. All the local cops do is pull me over for speeding. The streets have potholes and the local dog-catcher accidentally put our Great Dane to sleep.
Advisor: Well, your problem isn’t the real estate taxes. Actually, in terms of local taxes, you probably paid more in sales tax. Plus, the real estate taxes are deductible against your state and federal income taxes, and the sales taxes aren’t.
Mr. Outrage: Sales taxes? I thought those went to the state.
Advisor: Well, actually you pay two different sales taxes. When you eat out, you pay a state sales tax plus a meals tax.
Incidentally, you seem to be eating out a lot.
Mr. Outrage: Yeah, ever since my wife left me for the paperboy, I’ve been a regular at Mickey Dees and Burger King. But why do I pay an extra tax when I eat at fast food joints?
Advisor: Well, a meals tax is sort of a luxury tax. By taxing all you single people who eat out all the time the city can pay for
vital necessities, like the Easter egg hunt in the local park.
Mr. Outrage: What about the personal property taxes? They seem really high.
Advisor: Well, the local sales taxes and the real estate taxes weren’t enough to pay for the new baseball stadium, so the city had to raise the personal property tax.
Mr. Outrage: But isn’t the stadium privately owned? I’m sure it is – that guy that made six billion dollars when he co-founded
MacroHard owns it.
Advisor: Yes, it’s privately owned. But real estate, personal property and local sales taxes aren’t what’s really killing you. Did you look at your business return?
Mr. Outrage: I did, but I still don’t understand it. I was sure those sexual harassment insurance premiums were deductible.
Advisor: They are, but only in the event that your income is less than $82,764. And of course not if you qualify for the
alternative maximum income tax. Unless, of course, Jupiter is in the seventh moon, in which case you need to file form 32F.
Mr. Outrage: What are these penalties?
Advisor: You under-estimated your estimated tax. We had anticipated that you would have made less money than you did last year, but you made more, so you’ve got some problems.
Mr.Outrage: How can that be? I don’t have any money left.
Advisor: You may also owe some alternative minimum tax.
Mr. Outrage: What! I thought that was to make sure Madonna and Bill Gates paid their fair share. What does it have to do with me?
Advisor: Quit complaining, the government provides lots of useful services. Didn’t you see the PBS special, “Bill Clinton: A Moral Hero for our Times”?
Mr. Outrage: This is unbelievable. How did these taxes get so high?
Advisor: Well, some people complained about the National Endowment for the Arts paying millions of dollars for artists to
paint black canvases. But their defenders explained that a hundred million dollars was nothing, in the scheme of things.
Other people complained about farm subsidies and paying farmers not to grow crops. But the farmers protested: after all, as a percent of GNP, the subsidies weren’t very much.
Of course, despite the fact that there are approximately 751,293 competing forms of private media, we couldn’t do without National Public Radio. And then there’s the cost of playing Globo Cop. A few hundred million here, a few hundred million there, and pretty soon you’re talking about real money.
Mr. Outrage: What’s this Social Security payment?
Advisor: It’s to help out the older folks, so they don’t eat dog food in their golden years.
Mr. Outrage: You mean like my great aunt Carol? The one that inherited the local shopping mall? Of course she never paid into the system.
Well, at least I’ll be secure in my old age.
Advisor: No – actually, the system will be bankrupt by that time.
Mr. Outrage: I have to tell you, I’m just glad I still have my boat. If I didn’t have some place to escape I think I’d just go
Advisor: You may need to sell that boat. They’re thinking about implementing an annual luxury tax on boats.
Mr. Outrage: What are these capital gains? I didn’t sell anything.
Advisor: Those are from your mutual funds.
Mr. Outrage: But I didn’t sell any of my mutual funds.
Advisor: Doesn’t matter. The mutual funds sold stocks within the funds, and as a mutual fund owner you’re liable for their gains.
Mr. Outrage: How could there by any gains? The only funds I owned invested in Asia, and they’re all worth less now than when I bought them.
Advisor: True, but they still managed to generate some capital gains in a vain attempt to make their poor performance look
better. Of course the companies in which they invest were also taxed by their national governments, but you got a partial exemption for the foreign taxes. Then, of course, the companies themselves paid corporate income tax.
Mr. Outrage: What about the Medicare tax?
Advisor: What about it?
Mr. Outrage: Where does it go?
Advisor: You’ve heard about those two doctors who embezzled $128 million and are now living on a yacht off the coast of Brazil?
Mr. Outrage: Yeah. What about them?
Advisor: That’s where it goes.
Mr. Outrage: What about the taxes I paid on my phone? I paid a local tax to the city, a state tax that they call the Relay
Center Surcharge, and a federal tax.
Advisor: You forgot about the Federal Subscriber Line Charge.
Mr. Outrage: Let me try to get this straight. I pay real estate, sales taxes, and personal property taxes to the local government. I also pay sales taxes to the state government, as well as state income taxes. I pay federal income taxes, and they’re talking about a federal consumption tax. I pay luxury taxes if I buy something expensive, meals tax if I eat at the burger joint, and
normal sales taxes on everything else.
When I use my phone I pay taxes to the city, state, and the feds. I pay taxes on income from my investments, despite the fact that those companies have already paid corporate income taxes. I pay taxes on my mutual funds, although the funds paid me no dividends and went down in value, and have already paid taxes to foreign governments. I pay Social Security and Medicare taxes, because what with all these other taxes I’d never be able to save for my retirement or medical expenses. If I don’t pay enough using the regular calculations, I may be subject to the alternative minimum tax. If I don’t estimate my taxes correctly I’ll have to pay a
penalty, plus extra taxes.
This is all so incredibly complicated. How can you ever be sure you’ve really gotten it right?
Advisor: Well, you can never be totally sure. We run everything through a special software program designed to catch errors. We also do a fair amount of statistical regression analysis. And if it still doesn’t feel right we howl at the moon, spin like
dervishes, and sing chants to the Tax Goddess.
Mr. Outrage: Look, I just want to leave something to my kids. What if I just commit seppuku?
Advisor: Unfortunately, I think you’re looking at a fairly heavy estate tax burden.
Mr. Outrage: Any way to avoid the estate taxes?
Advisor: Well, you could give them annual gifts, but make sure you don’t go over the limit or they’ll incur gift taxes.
Mr. Outrage: Okay – what if I kill myself, liquidate all my assets and pay everything to the government. Could I leave my
organs to the boys?
Advisor: You could probably give them the entrails. But the government gets the heart and the brain has to go through probate court.
For some good examples of how your money is spent, see The Outrage Library Your Tax Dollars At Work.
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