My Confession and Penance

Let me tell you how it will be

There's one for you, nineteen for me

'Cause I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small

Be thankful I don't take it all

'Cause I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street,

If you try to sit, I'll tax your seat.

If you get too cold I'll tax the heat,

If you take a walk, I'll tax your feet.

Don't ask me what I want it for………

The Beatles “Taxman”

“The art of taxation consists in so plucking the goose

 as to procure the largest quantity of feathers

 with the least possible amount of hissing.”

Jean-Baptiste Colbert

French Minister of Finance for King Louis XIV

I am finally going to wrap up my Tax Saga on the flip side of my 2014 Tax Experience.  How the incremental cost of taxes (for us) and a system of powerful unresponsive bureaucrats outweighed what I saw as the benefits of continued full time employment even though I was at the financial peak of my career.

The decision Barbara and I made together in 2007 to retire early was based on a bunch of factors, and yes taxes influenced a part of it. One was my health, which at that time was not great.   The job itself was very demanding (I was in the middle of a corporate firestorm as mentioned in an earlier post).  I had to travel ungodly amounts and during my travels I often thought of my father who retired in his early 60’s and died at age 72, only a few months before he and my mom were to celebrate their 50^th anniversary.  Another was our years of pretty standard middle class “vanilla” style living with an emphasis on saving  which left us with a nice nest egg.  We only owned one “home”-in Stowe as we sold our Yardley Home when Eric left for the Marine Corps.  We never bought boats, fancy cars etc. when I started getting greater recognition at AIG.  Much of that recognition went into our savings.  On the flip side my “leverage” in the company was extremely high and my “prospects” for continued employment and financial reward was good.  AIG’s financial woes with mortgage “bets” had not started (well at least not yet surfaced).

Somehow, however, the extra money they paid me did not seem so much after the various tax authorities got their hands on it. I found that despite the increased pay, my incremental increase in salary was being taxed at higher amounts.  I found that instead of taking home say 75% of what I made I was taking home about 60%.  In other words a future 10% raise amounted to 4 or 5 % at best.

Let me further clarify my definition of how much I “took home” (using the same benchmarks as The Clintons). It includes all federal payroll taxes, state and local taxes and charitable giving.  I feel it boggles the mind to contemplate just how much taxes our governments really collect.  Not included in my numbers are gas taxes, sales taxes, liquor taxes, tobacco taxes, soda taxes, that tax on your phone bill, fuel surcharges etc. etc.  On corporations there are lots of taxes, I paid some when I ran my little consulting business.  Heck The Town of Stowe has a local tax on restaurants and bars, which we contributed too frequently. When one thinks about how virtually EVERY state and local government is “underfunded” and how the Federal Debt climbs EVERY day I get a sense it really is a house built on sinking sand despite all these taxes. Yet so many say we need to tax more because we need to spend more. Mercifully guys I will talk about “spending” in some other post.  Maybe Zuckerberg, Buffet, The Clintons and The Trumps (if he paid any) should pay more but if you really study the situation you realize it will not fix our underlying problems.  In theory their taxes are shaved by lower individual rates on non-wage or “capital” income but in reality Corporations Profits which are distributed to them are generally taxed heftily, before given to stockholders. 

Ok to move along, in case you have a question as to why charitable giving is included in my totals I need to clarify because it becomes doubly important to my story.  First we have always felt of it as a chance to give back some of the incredible blessings we received.  Second by supporting others it may decrease their need to ask the government for help.  Finally this is “recognized” in the tax code by a tax deduction which means our political system attaches value as well.  Yet it was this giving and a tax event that occurred in June 2007 which really disheartened my whole attitude about the Federal Tax System. 

In 2007 Barbara and I went through what I felt was a brutal IRS audit as they questioned the veracity of our prior returns deductions for Charitable Contributions.  Now understand we had for years a personal commitment to tithe not only all to our church at the time but to credible organizations like the Red Cross, The local Women’s and Homeless Shelter’s, The USO, Salvation Army even Lafayette College (Back Then).  We always included the original documents from these charities (letters from them documenting the amounts etc.).  Suddenly the IRS advised us they were unilaterally disallowing these contributions within 30 days unless we provided “additional evidence” it was a large amount of back taxes and interest presented as a bill.  When we asked what is meant by additional evidence the IRS responded cancelled checks, period. Now trust me this was not a nice polite letter indicating can you provide some additional info as we need to verify our file.  It was a bill and a threat.  Welcome to the judge, and jury and oh we think you are a crook.  As luck would not have it we had issued these checks from a combined broker/cash account and had switched a few months prior to a different one. Even back in 2007 nobody sent you cancelled checks you had to get them online, something we no longer had access too.  In addition at the time our Son Eric was getting ready to deploy to Iraq so we asked the IRS if we could have a couple more weeks.  The basically said F you and so we (well Barbara) scrambled to get copies of checks etc. and express mailing them to the IRS.    Well as luck would have it they………lost them internally.  Despite our postal record that they had received them they got more arrogant and demanded we resend them.  Apparently they believed we were tax owing cheats and indicated they would also start to assess garnishments and penalties.  I kid you not.  My tenacious Editor spent hours demanding and getting an advocate within the IRS to whom we eventually got the ANOTHER copy of the information to and finally the IRS conceded that our cash contributions “checked out”.  You would think we were done but oh no.

 A week or two later we were notified that our “Non Cash” deduction of $475 to the Goodwill (whose receipts we also sent) was disallowed.  Now when we moved to NY in 2006 we gave away tons of household goods, many to neighbors but a lot to Goodwill.  Things like furniture, clothes, sports equipment etc.  I had receipts for over $1,000 dollars from Goodwill but that nice tax adviser I mentioned in a prior post felt that might be tough to “get by” the IRS without actual photos (never thought of that).  So we declared what he thought would be something they would not question without a possible issue.

Now this last insult REALLY ticked me off.  I wrote the IRS and said sue me.  I explained our move and that I could have held a yard sale pocketed the money and never report it.  I did not hear back, thank goodness.  I would have hated to pay a lawyer for that. At the time  I was prepared to fight further by showing how the Clinton’s (yes I am sorry to bring them in again but I had to share the full story) when he was governor of Arkansas deducted $2.00 for a pair of donated underwear (if you need a laugh about non-cash deductions read this 1993 article from WaPo I was going to print and send to the IRS back then) https://www.washingtonpost.com/archive/lifestyle/1993/12/28/bill-clintons-great-skivvies-give-away/0dac853d-cf3d-4faf-8104-bcf124bd93b4/?utm_term=.5df007838cc0 but thankfully never had to play that card.

So in a nutshell a person who never complained about paying his fair obligations and felt it important to support my country financially was disillusioned by it all.  I felt that working and paying taxes to a system that looked at me (and my success and generosity) as an “enemy” was simply not worth it.  We could live a comfortable enough life with less income and lower tax percentages.  My 2014 tax year sure proved that! So in the late summer/early fall 2007 I went to my boss at AIG and informed him that I would like to retire in 18 months.  After some shock and dismay they asked if I would consider working a just few more years.  I then negotiated a shorter work week working out of my house in Stowe for two years.  Not surprisingly the shorter workweek lowered my income about 20% but my “take home” remained virtually unchanged, wonder why?  

I am ashamed to admit this but in the years after I became more a than a little obsessed with legally “screwing the feds” I shifted a significant percentage of our savings to municipal bonds (exempt from Federal Taxes) in part JUST to not pay taxes I regulating my consulting hours (a luxury I understand many do not have) to four or five days per month, mainly to enjoy life more but as an added benefit it minimized my tax bracket. Yes, less work and gross income but not as big a hit to net income. My Federal and State Tax bills went down and down until lo and behold thanks to that “windfall” Trade Adjustment tax credit out of the blue I succeeded so much with a little luck I paid a  2014 negative tax which I achieved in the fall of 2016.  Take that IRS!!!!!  It was also the inspiration to starting this blog.

OK so why am I boring you all with this, besides feeling a bit evil that I succeeded in an objective to legal beat the IRS and a crappy tax system that I believe is a disgrace. In my earlier posts a couple of you agreed, but all of us tend to just shrug and move on saying it cannot get fixed.  However, I am convinced that without real tax reform we as a nation will slowly strangulate.  Not just because cynics like me do “tax avoidance” strategies but I think it becomes a motivation for many to work less- both the rich (tax avoidance) and the poor (entitlements make marginal employment not worth it). It also has given rise for many to work under the table. It breeds cynicism about “fairness” from a majority of citizens.  Certainly I feel a little guilty now, not for achieving a weird goal, but for not paying my fair share.  Consider this Blog post my confession and penance, but while I will support real tax reform I will continue to personal maximize my tax strategies.  Maybe if we all did it our elected officials will affect some real change. I do not hold my breath.

Thanks for listening to my confession, now I feel much better!

With that I call it quits on my tax discussion.  My editor tells me all this has been fun but give it a rest! I do welcome any thoughts you may have on this specific topic or the blog in general. 

Until next week

Adieu