When I was about half grown, a family friend named Pat came to our house for parties and dinners. After lubricating himself with three or four highballs he would start a tirade against the U.S. government. Red tape, Eleanor Roosevelt, and highway robbery (meaning federal taxes) were his favorite attack words.
One night he launched a new one. Debauchery, he said, debauchery in Washington. My ears perked up. I hoped that sex was involved and that the grown-ups would ask for the dirt.
No such luck. They stared at their buttons and changed the subject. I see now that sex wasn’t what embarrassed them.
In the first place, Pat was socially retarded. His tirades were delivered not long after the Depression and World War II, a time of far more collective feeling than usual in America, and his vocabulary was out of date. Sounding more like a McKinley Republican than a Willkie Republican, he might as well have worn a sign saying Enemy of the Common Man. In the second place, as a hypocrite, Pat fooled mostly himself. For example, he bought a farm, installed a sharecropping tenant in an old house at the upper end and built a nice weekend place with a lawn for himself at the lower end, hired a contractor to dam a creek and excavate a small lake bed. Although on paper the lake was for watering livestock, as soon as it rose high enough for swimming and boating, up went a barbwire fence to keep cows and other riffraff away. In other words, he finagled or downright cheated on his taxes, claimed deductions and collected crop subsidies; and yet he couldn’t resist hinting proudly of this when he was not denouncing immoral politicians. In the third place, Pat was comically insulated from the way most people lived. Retired even from golf by age 50, he excelled in naps. Basically it peeved him not to receive from the government what he got from his housekeeper: respectful, unobtrusive service at low cost. As he saw it, though, his views of a proper social order were formed through hard thinking, and he was sure he had arrived at conclusions sanctioned by the universe.
Pat is long gone, but his spirit lives on. Nowadays people more or less equivalent to him assure their neighbors that Hillary Clinton murdered Vince Foster and declare that universal prosperity would gush forth if only the capital gains tax were abolished. The New York Times recently found a New Jersey suburbanite who drove 90 miles to and from a Delaware shopping mall. It may be that she was desperate to get out of the house, that for her this was entertainment; but the reason she gave for her expedition was that Delaware has no retail sales tax. By purchasing a sweater for herself, two pairs of jeans and a jacket for the kids, she saved exactly nothing, since New Jersey exempts clothing from its sales tax. Never mind. She knew that in America tax avoidance is a righteous principle. Furthermore—and this has become clearer since Pat’s day—you don’t criticize anyone’s shopping creed, any more than you would her religious observances. During National Interfaith Week, Olympic Barbie at $19.95 should be an inspiration to all.
In most of the world, despite tactical blustering (and assuming a government is not hated for other reasons), taxation is understood to involve practical maneuvering, self-interest without deep ethical implications. In America as well, the actual collection of public monies and the actual playing of angles when individuals force themselves into a practical mood resemble what goes on in other countries. Here, however, what people avow to friends and acquaintances, even to strangers in coffee shops and airport lounges, is thickly overlaid with fantasy and moral significance. The culturally correct response is to wince, moan, or growl, to protest that we must get government off our backs, to swear that taxes are killing us. Tall tales of monumental injustice and heroic evasion circulate. For colorful talkers this is the time to call revenue agents bloodsuckers. In the Congressional hearings of 1997, for example, dozens of witnesses were brought forth to testify to the reckless brutality of the IRS. Nothing was said about 100,000 lawyers and accountants probing day and night for loopholes. Nothing was said about millions of taxpayers who routinely conceal and stall in filing tax returns. Taxes become an occasion for a melodrama of victimization and moral resistance.
Mental laziness is one of the attractions of tax fantasy. The story never changes. Bureaucrats and politicians oppress, interfere, and waste (as though you never encountered such behavior in business or on the street). You are always an aggrieved victim or a brave freedom fighter. That government regulations might be a reaction—to polluted rivers, say, false statements, spouses pauperized by divorce—is regarded as a completely different matter. Under this simple plot you need not judge what effect a particular tax measure will have or find out what effect it did have on anybody but yourself. No knowledge required, only opinions and biography. Thus not one person in ten thousand realizes that if Social Security had been funded from a capital reserve instead of current wages in the beginning, the work force of the United States would now enjoy higher take-home pay and a more certain future. Subsidizing highways and airports while collecting real estate taxes from railroads eliminated passenger trains. Compared with the cost/benefit ratio of unmanned space missions, the yield in information from landing astronauts on the moon was tiny. By staying inside the fantasy, you also avoid knowing what happens when others act as you do. The cheaper the method for raising a given amount of revenue, the farther a tax dollar goes, since the cost of collection enters into the net outcome. Yet because of tinkering and revisions undertaken by individuals and little coalitions the volume of income tax regulations increased 730 percent from 1974 to 1994. For this guaranteed way of raising tax costs the policy analyst Arthur P. Hall, Jr., coined the name “hyperlexis.” Hyperlexis is how the public maximizes legislative shell games, bureaucratic overload, and charges from lobbyists, lawyers, and accountants.
In about the time they will spend watching television this week, a host of Americans could learn the general outline of their tax system. Most public libraries have the information. The gap between belief and practice is nearly as awesome as the Grand Canyon.
Belief. Exceptionally clever or talented people are penalized and steady workers are discouraged by the burden of taxes.
Practice. Taxes are moderate in the United States. Although more millionaires and billionaires reside here than in any other country, the U.S. ranks 11th in percentage of central-government revenue raised through personal income taxes. Ross Perot’s tax-free income in 1991, for instance, was reported to be $18 million. In percentage raised from corporate income taxes, the U.S. ranks 70th.
Tax provisions to redistribute our wealth upward generally succeed. For example, the effective tax rate for the 12 top military contractors in 1984 was 1.5 percent. Provisions to redistribute our wealth downward generally fail. In 1973 11 percent of Americans were living below the poverty line, and by 1994 the figure reached 14 percent (of a larger population). Far more numerous and typical, however, are tax programs that lead in a circle or effect lateral transfers. Truckers pay substantial taxes and break up the roads. Wage earners with incomes above the national median fund Social Security payments to retirees whose incomes also exceed the median.
Belief. Federal tax collectors and frequently state and local ones as well are cruel, tireless, and overpowering.
Practice. By and large elected officials see to it that the tax collectors can never do better than a mediocre job. Commissioners of Internal Revenue average less than 2 years in their post. Congress delivers tax laws in such sloppy form that those who must base regulations on them fall ever farther behind. In 1993 some 597 unfinished regulations clogged the IRS pipeline. The computer equipment available to IRS agents is inferior to that used by many taxpayers. When a billion-dollar upgrade was botched recently, Congress treated the situation not as a breach in the revenue dyke but as a good chance to damage the agency. They cut the budget for two years running. In 1995 only .7 percent of tax returns were thoroughly audited.
The Tax Reform Act of 1969—one in a long line of fake simplifications—was jokingly referred to in Washington as the Lawyers and Accountants Relief Act. Those who make a living from tax “guidance” can be counted on to obfuscate and to violate the spirit of the law, and government is content to have it so. Between 1952 and 1993 membership in the tax section of the American Bar Association grew from 3200 to 22,500. Whereas in 1986 H & R Block handled approximately 9,215,000 tax returns, by 1993, after much further “simplification,” the number rose to 12,964,000.
Belief. If only the damned buraucrats and politicians “cut back,” we would be relieved of our agonizing tax burden.
Practice. Government already raises a substantial share of ordinary revenue by borrowing instead of exercising its power to tax. This could be construed as a tax paid to private wealth, which is regarded as the ideal outcome of human life. In any case, income taxes proper cover only 37 percent of federal outlays. From the accumulated debt of more than $5 trillion, it is obvious that monies collected through fees, fines, and other devices comparable to taxes do not come close to making up the difference. Nor is government any more prudent than a gambler as to whom it borrows from. In round numbers, 20 percent of U.S. debt is owed to foreigners, a group famous for having no friends, only interests. Foreign capital that flowed into the United States in the 19th century built railroads, granaries, mills, and the like—productive facilities that generated further wealth—and the investors, if skillful or lucky, were repaid from profits. That may still be true of private capital, but foreign lenders to the U.S. government today merely wait to receive their money back from new borrowing, rather like the fortunate early investors in a Ponzi scheme. Meanwhile on an annual basis, debt service costs the government eight times more than it spends on needy citizens.
By borrowing, government authentically represents the American people. This is democracy in action. Not counting mortgages, consumer debt is fast approaching $1.5 trillion. The debt of an average household exceeds income by approximately 10 percent. Taxpayers protest that they have been painfully squeezed, meanwhile purchasing new houses that on average contain a third more floor space than those built in 1970. In this respect at least, people and government stand shoulder to shoulder. Together, according to Martin Feldstein in 1988, they put the U.S. lowest out of 24 developed countries in savings as a percentage of GDP.
Belief. Honest firms pay their fair share of taxes and then some. What gets publicized is the skulduggery of a few crooked insiders.
Practice. Business corporations—which control the largest pools of capital, make the heaviest use of infrastructure, and claim to be the backbone of the nation—have retreated from the tax system legally and as a group. In 1954 corporations averaged 75 cents in taxes for every dollar paid by individuals, but by 1994 the figure dropped to 20 cents. In fiscal 1996 individual income taxes plus the payroll tax provided 80.1 percent of federal receipts; while the corporate income tax provided 11.1 percent. And no wonder when you look at parts of the aggregate. Publicly traded real estate investment trusts, for example, are as a group capitalized at about $94 billion and by law owe no federal tax.
If figures for business as a whole seem too “averaged out” from a gigantic and imperfect data base, the same point can be illustrated at the level of the single firm, using the firm’s own operating statement. In the first half of 1996 a company that sells ATM machines to banks around the world (including a bank in which my parents’ old pal Pat once owned shares) grossed $464,223,000 and paid federal, foreign, and state income taxes of $21,388,000. Like other companies, this darling of the mutual fund managers highlights the ratio of taxes to profits rather than income, which makes the tax bill appear heavy.
As to the machinations of “insiders,” campaign contributions are relatively so cheap that they are the corporate equivalent of buying Girl Scout cookies. The tax credit Bob Dole preserved for gas and oil drillers in 1992 continues to save a certain Houston firm about $12 million per year. From employees and committees of this firm Dole received $72,750 for his presidential campaign—less than a tip. Besides, the bulk of such corporate loose change comes quickly back to the private sector via television ads and pollster charges. For city, state, and federal elections in 1996 the parties and the candidates ran 752,891 TV commercials.
Belief. A city or town can balance its budget if it really tries. The perfect way is to attract businesses from elsewhere, called broadening the tax base, by promising them a rebate or exemption for several years if they will come.
Practice. At the local level especially, demand for government benefits exceeds the taxpayers’ willingness to pay. Debt, federal and state grants, deferral of maintenance and capital replacement, reduction of services, and taxes disguised as fees provide the illusion of a balanced budget.
Commonly in the United States taxes levied on residential property do not cover services rendered. Any increase of households caused by incoming businesses therefore multiplies the local deficit. Local taxes on business typically do yield a surplus, but this cannot be the case with newcomers who initially pay no property tax although they immediately consume public goods and services. A town may incur the expense of extending sewers, widening roads, hiring police, and the like to accommodate new businesses. It will then have to regulate, maintain, and eventually replace such facilities.
“Broadening the tax base” is the sound of one hand clapping, meaningless without a figure for what the base must support. Over generations success in “broadening” equals Philadelphia.
A radical separation of beliefs from practices does strange things to the mind. When it comes to taxes, even studied public utterances wobble and blur, as though the speaker had gone too long without sleep. Recently Barbara Anderson, head of the chief anti-tax organization in Massachusetts, learned that bonds on which the state was paying $265 million per year in principal and interest would soon reach maturity. Her response, presented to reporters, was to call for an immediate $1 billion per year cut in state income taxes. “If we wait,” she said, “they’ll take the money and earmark it for handicapped puppies. . . .” From her point of view, a play for publicity and a swipe at give-away politicians are understandable. Still, a strain vibrates beneath the surface. To equate $265 million with $1 billion is to remove numbers from the realm of counting. The handicapped puppies smell of nihilism.
Phobia lurks close to the surface at private gatherings too. A search for common ground begins, and everyone has been trained by the culture to hate taxes categorically. People are valued for the warmth with which they build or support a group mood. Although attitudes toward taxes are induced culturally, they are experienced psychologically; which means they are mixed with a lot of emotional baggage— hurts, daydreams, distorted memories, etc. Plenty of warmth will be available, enough to start a forest fire with the topic of taxes.
Oh, oh. An excitable group is what worries attendants in the locked wards.
At this point one of the Tax Demented sometimes appears, frightening the children and making the dog uneasy. The Tax Demented believe that God or Nature has divided the monetary sphere into good and evil. Private wealth is right. Spending it on a snowblower or perfume makes you a contributor to the economy. Collecting from you for what you purchase is better yet, a blessed state. Taxes, in contrast, are wrong, misappropriated by legalized extortion and black magic. Meat inspection, courthouses, and parks may have some utility in this sorry world, but they are tainted by their source of funding.
The economics that flow from tax phobia take getting used to. Interchangeable units of currency become absolutely and eternally separated. A public dollar spent on painting a bridge is worth less than a dollar spent privately on sunglasses. Strangely, although tax dollars are worth less, they should be doled out slowly and grudgingly. With no knowledge of bridge maintenance or the amount allocated, the Tax Demented can tell you a priori that the painting should be postponed and then done more cheaply in a shorter time. Their clairvoyance is remarkable. They envision that employers would pay the present wage to workers not subject to taxes.
First exposure to the Tax Demented is scary. A group chatters on, complaining about taxes as they have been taught to do. Really, though, how much drama can be wrung from a subject that includes filing dates and receipts? Suddenly one of the Tax Demented erupts, leaping into metaphysics and prophesying the end of civilization. A politician detected giving a job to a friend is declared to be pus and virus. A corporation president who wastes $20 million preparing for a merger that will never take place is a reasonable fellow. In The Unreal America Ada Louise Huxtable shares a glimpse of the Tax Demented on vacation. Interviewed afterward, a family who spent $4445.21 at Disney World agreed that they had a good time and that they did not object to the cost. What bothered them was that “the government” got $364.37 in taxes. When the Tax Demented ignite, it is like the scene in which aliens dissolve their human disguise and reveal their true, weird form.
Among the causes of delirium, faith in American exceptionalism helps to make tax avoidance seem ultra-righteous. The country of fresh starts is supposed to be immune to conquest, to irreversible mistakes and permanent setbacks, and surely to Old World vexations, among which taxes are conspicuous.
Whether they fled, were expelled or dragged away, or merely heard the Old World condemned for wicked and backward ways, Americans could hardly doubt from their own experience that starting over lies within human grasp. With their own eyes they saw economic expansion, saw customs change, saw the landscape altered. After drifting about for half a lifetime, misfits ended up commanding the Union Army and owning the Los Angeles Times. Thus exceptionalism came to presume starting over as a birthright. What are now national heirlooms were named accordingly—New World, New Jerusalem, New Man, New Nation, New Freedom, New Deal.
Of course numerous Americans slogged through their lives digging ditches, lifting crates, gutting chickens, scrubbing floors. Starting over never happened for them; or if it did, it closely resembled an extra whack for good measure. But such cases were not considered to call exceptionalism into question. They were ascribed to bad luck and the brute imperfections of nature, individual flaws, “special” circumstances. By common agreement, starting over means always doing better, never not doing better differently.
From a grounding in fact the path leads through a maze of wishful interpretation out to the wide open spaces of fantasy. Genetically, the future is a state of greater satisfaction. Ideally, deserving Americans should not have to put up with anything onerous whatsoever. We have electric toothbrushes that shut themselves off automatically with a timer. Why should we pay taxes?
A lopsided devotion to individualism likewise contributes to delirium over taxes. Humans, after all, are a social species, just as ravens and elephants are social species. Isolation warps infants and hurts adults. As the sociologist Erving Goffman demonstrated, virtually all human consciousness is shaped for monitoring by other humans whether or not any are present. To habitually ignore this condition, as happens in the land of the sovereign self and the lonely crowd, is bound to cause odd attitudes. The vocabulary is well known. In an earlier, more puritanical America, self-denial and self-discipline were watchwords. Self-improvement and self-help followed in more materialistic times. Self-esteem and personal growth suit our current narcissism. Choice examples of confusion appear in the historical record. Oblivious to paradox, the audience came at a designated hour, bought tickets with common currency, and sat in rows to hear Emerson preach in me we trust. Mass rallies and demonstrations were practically compulsory in the 1960’s phase of doing your own thing.
Essentially the creed implies that taxes are in principle wrong. Attention all individuals: compete separately together. Follow syndicated advice on doing it your way. The person who takes the biggest helping out of the common pot is the most worthy member of the community.
Finally, anti-intellectualism is a source of delirium. It is the one area where beliefs intersect with practices. Except in times of crisis, if then, very few who enact taxes and very few who pay them will make the effort to think through any but the most immediate consequences, conceive alternatives, or analyze composite results. Indeed, why should they? The fantasy that excites the Tax Demented explains everything in advance. If a little actual knowledge is needed, it can be ordered from wonks.
Anti-intellectualism is nearly as hoary and influential as individualism. “For these Fifty Years past,” wrote Benjamin Franklin, “no one has heard a dogmatical Expression escape me.” In truth a brilliant and learned man, Franklin was of course playing to the crowd. Part of his genius lay in pondering on what would play well. Thanks to anti-intellectualism and the rest, Americans have convinced themselves that taxes and fiscal consequences are brought by demons or the stork.