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Our Low-Tech Tax Code
theodp writes "After establishing that nothing can excuse Joe Stack's murderous intentional plane crash into an IRS office, a NY Times Op-Ed explains the reference in Stack's suicide note to an obscure federal tax law — Section 1706 of the 1986 tax act — which the software engineer claimed declared him a 'criminal and non-citizen slave' and ruined his career. Interestingly, a decade-old NY Times article on Section 1706 pretty much agreed: 'The immediate effect of these [Section 1706] audits is to force individual programmers ... to abandon their dreams of getting rich off their high-technology skills.' Section 1706, the NYT Op-Ed concludes, 'is an example of how Congress enacted a discriminatory law that hurt thousands of technology consultants, their staffing firms and customers. And despite strong bipartisan efforts and unbiased studies supporting that law's repeal, it remains on the books.'"
I remember when this law was passed. At the time, many large companies were switching to having huge numbers of contractors instead of regular employees. Uniformly, these companies denied any benefits, like health insurance. Job security was also lower. I personally did a lot of contract work at the time. After the law passed, the big companies were forced to hire most of those contractors, with benefits. I think this improved things generally all around. For some reason, full employment creates a bond of loyalty from the employee, and sometimes from the company, which is never there as a contractor. More programmers got health care. It was a good thing.
As a contractor, I was not personally effected, because I was an actual contractor, with multiple clients, self-employment taxes, and all. All you need to not be effected by the law is to be an actual contractor.
Celebrate failure, and then learn from it - Nolan Bushnell
Do you mean 'criminal and non-citizen slave'?
Or 'is an example of how Congress enacted a discriminatory law that hurt thousands of technology consultants, their staffing firms and customers. And despite strong bipartisan efforts and unbiased studies supporting that law's repeal, it remains on the books.'?
The gist of it is that the 1986 law withdrew a special exemption for high tech workers, along with a whole bunch of other tax shelters (the law is most hostile to individuals that work full time using resources provided by a company and with supervision from an employee of the company, while claiming that they are a corporation doing contract work for the company).
Nerd rage is the funniest rage.
From TFA: In an earlier interview, Tom Burger, the director of employment taxes for the I.R.S., said one of the agency's difficulties ''is that, and I need to pick my words carefully, Congress passes laws, often without asking us about them, and then tells us to enforce them.''
Translation: Politicians make laws without knowing jack about the consequences and not even bothering to ask those that could tell them what kind of can of worms they are about to open. And then they're too pussy to admit they blundered.
Sounds familiar? A law gets passed that should cure some problem with the economy and the only thing it accomplishes is to cause troubles where there were none before while the problem continues to exist.
If I get that right, the law aimed at eliminating the "fake freelancing", where companies pretty much forced programmers into freelancing instead of hiring them, resulting in cheaper labour for them and shifting the risk and insurance burden on their not-quite-really-employee. Now, that still exists, with programmers now being passed about like slaves by temp agencies where they enjoy little less risk or much more insurance while at the same time losing their freedom entirely, while those companies still get the cheap programming labour they wanted, and at the same time the whole deal also keeps those programmers that are good and sought after enough to actually be (really) self employed and successful at it from actually being this.
Sounds very familiar...
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Substitue "Mohammed al-Mohammed" for "Joe Stack" and "Section 1706 of the 1986 tax act" with "United Nations General Assembly Resolution 46/86" and you'll see what you folks are all doing - you're making up excuses for a terrorist because he happens to share your political views. This guy was a fundamentalist libertarian terrorist.
but it is rather apparent that to be noticed by government
Speaking of which, I notice an uncanny lack of reporting over this incident. It exploded across the internet, but not really through the formal news channels. CNN, which covered the plane crash of a fighter jet into a residential neighborhood for DAYS with live footage, etc, only mentioned the crash briefly in their reports and on their website had only one small link that took you to the story.
But oh God, Tiger Woods just farted so let's dedicate a good 25% of each hour to THAT.
It's hard to avoid thinking that the government somehow "asked" the press to downplay this, and the press is complying. Just like you never really hear about the WARS anymore... This is the New World Order. Hell if it wasn't for the internet, all the news we'd get would be about Angelina, Brad and Tiger.
Seven puppies were harmed during the making of this post.
I remember when this law was passed. At the time, many large companies were switching to having huge numbers of contractors instead of regular employees. Uniformly, these companies denied any benefits, like health insurance. Job security was also lower. I personally did a lot of contract work at the time. After the law passed, the big companies were forced to hire most of those contractors, with benefits.
I remember that too. That was during The Bubble.
And then after the bubble? Why most of those people were laid off. Only instead of being able to get by with smaller amounts of work the way mot people do, they spent years unemployed because they couldn't contract anymore and they couldn't find permanent work either.
I don't know why on earth you would say "job security was lower" because contractors at least always had a defined term of work and only in the most extreme circumstances would you be able to get rid of them even if you as an employee thought they sucked. Meanwhile at any moment Hammer Of Rightsizing could come down on you as an employee.
As for healthcare, there are a lot of people with spouses also working that can cover the health angle or you can opt to go with the catastrophic coverage (still pretty cheap) along with the tactic of setting aside something more than the $2-$3k deductible in a medical savings plan. Then you are covered for the big things but also can do the small stuff too if you want.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Basically, it's a duck law. If it looks like a duck, quacks like a duck, and walks like a duck it is a duck.
If you work for one company long term, doing what is essentially a full time position, then you are an employee whether you want to be or not and are entitled to things like health care and you employer is required to pay payroll taxes. It doesn't matter if you call yourself a consultant or work out of some sort of shonky staffing agency, and more importantly it doesn't matter if your employer calls you a consultant and hires you through some shonky staffing agency.
In theory it's to protect the rights of workers so they get all the benefits of full time employees if that's what they are, however in reality it's to close a tax loophole. Ya see the thing is generally speaking capital gains tax is less than income and payroll tax. Consultants running their own companies generally pay capital gains on most of their income whereas employees pay income tax and their employers pay payroll tax, which generates more revenue for the government. The extra benefits for employees are nice too, but that isn't really the goal.
Now the thing about this law is that if you actually are a consultant(you know, changing clients regularly, working for multiple clients, or doing work that isn't standard 9-5 work) none of this affects you, you're still a consultant and you still get the pluses and minuses of that arrangement. If you're not really a consultant(more than a year at the same place, no additional clients, doing what would normally be a salaried position) then your employer has to treat you as an employee. This means paying payroll tax, health benefits, 401k if applicable, which is of course expensive. Generally speaking if this happens a company decides to either get a real consultant or get a real employee. If they make you a real employee it generally means a pay cut(since they're paying all those benefits) and essentially the end of the little consulting business you had going.
Now none of this is in and of itself a problem, people who were being exploited got their proper benefits, the tax man got his money, and real consultants weren't affected. The problem is that some people are either stupid or lying to themselves. They want all the stability and routine of a salaried position with the higher salary, lower taxes, and theoretical freedom of a consultant. Essentially they want to be consultants without incurring any risk. This, of course, doesn't work because the loser in this relationship is the government who gets fewer tax dollars, and everyone who does the right thing since they're paying extra tax to make up for you dodging yours.
There were a few problems because of people who really couldn't face doing either real consulting or real employment(which this guy seems to be one of with the whole slave thing) or who invested a lot of money and time into their business shell even though they weren't actually using it. All in all it's a fair law though, real consultants stay consultants, real employees stay employees, people who are in the wrong category get moved to the right one. Everyone pays the taxes they owe.
The moral of the story is that consultants get higher pay and lower taxes because they incur higher risk(a consultant/contractor may or may not have work at any given time and has pretty much zero protections) and you can't get rid of the risk and still retain the other benefits.
Yeah this poor guy could only afford a nice house and a plane. Just imagine, without that terrible law, he could have been able to afford a two engine plane and a slightly nicer house!
Well, let's face it - Stack was a white American, so you can't drum up the "damn Islamic foreigners" angle.
Plus, he's demonstrated quite nicely just how pointless most airport security is these days. I'm pretty sure he didn't have to go through a full-body scanner, and yet once again a terrorist has managed to crash a plane into an office building.
Some random Arab kid screws up even *trying* to crash a plane, and it's news for weeks, with subsequent major overhauls of government practices and even the President getting involved. Some random white American SUCCESSFULLY crashes a plane, into a civilian target, and we get a brief mention one night. Double standards, what are those?
I was also disappointed that Slashdot didn't post anything at the time (at least, this is the first story I've seen). Guy was a computer programmer, so there's the nerd angle. Plus, this site has been obsessed with any story hinting of this since 9/11.
Endless arguments over trivial contradictions in books written by ignorant savages to explain thunder in the dark.
IIRC, I avoided the law by forming a two person corporation with multiple billing streams.
After reading the idiot pilot's letter several times as well as the links provided, the solution to this tax situation is exactly what you did: create a partnership/hire another person, and have multiple concurrent projects.
For all the tax-avoiding mental gymnastics many of the antitax crowd employ, and with how smart they think they are, you'd think a simple, straightforward solution such as what you did would be obvious. Some people just don't want to pay taxes.
As the son of the IRS employee who was killed in this incident said, "if he [Stack] has a house and a plane he can pay his taxes." (Austin American-Statesman, 2/21/2010).
For all the tax-avoiding mental gymnastics many of the antitax crowd employ, and with how smart they think they are, you'd think a simple, straightforward solution such as what you did would be obvious. Some people just don't want to pay taxes.
You've made a mistake here. The anti-tax crowd aren't against paying their taxes. They don't want to have to go through any kind of "straightforward" gymnastics to avoid taxes. They just want the taxes to not be in the way to avoid.
Because of the complexity of the tax laws, we now have a new activity which somehow is frowned upon by everyone (and committed by nearly as many.). An activity which is not only perfectly legal, but also presumably encouraged. You've even advocated that activity right here, but for some reason there are people decrying "Tax Avoision."
Why not just not have that complexity. Have a tax code that's short enough for a single person to read completely through in less than 2000 hours of reading (leaving two weeks for actual work). Every section you can't read is a section you can't be sure doesn't apply to you. If you're on the hook for criminal liability for failing to adhere to "must" sections, then you must be able to read them. And that's not even counting the money you lose by not having time to find "may" sections.
Can you be Even More Awesome?!
But they don't. See the thing is once you have so much money you basically can't spend it all. Add to that they will be paying less tax as a percentage of income and it gets really unfair. Heck, they also tend to spend lots of money on things that are not property so more money they spend without paying taxes on.
The only real fair tax would be, no tax on first X dollars made and Y% on every dollar made after. With no difference between money made via honest labor or capital gains, or dividends.
(a) Not a civilian target. He hit the IRS, a despised Federal Agency.
Civilian means non-military.
And I can't blame him for his choice.
I can. Because I'm not a sociopath.
Ok, let us carry your argument to its logical conclusion: your original dollar passes through your hands, your plumber's hands, the local hardware store's hands, etc, getting taxed at 25% at each point. Eventually, all the money goes back to the government in taxes. Wow, we have a 100% tax rate!
Maybe you want to reexamine your model?
The horror! Obviously, the economy is broken. Oh, except you got your pipes fixed, the plumber made a profit and bought more stuff, the hardware store owner got to buy food for dinner, etc. And somehow, the government wound up with $1 to spend on fixing the roads, hiring a policeman, or whatever.
The point isn't about economic security. (Although there's really very little more as an employee than as a contractor.)
The point is that the IRS has singled out - for persecution, one might argue - small (both one-man and slightly larger) technology companies to investigate this issue.
The preferred solution is to not have a problem.
The only people who don't are those who want to avoid paying their proper share.
And people who understand the time value of money, which you obviously don't.
It's not enough to bash in heads, you've got to bash in minds. - Captain Hammer
If you're living below poverty then you don't have the perspective of those of us living well above it. They aren't taking what they want. They're taking what you told them to take.
My only income isn't my job. It's the lion's share, but I have investments, too.
My withholding is set - by me - so that the monies that come out of my paycheck cover my expected investment income too.
Just how do you expect to the IRS to manage that trick?
By the way, why wouldn't you file taxes for every tax year you can if they owe you? A 1040-EZ is, well, easy. Back when I owned a business I helped a number of my employees do them rather than pay the H&R Block bastards. If you can do basic math it takes about 20 minutes.
If you're living on that little money, I'd think an extra few hundred or thousand would be most welcome.
The preferred solution is to not have a problem.
No, it'll never be 100%, because (for one thing) you actually get the work and service you requested as part of the transaction. For another, every time that dollar changes hands, it provides more goods and services, although less and less as it works its way downstream.
You didn't understand what I wrote. I suggest you go back and read it again, as many times as necessary, until you do. You are correct in that taxation further downstream detrimentally affects how much you pay for things; you are very much incorrect to assume it reaches 100%. As it goes downstream, the effect diminishes considerably. First order effects are the main load. The fact is, your real tax rate specifically determines what goods and services you get for your dollar. That means taxes applied to your purchases - no matter what they are called - reduce the ability of your dollar to function on your behalf.
No. I earned $133; I was enabled to apply $75 to engage services or purchase goods; the government got $58 with which it then generally spends servicing a huge debt it should never, ever have gotten into, with the remainder mostly paying for services I do not consider useful, much less necessary, notable exceptions being roads, education, and the like.
My hope for you is that someday you actually understand what is being done to you.
I've fallen off your lawn, and I can't get up.
Right, you get stuff, pay the provider, and pay some tax.
But, you claim we must also include the tax the plumber pays as part of your effective tax rate. What is your reason for claiming that? The plumber is a tax-free entity? The plumber is the final consumer of dollars? Dollars are backed by plumbing supplies? Plumbers are tax-exempt?
Your argument makes very little sense, unless:
Ah, the "I was born, raised, and educated in the USA, now I'm paying taxes, I have the moral right to decide what I should be paying for. Oh, and I repudiate the national debt: sure it helped pay for my education, provided roads, sanitation, a safe place to grow up in, but I didn't vote for it, so no obligation here."
The fact is, your real tax rate specifically determines what goods and services you get for your dollar. That means taxes applied to your purchases - no matter what they are called - reduce the ability of your dollar to function on your behalf.
You are implying that if that tax rate was lessened, I would somehow have had "more money" to spend on plumbing. But that is not necessarily true because prices are set by the market not by the tax rate. Even if the plumber had to pay $0 in taxes, he would still charge me the same $100 if the market would bear it. The taxes that businesses pay are simply a cost of doing business, which is only one input into price.
My hope for you is that someday you actually understand what is being done to you.
This seems really melodramatic. You said that maybe Stack could not have afforded his house if he had paid his taxes, but I pay my taxes every year and presumably so do most of the businesses where I spend my money. And yet, I have little problem affording my house and many businesses turn profits. Taxes are simply a cost to be managed. It's a very good idea to minimize them--yes--but IMO it's ridiculous the degree to which some people get emotionally involved in the concept of taxation.
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.