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Chapter 3

A few years ago, I visited a friend who was extremely nervous one night. This man was usually calm and good-natured, but he seemed terribly frightened. When I found out that his problem was a notice he had received from the I.R.S. to show up for an audit, I asked him, "What's the matter? Did you cheat on your taxes?"

"Of course I did," he replied!

"What did you do?" I asked.

"I exaggerated my business expenses, left out some interest that I received, and claimed some damage to my car that I got reimbursed for," he said. He was suffering from an enormous load of guilt. It spoiled our plans for the evening.

A few months later, I found out that his audit was a friendly meeting with an I.R.S. agent. He confessed; he felt much better like a bad child who has been forgiven by his mother. The I.R.S. collected about $95.00 in back taxes, interest, and penalties. For this trivial sum, an adult citizen of a free nation was put in psychological torment for several weeks.

We all have felt the same way, about once a year, as April 15 approaches. Is there anybody who has never cheated — or wanted to cheat, but was too fearful — in order to keep a little bit more of his own money? For many people, the amount withheld from their paychecks is not quite enough to cover the full tab on April 15th. Back through the records they go. Hours may be consumed to figure a way to save a few dollars. How many dollars per hour are saved (or spent on accountants to do the tedious work for you)? The temptations to find a new "deduction" by just omitting the odd sources of extra income, or by "remembering" how much you gave to your church last year (even if you haven't seen the preacher since last Easter) are overpowering.

Yet, this is the source of the great power that a pervasive government bureaucracy can exercise over supposedly free citizens. What would Thomas Jefferson, with his image of Americans as free and proud yeoman farmers, have thought about our modern society in which most people worry about the computer files that the I.R.S. keeps, with their Social Security numbers cross-referenced three dozen different ways?

The infamous Nazi S.S. troops have one thing in common with our modern bureaucracy that administers the computer welfare state: they made lists of people and kept track of them. The Social Security number has become the key element in most credit reference files, tax files, employment files, etc. It is your S.S. number that is used to track you down for tax evasion. The S.S. number is not primarily for your security as a member of society in your old age; it is for "State Security" to make it possible for our modern S.S. to nab you if they want to. If you open a bank account, apply for a credit card, receive a paycheck, or disclose your identity in any of a hundred ways, a smiling face will innocently ask you for your number, which will be duly entered in a computer.

No wonder people are afraid of the I.R.S.! The agency itself has a sophisticated public relations campaign. Have you ever wondered why it is in February and March that you start to see news stories about people convicted of income tax evasion? The I.R.S. often asks the prosecuting attorneys in tax cases to delay action until tax season rolls around. A guilty verdict in August is not nearly as useful as a guilty verdict in early April!

There are no reliable statistics on tax evasion or enforcement. For every case that ends up in a court, there are hundreds that are "negotiated." There are perhaps hundreds more that were never opened because it didn't seem to be worth the money to the I.R.S. If you look at the problem realistically, the typical I.R.S. agent earns a salary in the mid-$30,000 range. An agent who does undercover work to find tax evaders has to be even more expensive, since the government has to pick up the operating expenses. It would be impossible to enforce the income tax laws if it were not for the fear in most people.

The I.R.S. — and news media who happily broadcast the enforcement propaganda in the first 105 days of each year, with a rising crescendo of glee — take delight in their ability to achieve such a high measure of compliance by this indirect method. Every year, however, some citizens achieve their own little victories in court. Do you hear about them? Some tax rebellion activists publish books. Do you see them on the shelves, or do reviewers tell you about them? In a climate of fear, it is not particularly useful to have highly visible examples of those who have confronted the terror and walked away. It is a major indictment of a free press and broadcast industry in the United States that it should cooperate with this shabby propaganda to frighten people, make them humble with guilt, and above all lead you to believe that sure and certain punishment will accompany any attempt to retain possession of the fruits of your labor if the I.R.S. thinks it should be theirs.


A s we pointed out in the previous chapter, the progressive rate structure in the income tax law is the major source of its complexity. If the law and regulations were simple and clear, the I.R.S. would not be so intimidating. After all, who is afraid of the property tax assessor? How sinister is the sales clerk who adds the sales tax to your cash register receipt? The I.R.S., however, has to be feared because it has to investigate some of the most private and personal areas of your life — how you earn your living, and how you manage your investments. If you weren't afraid of them, you might tell them to buzz off.

One of the ideals of a free society, where the rights of individuals are respected and where people can put down roots, raise families, and "pursue happiness," is the ideal of privacy and security. The income tax by its very nature violates this ideal. Because it is so complex, it is almost impossible for an individual to have confidence in his own ability to obey the law. This fosters fear and guilt. Professionals with a good education in business and finance, with experience in legal matters, can understand the tax code — but unless they specialize in doing taxes for others, most people who might not be afraid of the technicalities are too busy producing goods and services for the economy to be bothered with the details. They spend valuable capital on accountants and auditors to make sure they don't find their business ruined by an I.R.S. theatrical event designed to frighten other taxpayers some April.

The people who do not possess the native ability — or the training — to cope with the tax code live in mortal fear of it. They have seen even Congressmen and Presidents embarrassed and penalized. How can the little guy look at his government as his "servant" if it is obvious to him that the government has the power to crush him for the amusement of television audiences if he makes a mistake on his taxes — a mistake that he might not even understand! The mere existence of such an excuse for this secret police, the I.R.S., is sufficient reason to abolish the income tax.

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