Our Low-Tech Tax Code 691
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.'"
Re:There's more to this story (Score:5, Informative)
Cost, lack of coverage for pre-existing conditions and in general the mess that is the US insurance industry.
Re:Was it a cause of his legal trouble? (Score:5, Informative)
That's not how I read the article. The law creates tax issues for individual programmers who incorporate: if your business has only one employee and is less than one year old, the IRS comes looking for you. And as a matter of policy, the IRS is harassing _the employers_ of such contracting companies. The result is to discourage individual programmers from incorporating on their own.
Partly due to the economic issues lately, I've had _a lot_ of recruiting companies trying to recruit me to leave my work and come help them earn their recruiting fees. It's taken me a lot to stop laughing, sadly, when they say how lucrative it is: salary equal to my current salary, but without benefits or vacation, unemployment, and on a "temp to perm" basis for a company that is already falling apart due to letting their qualified engineers go at the start of the crisis is not a good place to go. I've reviewed the potential for consulting, and while it makes sense for some, it's not the wonderful and economically sound decision that many recruiters would have you believe.
Enjoy corporatism (Score:3, Informative)
this is how it happens :
- you let individuals or groups to amass unlimited wealth
- eventually some reach the wealth level with which they can influence democratic processes or representatives
- the first individuals or groups to reach the above level start protecting their interests in lieu of everyone else
- laws do not work against this, because if you can influence democracy and its representatives, you can MAKE laws, as in the current example we are discussing (contract law)
- 'the people' get the shaft
Re:Can someone who understands the IRS explain? (Score:5, Informative)
I'm not a tax attorney, but I do know a little about the situation. Here's a brief summary:
There's a lot of concern over how to classify workers as either "employees" or "independent contractors." Each has its own pros and cons, but in general, it's better for a company to consider its workers as contractors from a tax perspective. Because taxes are radically different based on how an employee is classified, a misclassification that is turned up by the IRS can be very expensive for a company. As such, there is a "safe harbor" which protects companies who have a reasonable basis in considering an employee to be an independent contractor.
There was a sense this was being abused in the technology industry in the 1980s, and as such, Congress amended the law. The amendment didn't change the classification system of employees versus independent contractors, but did remove the safe harbor. As such, companies became much more reticent to hire a worker as an independent contractor, because the penalty for getting it wrong was much more likely to be assessed.
The more interesting part (Score:5, Informative)
Re:There's more to this story (Score:3, Informative)
What are you on?
All this does is give the employee a false sense of security. The corporation is still going to think of you as disposable.
Programmers should be able to buy their own health care without their employer being a part of the transaction.
Um, programmers, or anyone else CAN buy health care without their employers being part of the transaction. It's probably going to cost more because when we say that employers are "part of the transaction", that means they are paying for a large part of the transaction. There is no law that says you have to let them.
Re:Tip of the iceberg or just another wing nut? (Score:1, Informative)
Simple answer: Yes
Re:Can someone who understands the IRS explain? (Score:3, Informative)
How are contractors realizing capital gains? Are they 'creating' software and then transferring ownership of it?
Re:Was it a cause of his legal trouble? (Score:5, Informative)
I'm pretty left wing, but I lived through that insanity:
1. The IBM PC had just become a viable business computer
2. Firms had an incredible need for decent programmers
3. Decent programmers commanded pay 2-3 times what was then considered reasonable salary for a recent college grad (i.e. way outside corporate pay scales)
4. Firms had a hard time telling good vs bad programmers apart
so...
5. Firms hire programmers as consultants, pay them market wage, but have the ability to easily fire them by not renewing contracts
6. Programmers self incorporate because that is the only way firms are equipped to pay them
7. Programmers quickly realize that they can write off giant amounts of income as business expenses (travel, meals, home computers, video games, home office space, etc.)
then...
8. Law is passed to prevent this if basically:
a. You claim to be a sole proprietor, and
b. All your billing is coming from a single corporation (i.e. you are really an employee, not a consultant.)
IIRC, I avoided the law by forming a two person corporation with multiple billing streams.
You owe taxes if you are a "non-contractor" (Score:4, Informative)
The issue with this would impact someone who forms his own contracting firm and starts to deduct business expenses like getting from home to the job site, home office costs, etc... If he is later declared to be an employee, all those deductions get disallowed and he owes the back taxes. I suspect that, if he incorporated and paid himself mostly by distributions, he also paid his taxes at capital gains rates instead of the wage rates. That's a privilege restricted to lawyers, doctors, financial consultants, investment fund managers, and corporate officers.
Now, originally, the law's effect would have been balanced by the way that it kept companies like Microsoft and IBM from just making everyone a contractor to remove benefits, but the corporation quickly figured out that they could use temp agencies as a middle-man. It wasn't until a major lawsuit in the late 1990s that companies became sensitive to the idea that if it walks like a duck (employee) and quacks like a duck (employee), then it is a duck (employee) that can sue you for benefits. After that suit, many companies started brining contractors back on the payroll to avoid later class action claims.
Re:Can someone who understands the IRS explain? (Score:3, Informative)
All Section 530 does (which the 1706 amendment exempted programmers, drafter and other similar technical people) is to make it easier for employers who hire independent contractors to protect themselves of the "contractor" fails to pay his taxes. Someone who works for another can easily file a form with the IRS claiming that in fact they were an employee, not a contractor--and that could cause an employer to be subject to an audit and owe employment taxes.
By exempting programers and drafters and other technical people from section 530's 3 point test [irs.gov] to determine if you are a contractor, it simply means programmers must satisfy an older pre-section 530 20 point test [tmc.edu] to determine if a programmer is in fact a contractor.
It's not hard under the current legal regime to become an independent contractor. Hell, I was an independent contractor all through the 1990's. All it requires is that you basically provide your own tools (such as a computer, the compilers, and the like), you set your own hours, and you have a contract with your current employer specifying the work to be provided. You don't even need to satisfy all 20 points--you simply need to show that certain things (such as being paid hourly) is common in the software development industry. (And in my case I also did a few fixed-priced contracts as well, which established a history that I was an actual contractor.)
Re:There's more to this story (Score:5, Informative)
Um, programmers, or anyone else CAN buy health care without their employers being part of the transaction. It's probably going to cost more because when we say that employers are "part of the transaction", that means they are paying for a large part of the transaction. There is no law that says you have to let them.
Um! Have you ever tried to purchase insurance for just you and your family? Cost aside, many insurance companies will NOT insure you. Why? Because the risk is there that you will use those benefits. Insurance companies expect that a certain number of employees will NOT use their benefits and generate enough profit to outweigh the expenses of those that do. And if you have ANY pre-exsisting conditions or you've ever smoked a cigarette in your lifetime, they will just flat out deny you any coverage no matter what the cost, as a matter of policy. If you do find some obscure insurance company that will cover you, you can bet your life (not just figuratively speaking) that it will cost you an amount much much more than an employee and his/her employer's contribution for that policy.
Re:Was it a cause of his legal trouble? (Score:5, Informative)
Re:There's more to this story (Score:3, Informative)
I agree that the loyalty statements in the parent post perhaps went a bit too far, however, there is a big incentive for an employer to keep their employees but not contractors.
Employers by law must pay FUTA to cover unemployment benefits. There are various factors that determine the rates an employer must pay but one of the factors is their history of employee lay offs.
If an employer lays off employees their FUTA rate will go up and the cost of doing business will increase.
If an employer cancels their contract with a freelance or temp agency there is no detrimental effect to their FUTA rates.
It seems quite apparent from Joe's ramblings that his tax issues stem not necessarily from any specific tax code but more from a deep seeded and long term intent to not pay taxes.
I also agree with you 100% on the question of health care coverage, but that is a topic for another discussion. :)
Re:Can someone who understands the IRS explain? (Score:3, Informative)
If you bill as an individual, 100% of the revenue (after expenses) gets hit with 15.2% ss/medicare tax. So you incorporate and instead of paying yourself a salary, the company issues a monthly dividend which is exempt from the 15.2% ss/medicare tax.
Sounds good, but there are 3 things to keep in mind:
Re:There's more to this story (Score:1, Informative)
Some of us could not. The reality is the healthcare problems in this country lead to these issues.
Our health insurance problems are caused by: tax laws, mandated coverage, lack of competition across state lines (what the interstate commerce clause is in the Constitution to prevent, not to let Washington micromanage everything), and corporatism/crony capitalism.
Here are two good article by Harry Browne (Libertarian presidential candidate in 96 and 00): Let's Make Health Care Inexpensive Again [harrybrowne.org] and Why not real health-care reform? [wnd.com].
Yet, if you dare mention another method the teabaggers go nuts.
Prick.
Re:Can someone who understands the IRS explain? (Score:5, Informative)
Here is the deal - companies pay out money in a few different ways.
They can pay money to vendors for services rendered. Generally there is no tax on this, but it can't go to an individual directly, and it might be taxable by states/etc.
They can pay money to an employee - W-2 and all that. That is how 99% of the US population gets paid. The recipient pays income tax on that.
They can pay money to their shareholders in the form of dividends. The shareholders pay capital gains taxes on that money, which is a nice low percentage so that rich people don't have to pay taxes. There is also the issue of double-taxation, but most big corporations have so many tax shelters that they don't pay those anyway (just watch the Frontline episode on companies buying sewer systems in Europe and leasing them back to communities, and so on).
When you have a company of 1 you can elect to pay yourself in salary, or in dividends. The latter is FAR more beneficial tax-wise, although you first need to realize the money as corporate profits and pay corporate taxes on it. If you pay yourself as salary then chances are you won't have many corporate profits to speak of and so corporate taxes will be low (a salary counts as an expense on the balance sheet - a dividend does not).
The reason dividends are attractive is that before you pay them to yourself you can offset them with all kinds of expenses. Driving to your client pays for your car, any computer used mostly for work purposes is a deduction, lunch with the client is a deduction, and so on. Ordinary employees are expected to pay for their own commutes and pay taxes on that money at a much higher rate on top of that.
Hope that explains some of the nuances here. Disclaimer: I'm not a tax accountant, and I'm not an expert on this stuff in any way so a detail here or there might be off.
Re:There's more to this story (Score:3, Informative)
Re:There's more to this story (Score:5, Informative)
Aggregate infant mortality rate 6.3 per 1000 - 33rd in the world, same as Brunei, slightly beating Poland.
You're good at cancer survival - 9th, but not as good as the amount of money thrown at it would indicate. And the evil nationalised socialised medical systems of Netherlands, Italy, Hungary,Luxembourg,Slovakia,Ireland, Czech Republic and New Zealand, beat you.
Your national system spends more than 7000 USD per year per head - nearly 3 times more than in the UK, and a third more than the second on the list.
Your life expectancy is then the 11th best in the world.
The tax code is really a minor problem though (Score:3, Informative)
I would point you to Three Felonies a Day [amazon.com] by Harvey Silverglate.
Silverglate should have a great deal of appeal here. He was deeply involved in the ACLU, was a founding member of FIRE, and was the first litigation counsel for the EFF.
Comment removed (Score:3, Informative)
Re:What Special Exemption? (Score:5, Informative)
No. In the 1770's, the government taxed imports for its operating funds. It did not tax income. It was not authorized to tax income, and if you had suggested that they should do so at the time, likely you would have been shot, hung, or worse. Here's how it actually went:
The federal income tax was first enacted in 1862 to pay for civil war expenses on the part of the Union. They subsequently eliminated it in 1872; turned around again and revived it in 1894; and then finally it was declared unconstitutional by the Supreme Court in 1895. Then in 1913, the 16th Amendment put income tax into the "authorized powers" category, and that's where we are today.
Re:Was it a cause of his legal trouble? (Score:5, Informative)
Corporations with multiple headquarters and Lear jets don't end up paying the taxes Joe was required to pay.
Re:Can someone who understands the IRS explain? (Score:3, Informative)
1/2 of self employment taxes are used as an adjustment between the reported gross income and the reported AGI (Adjusted Gross Income), if you are filing a normal 1040 with Schedule C reporting the income.
The effect is generally much less than getting a straight 50% off:
Let's assume a $ 50,000 base income, all from self employed sources, and the filer, for one reason or another, falls in the 15% bracket. Self employment tax of 15.2% means the tax is $ 7,600. The adjustment means $ 3,800 is credited back to the taxpayer, and subtracted from the raw income, so the AGI becomes only 46,200. That still puts the filer in the same bracket (for my example, not invariably), so the tax benefit is actually 15% of that $ 3,800, or $ 570.
That works out a little differently than the way a standard or itemized deduction is used, and a lot differently than the way a refundable credit would apply.
Re:There's more to this story (Score:5, Informative)
Re:Double-Standard (Score:4, Informative)
One man's freedom fighter is another man's terrorist. Always has been, always will be. What's more, the only way that that question is settled is by who wins the war. If the revolutionaries win the war, the Freedom Fighters stay Freedom Fighters. If the government wins, the Terrorists stay Terrorists.
Re:Was it a cause of his legal trouble? (Score:3, Informative)
Re:There's more to this story (Score:4, Informative)
No, MA just makes you pay big tax penalties for not having health care. They don't provide you health coverage, though.
They set up group plans through private insurers, but you buy a plan through the state. They also expanded state aid for paying for the premiums. This means you can't be denied coverage or have to deal with pre-existing condition BS. The rates are also cheaper than normal open-market pricing.
Re:Was it a cause of his legal trouble? (Score:2, Informative)
One way i solved this issue with late payments was by adding a 3% per month late charge. They had 30 days from the invoice to pay.
Its part of the terms before any work is started
Re:Good luck getting it repealed now (Score:3, Informative)
Nowhere in The Declaration of Independence, nor history books about it, will you find "excessive taxes". The phrase is "taxation without representation" and it has no relation to whether taxes are "excessive" or not.
And random idiots claiming every single trivial law or tax code they don't like is going to spring up a popular revolt, is as equally long of a tradition.
Hint: Taxes in the US have been vastly higher than they are now. Taxes in many countries around the world are vastly higher than they are in the US... Note that none of the above resulted in government overthrow.
Re:he was mentally ill (Score:3, Informative)
A choice excerpt: "More comical is Stack's portrait of his own misery. As a fuller, objective emerges, we're likely to see more dramatic chasms between reality and his depictions, but the contradictions are already comical. Stack likens his plight to an elderly woman in the neighborhood living on cat food. He doesn't mention eating it in the cockpit of his private plane. In Stack's version, he lived and died a pauper. In real life, he amassed a series of businesses, a $230,000 home in an affluent community, and the airplane he crashed into the building."
Here are the traits that Cullen identified and shows in Stack's writing:
A very insightful and prescient piece.
Noam Chomsky on defining terrorism (Score:3, Informative)
"International Terrorism: Image and Reality" by Noam Chomsky, notable linguist and self-declared Libertarian Socialist ... The answers are not difficult to find. We must simply abandon the literal approach and recognize that terrorist acts fall within the canon only when conducted by official enemies. When the US and its clients are the agents, they are acts of retaliation and self-defense in the service of democracy and human rights. Then all becomes clear. ...
http://www.chomsky.info/articles/199112--02.htm [chomsky.info]
"""
There are two ways to approach the study of terrorism. One may adopt a literal approach, taking the topic seriously, or a propagandistic approach, construing the concept of terrorism as a weapon to be exploited in the service of some system of power. In each case it is clear how to proceed. Pursuing the literal approach, we begin by determining what constitutes terrorism. We then seek instances of the phenomenon -- concentrating on the major examples, if we are serious -- and try to determine causes and remedies. The propagandistic approach dictates a different course. We begin with the thesis that terrorism is the responsibility of some officially designated enemy. We then designate terrorist acts as "terrorist" just in the cases where they can be attributed (whether plausibly or not) to the required source; otherwise they are to be ignored, suppressed, or termed "retaliation" or "self-defence."
"""
There are many related comments by Chomsky on this:
http://www.google.com/search?hl=en&source=hp&q=chomsky+terrorism [google.com]
Even a book:
"excerpts from the book: The Culture of Terrorism by Noam Chomsky"
http://www.thirdworldtraveler.com/Chomsky/Culture%20of%20Terrorism.html [thirdworldtraveler.com]
http://www.amazon.com/Culture-Terrorism-Noam-Chomsky/dp/0896083349 [amazon.com]
More here:
http://en.wikipedia.org/wiki/Noam_Chomsky's_political_views [wikipedia.org]
And, not by him, but here is an essay by Prof. G. William Domhoff on why non-violence is the only moral and rational approach to social change in the USA:
http://sociology.ucsc.edu/whorulesamerica/change/science_nonviolence.html [ucsc.edu]
Re:Good luck getting it repealed now (Score:2, Informative)
"He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance."
Hmm... This doesn't look like a complaint about excessive governmental intrusion into and expropriation of private property to you does it? No the signers were totally cool with an ever expanding Leviathan, so long as they could vote for who gained access to the plunder stream.
republic
Re:There's more to this story (Score:3, Informative)
Less sure but not much less. It is enough to give incentive for the job so you get the best. And the more socialist countries you see higher in the list are getting less but their costly education was paid for (reducing the risk involved taking the job) encouraging even better doctors (Since you needn't be merely lucky to be able to go to medical school).
Re:Was it a cause of his legal trouble? (Score:3, Informative)
Fine, we'll do that as soon as people stop trying to game the system by inventing ever-more complex ways to avoid paying their taxes.
Precisely. The latter one follows the former. Also, as the tax code is currently used for behavior modification as well as actual revenue generation, we should not condemn those who alter their behavior to present a smaller taxable profile. That was the intended effect. If we don't like it, then we shouldn't put all kinds of behavior-modifying loopholes in the law!
Until law making authority is granted to another body (read: our constitution is re-written), then we'll never have a simple, straight-forward, tax code.
Fie on you. I think you're right. Part of the problem is that lawyers in legislatures have a slight conflict of interest: they have no interest in creating good laws, or striking bad (or even good) laws, but they have a direct financial interest to creating more laws.
I'm not saying the code shouldn't be amended. I think it could be simplified quite a bit while remaining quite effective. But I don't hold any illusions that it *will* be simplified without a military coup.
Eventually, we'll get to the point where it's almost ready to happen. At that point the politicians on watch will either wise up very quickly and re-form just enough to keep their heads...or they won't. We seem to have a pretty high tolerance for intolerable tyrannies, though. Does that make us stoically noble in some way? I'm going to claim it.
Re:Was it a cause of his legal trouble? (Score:3, Informative)
Both of the articles linked in the summary (which you obviously did not read) stated that computer programmers are the least likely group to be dodging taxes as consultants, compared to other occupations. In other words, your flawed analogy is completely backwards.