A Taxing (and Seditious) Episode of The 5

Posted On Dec 31, 2015 By Dave Gonigam

  • It was 250 years ago…
  • The tax protest that today would be labeled a terrorist act
  • The politicians target ISIS today… but are you next?
  • No, the IRS didn’t stick it to the rich in 2013 — despite the mainstream headlines
  • One last shot at tax-loss selling on Wall Street… the taxes on your New Year’s bubbly, state by state… searching for “public safety” in the Constitution… and more!

We nearly let 2015 pass without marking a momentous anniversary — 250 years since a world-changing tax revolt, made in America.

Fair warning, dear reader: Our big theme in today’s episode of The 5 will go rather far afield — into subversive, even seditious territory.

But why not? It’s the last day of the year, there’s little happening in the markets, and almost no one’s in the office here in Baltimore. So let’s go…

It was in 1765 the British government tried — and failed — to enforce the Stamp Act on the American colonists.

Passed by Parliament in March, the Stamp Act imposed a tax on every piece of printed paper — from newspapers to legal documents to playing cards.

The colonists were accustomed to paying modest taxes (certainly modest by today’s standards), and the tax imposed by the Stamp Act was likewise modest. But the stamp tax was the first aimed at raising revenue and not just regulating trade. And it was the first imposed directly from London, with no input from the colonial legislatures.

The colonists were alarmed. “We’re talking about people with enormous sensitivity to the dangers of power,” historian Pauline Maier explained in the 1990s PBS series Liberty! “If you conceded the right to Parliament to tax and if there was no check on it, no limit, it could go on indefinitely. You could be bled white. The power to tax was the power to destroy.”

The colonists’ acts of resistance to the Stamp Act were of the sort modern-day politicians would surely label “terrorism.”

In Boston on Aug. 14, they trashed the home of a stamp distributor — tax collector — named Andrew Oliver. He resigned his post the next day. By the 26th, colonists trashed the home of Thomas Hutchinson, lieutenant governor of Massachusetts Bay Province. Hutchinson estimated his losses at nearly $250,000 in today’s currency.

The Stamp Act was set to take effect on Nov. 1. But by that time, there wasn’t a single stamp distributor left in the colonies to collect the tax. Parliament bowed to the inevitable and repealed the law in March 1766. But in a fit of pique, Parliament simultaneously passed the Declaratory Act — asserting London’s authority to pass any colonial legislation it saw fit.

Which it did. The rest, as they say, is history… culminating a decade later in the Declaration of Independence.

The day might come when merely recounting this critical episode in the American experience might be considered incitement to a terrorist act.

For one thing, there’s precedent from World War I. Under the 1917 Espionage Act — still on the books today — movie producer Robert Goldstein did three years in prison for a silent film called The Spirit of ’76. Because the film depicted British atrocities during the Revolution, prosecutors thought it undermined public support for the Allied Powers.

More to the point, there’s last Sunday’s New York Times

ISIS Influence on Web Prompts Second Thoughts on First Amendment

The article refers to remarks this month by the two front-runners in the 2016 campaign for president.

Donald Trump: “We have to talk to [Internet CEOs] about, maybe in certain areas, closing that Internet up in some way. Somebody will say, ‘Oh freedom of speech, freedom of speech.’ These are foolish people.”

Hillary Clinton:  “… we have to deny [ISIS] online space. And this is complicated. You’re going to hear all of the usual complaints, you know, freedom of speech, etc.”

As Hillary said in a different context, what difference does it make?

As Hillary said in a different context, what difference does it make?
[Creepy Photoshoppery posted by Twitter user David Deeble.]

Turns out the politicians have been handed intellectual ammo from the likes of University of Chicago law professor Eric Posner and veteran Obama adviser Cass Sunstein. Both have published recent articles saying it should be OK to curb freedom of speech even when speech does not pose a “clear and present danger.”

That’s a sea change: For most of American history — apart from WWI — government has been forbidden to suppress speech even if it advocates violence.

The Supreme Court affirmed this value in a 1969 decision, Brandenburg v. Ohio. Brandenburg was a Ku Klux Klan leader who gave a speech threatening violence against certain government officials. That earned him a conviction under Ohio’s “criminal syndicalism” law. The justices overturned it unanimously.

Explained Glenn Greenwald in a 2011 Salon article: “The Court ruled that ‘except where such advocacy is directed to inciting or producing imminent lawless action’ — meaning conduct such as standing outside someone’s house with an angry mob and urging them to burn the house down that moment — ‘the constitutional guarantees of free speech and free press do not permit a State to forbid or proscribe advocacy of the use of force’ [Greenwald’s emphasis added].”

Key point: While Trump and Hillary and the law professors say they’re concerned about a foreign threat, the means of fighting that threat can always be turned inward. Again, WWI is instructive.

Now let’s conduct a thought experiment with a modern-day tax revolt. Say the Obamacare protests had taken the same trajectory as the Stamp Act protests. (Hey, if the Supreme Court says a fine for failing to buy health insurance is a “tax,” then we’re talking about a tax revolt, right?)

As part of those protests, an email chain starts going around, or maybe a message board thread, suggesting that the homes of certain midlevel IRS bureaucrats in charge of enforcement be trashed. The emails and messages are scrupulous in saying no one should face bodily harm — that only property destruction is fair game, and only the property of those IRS officials responsible for enforcing the Obamacare penalty/tax.

In addition, the organizers of the campaign decide to put those midlevel IRS agents on notice — if they resign, their property will be spared. (Which was a choice denied to Andrew Oliver in Boston 250 years ago.)

Under Brandenburg, all of that would be legitimate speech. Under Trump or Hillary, can we be so sure?

Would it even be safe for me to pose the above hypothetical?

A few months after the Sept. 11 attacks, a fiendishly clever meme started circulating around the Web… and, like most memes, was quickly forgotten.

As 2016 draws near, it takes on a new and chilling intimation…

Terrorism in Boston Harbor

[Ed. note: If our scenario is a little too subversive for your liking, we have easier ways to “rebel.” It’s a comprehensive guide of tips and tricks — totally legal, we hasten to add — that could save you at least $2,000 for tax year 2015. Among the things you’ll learn…

  • A loophole that lets you file under head-of-household rates, even though you have no children. It’s perfectly legal and could save you thousands of dollars
  • A valuable way to deduct thousands of dollars without a single receipt. No longer will you let missing receipts keep you from taking deductions you’re entitled to
  • Twenty-one opportunities for tax-free income you’ll never see advertised… and the government doesn’t want you to hear about.

Fair warning: Some of these hints are best used before year-end. That means tonight. Best check out the eye-opening details while there’s still time.]

On to more prosaic tax matters: Are we the only ones yawning that the “tax rate for the top 400 U.S. taxpayers climbed in 2013”?

Maybe you saw the news yesterday. The IRS says the top 400 paid an average tax rate of 22.9% in 2013 — the highest level since 2002, and up significantly from up from 16.7% the year before.

The explanation was obvious — the year-end 2012 deal between the White House and Congress that scrapped the “Bush tax cuts” for high earners, while also raising taxes on capital gains and dividends.

It wasn’t hard to find misplaced schadenfreude, such as this headline at The Washington Post: “Really Rich People Are Suddenly Paying Quite a Bit More in Taxes.”

At least The Wall Street Journal hints at what’s really going on: “Of course, the data, which the IRS publishes each year, are only as comprehensive as income-tax filings.

“‘For billionaires, a lot of income never shows up on tax returns,’ said Gabriel Zucman, a professor at the University of California, Berkeley, who studies income inequality and taxes. For example, if a company doubled in value in 2013, the owners would only pay tax when they go to sell their stock.”

This is a point we’ve made regularly since 2011, citing the book Endless Money by our acquaintance Bill Baker, founder of Gaineswood Investment Management.

“Tycoons such as Soros and Buffett can call for higher taxation of income,” he wrote. “This is a very cynical and downright mendacious strategy, for they know full well this burden would fall primarily upon members of the upper middle class, who have not yet achieved the threshold that would permit them to shift income to tax-minimizing structures.

“Once a certain threshold of wealth is achieved, taxpayers have some latitude in structuring when and where income originates.”

Thus, Google executives Larry Page and Sergey Brin “pay themselves just $1 in W-2 income,” Baker wrote, “but each year, they may accrue millions or even billions in unrealized capital gain.”

You, on the other hand, get hosed under that year-end 2012 deal if you earn as little as $258,250 (for couples, $309,900) — the level at which itemized deductions and the personal exemptions start phasing out.

That’s what Mr. Baker means about a burden falling “primarily upon members of the upper middle class.”

Of course, you’re not completely helpless. Did you know, for instance, that if you travel somewhere exotic on business that you can take your spouse and write off their travel costs too?

You have to do it the right way to stay on the IRS’ good side, though. You’ll find all the details — along with hundreds of other hints — in our revised and updated guide, Vanishing Point: How to Disappear From the IRS This Tax Season and Save a Boatload of Money in the Process. Here’s where to snag a copy.

To the markets, briefly… where the junior traders are engaged in a last round of tax-loss selling before the calendar turns to 2016.

As we write the Dow has shed 100 points, tumbling below 17,500. The S&P is back in the red for the year, at 2,051.

Gold sits around where it did 24 hours ago, at $1,062. Crude has shed another 33 cents, to $36.27.

The one economic number of the day was a surprise — first-time unemployment claims jumping last week to their highest level in six months. The number is notoriously noisy, so it might be a one-off… but we’ll be keeping a wary eye in the weeks ahead.

As long as we have taxing matters on our mind today, let’s ponder government’s take if you plan to toast the arrival of the new year tonight.

Every state taxes Champagne one way or another. Florida’s tax is far and away the highest — $3.50 a gallon, according to the Wine Institute. Alaska is No. 2, at $2.50, followed by Hawaii, Oklahoma and South Dakota.

The comparisons aren’t precise — there’s a bit of apples and oranges going on here (to say nothing of grapes). You can click to enlarge the map for all the fine print. In addition, “some states have alternative rates for wines in a specific alcohol content range,” says the Tax Foundation.

Anyway, if you want to seriously indulge, the lowest Champagne taxes are found in Wisconsin — 25 cents a gallon.

Heh… As the comedian Lewis Black once told an audience in Milwaukee, “How do you (Wisconsinites) know when it’s New Year’s? That’s the big mystery to me. What’s the difference? I’ve been in bars here and it’s like New Year’s every night. ‘Oh, New Year’s — that’s when we drink with hats on.’”

“Where the hell is ‘public safety’ in the Constitution?” a reader writes. “It’s not.”

The term showed up in yesterday’s episode as we discussed the FBI’s wish to change Silicon Valley’s “business model” — with legislation if necessary — to make a gullible public feel as if the feds are doing something about terrorism.

“But what is in the Constitution — including all the sacred rights and freedoms the country was founded on — needs to be protected,” the reader goes on.

“To sacrifice those rights and freedoms in the name of public safety is to toady to incompetents who presume unto themselves the right to undermine the very rights they are supposed to be protecting.

“Please, find someone with the brains to understand what he is protecting and how to protect it. Failure to do this will, over time, leave us with the kind of country (think the old Soviet Union, and the new China) we have always believed we never were. Where, or where, do they find these people, and in whose name are they acting?!”

The 5: If we were cynical (perish the thought!), we’d say they’re acting with the consent of the governed…

Happy New Year,

Dave Gonigam
The 5 Min. Forecast

P.S. Before we hit “send” on this tax-themed episode… we’re compelled to remind you that in only a few weeks’ time, your mailbox will start to fill up with those W-2s and 1099s and 5498s.

Before you start working on your 1040 in earnest, you owe it to yourself to make sure you’re taking advantage of every legal avenue to shrink your tax bill.

That’s why we’ve put together a comprehensive guide, fully updated with the changes for tax year 2015.

At worst, you’ll save yourself $2,000 come April 15. At best, you might reach the “vanishing point” that sets you up to pay zero taxes.

Intrigued? Here’s where to get started.


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