Speaker 1: Welcome to you stuff you should know from house Stuff
Speaker 1: Works dot com. Hey, and welcome to the podcast. I'm
Speaker 1: Josh Clark and Draws w Chuck Bryant and Jerry Rowland.
Speaker 1: They're here with me. So it's stuff you should know.
Speaker 1: That's right. Welcome, that's nice. That's a friendly will come in. Oh,
Speaker 1: German friendly, bienvenue French friendly? Is that French? I believe?
Speaker 1: So Okay, how's it going. It's going fine, still snowing,
Speaker 1: that's right with people, like weeks later it's snowing. Uh. Yeah,
Speaker 1: because we're releasing this one around text time because it's appropriate.
Speaker 1: That's right. People, the dreaded day, it is dreaded. I
Speaker 1: feel sorry for people with that birthday because it's just
Speaker 1: associated with you know, pain and suffering. Well you should know,
Speaker 1: I mean, like think about it. That's one good thing
Speaker 1: on that day. Yeah, is their birthday? You know. I
Speaker 1: think we should all celebrate like a half birthday or
Speaker 1: a mini birthday on April fift just to kind of
Speaker 1: alleviate tax day. That's right. So we're talking about taxes,
Speaker 1: specifically income tax, which is everyone's favorite tax to pay
Speaker 1: is go out and work hard for your money and
Speaker 1: then give a significant portion of that to the government.
Speaker 1: All Right, that's text day. I'm not gonna tax bash.
Speaker 1: I'm gonna try not to tax Bash. It's kind of
Speaker 1: tough not to. And I know you gotta pay taxes,
Speaker 1: I get it, but man, it's just government takes a bite.
Speaker 1: Well it's not that even it takes a bite that
Speaker 1: they tinkle so much of it away, you know, And
Speaker 1: oh my god, it's so maddening. The older I get,
Speaker 1: the more I'm just like, you have to bed. Yeah,
Speaker 1: when you're younger, you don't think about that stuff as much.
Speaker 1: At least I died and you go all learn like,
Speaker 1: wait a minute, pay how much in taxes? Exactly? All right,
Speaker 1: let's get into this alright, Chuck. So um, we're talking
Speaker 1: income tax specifically, not just taxes. But um, this country
Speaker 1: has a long history of hating taxes. And it goes
Speaker 1: back to the very um point that it was founded on,
Speaker 1: which was in part breaking away from um, Great Britain England. Um,
Speaker 1: because of taxation without representation. If you're a colonist, you
Speaker 1: were taxed man all over the place. Yeah. And um.
Speaker 1: What they found though, was when we got our independence,
Speaker 1: the US government formed and started taxing all the same stuff,
Speaker 1: and I imagine they didn't love it, but they were like, well,
Speaker 1: at least we're represented, which is kind of the issue
Speaker 1: we had before. You know, this is taxation with representation. Um.
Speaker 1: But these were just they weren't They were excise taxes,
Speaker 1: which is a tax on a specific good, right specific
Speaker 1: type of good. They were tariffs, which is a tax
Speaker 1: on foreign imports. And they were um sales taxes basically. Yeah,
Speaker 1: twelve was the first sales tax on gold, silverware, jewelry,
Speaker 1: and watches. So that's pretty much a luxury tax really. Yeah.
Speaker 1: So right off the bat, the first tax on a
Speaker 1: personal tax on a person um is it affects the wealthy. Yeah,
Speaker 1: And it's interesting them the history of the taxes here
Speaker 1: as you look at it, there was a lot of
Speaker 1: installing attacks and then repealing it and saying no, that's
Speaker 1: not right, and then they'll put in another tax and
Speaker 1: then they would say no, that's not right. Well, what's
Speaker 1: funny is that pattern that you're talking about. It followed
Speaker 1: because the taxation is usually imposed on the wealthy, and
Speaker 1: the wealthy figures out how to get out of it,
Speaker 1: and it goes on everybody else's shoulder and then it's repealed. Yeah,
Speaker 1: this is nothing the stuff that we see now people
Speaker 1: arguing about. It's kind of what's exactly the same back then,
Speaker 1: which is really kind of funny when you think about it.
Speaker 1: You know, there's nothing new. So in eighteen sixty two
Speaker 1: is when we got our first national income tax UM
Speaker 1: and part of this was to support the Union Army.
Speaker 1: Congress passed laws in eighteen sixty one. In eighteen sixty two,
Speaker 1: UM in the Office of Commissioner of Internal Revenue, which
Speaker 1: we know is i RS today, was set up by
Speaker 1: the Tax Act of eighteen sixty two. Yeah, let's just
Speaker 1: for a second, chuck, Like, let's think about this. The
Speaker 1: beloved Abe Lincoln is directly responsible for the income tax
Speaker 1: and the i R S. Yeah, I mean it happened
Speaker 1: on his watch. Sure, I guess you can't set up
Speaker 1: an income tax without a body to regulate it and
Speaker 1: to enforce it, which is basically what that did in
Speaker 1: eighteen sixty two. Right, And we were talking about taxes
Speaker 1: being um created due to be imposed on the wealthy
Speaker 1: um between eighteen twelve after eighteen seventeen, with that when
Speaker 1: that tax, the Luxury good tax was terminated, and eighteen
Speaker 1: sixty two, there weren't any taxes like that at all.
Speaker 1: There weren't any personal taxes, and the US government funded
Speaker 1: itself from tariffs, right, So all these foreign imports coming
Speaker 1: in imports, well, the tariffs were on imports apparently mostly um.
Speaker 1: Because this allowed companies this this basically led to the U.
Speaker 1: S economy booming because they like all of the internal stuff,
Speaker 1: all of domestically produced stuff, wasn't subject to any tariffs,
Speaker 1: so they didn't have to compete. They had cheaper prices.
Speaker 1: And these companies used this this stuff to enrich themselves,
Speaker 1: which led to the uber wealthy, which in turn led
Speaker 1: to the first income tax and anything sixty two to
Speaker 1: text the uber wealthy. That's right. Uh. In an eighteen
Speaker 1: sixty three they started collecting this income tax for the
Speaker 1: first time, and it was a graduated tax, kind of
Speaker 1: like we see today. Um, if you earned between six
Speaker 1: hundred and ten thousand dollars a year, you paid three percent.
Speaker 1: If you made higher than that, you paid more than
Speaker 1: that percentage wise. Um, I mean that was the first
Speaker 1: income tax. So it's always three and then five percent
Speaker 1: if you made over tempt Yeah, it's always funny to
Speaker 1: me when I hear like our founding fathers blah blah blah, like, no,
Speaker 1: you're founding fathers. Is this is exactly how they set
Speaker 1: it up. So I guess the argument is, well, not
Speaker 1: those founding fathers, just certain founding fathers I agree with, Well,
Speaker 1: it depends on the founding fathers. Well, it's just I
Speaker 1: hate hearing the argument our founding fathers when people don't
Speaker 1: even really know exactly what our founding fathers were doing,
Speaker 1: like imposing a graduate attacks first right off the bat.
Speaker 1: You know, well, the the U I only recently realized
Speaker 1: that there was that. What we have today in the
Speaker 1: United States, the form of government we have is part
Speaker 1: of what's called the Jeffersonian Revolution, where basically the founding
Speaker 1: fathers Monroe, Madison, Washington came up with the country. They
Speaker 1: came up with the country that's different than the one
Speaker 1: we have now. And the reason that it's different now
Speaker 1: is because Jefferson came along and said, Noah, we can
Speaker 1: do better than this, so let's change this, and that's
Speaker 1: what we have now. So which, yeah, which which founding
Speaker 1: father are you talking about? So, like we're saying, it
Speaker 1: went back and forth, there was a flat tax in
Speaker 1: eighteen sixty seven instead of a graduate attacks and then
Speaker 1: five years after that they repealed income tax altogether, and
Speaker 1: they said, this is not right. It is unconstitutional. Um,
Speaker 1: it's got to abide by a constitutional guideline and it
Speaker 1: does not. And that was the income tax of eighteen
Speaker 1: ninety four. That was where the tariffs were. I'm sorry
Speaker 1: I missed spoke earlier. Between eighteen seventy two and eighteen nine.
Speaker 1: That's where the U. S. Government was lived on tariffs
Speaker 1: and that allowed the economy to boom, railroads to grow,
Speaker 1: and that a class of uber wealthy to get even
Speaker 1: wealthier they were there before. But um, like this is
Speaker 1: when the Carnegies came along, the Rockefellers like started to
Speaker 1: develop this and so all these people said, hey, man,
Speaker 1: like these people should should be paying some some taxes here,
Speaker 1: and that's where they came from. That's where the tax
Speaker 1: came from. Yeah. In that tax two percent of personal
Speaker 1: income more than four thousand dollars again, tax on the wealthy. Uh.
Speaker 1: And the Supreme Court is that's when they struck that
Speaker 1: one down as unconstitutional. So in nine Congress got around
Speaker 1: all this by making it a part of the constitution.
Speaker 1: And said, you know what, we'll create the sixteenth Amendment.
Speaker 1: Congress will have the power to lay in collect taxes
Speaker 1: on incomes from whatever source derived without a portion I'm sorry, Yeah,
Speaker 1: apportionment among the several states without regard any census, right,
Speaker 1: which was the hangout before. Yeah, Like, it doesn't matter
Speaker 1: how populated your state is. Like, this has nothing to
Speaker 1: do with state. It's just a national tax. And originally
Speaker 1: the income taxes a tax on the uber wealthy does
Speaker 1: make a king more than four thousand dollars a year,
Speaker 1: which is super wealthy. Um, and the uber wealthy fought it,
Speaker 1: got the Supreme Court to strike it down, and so
Speaker 1: under Taff's watch, they said, well, we can get around
Speaker 1: this by just amending the constitution. That's what they did.
Speaker 1: And apparently from this the sixteenth Amendment. Like before, Chuck,
Speaker 1: it was like, um, you were more a participant in
Speaker 1: your state, and there was the federal government, but it
Speaker 1: was the federal government and they didn't mean a whole
Speaker 1: lot to you. When the sixteenth Amendment was passed, that
Speaker 1: changed everything because now you were a payer to the
Speaker 1: federal government. Um, and the federal government also had the
Speaker 1: states kind of by the short hairs because the states
Speaker 1: relied now on federal grants that were generated through your
Speaker 1: tax dollars. So the federal government really asserted itself as
Speaker 1: a central power, consolidated power into the federal government with
Speaker 1: the sixteenth Amendment more than anything else but or and
Speaker 1: they never looked back. They certainly didn't know. UM. In
Speaker 1: nineteen thirteen with the Underwood Tariff Act, UM, they basically
Speaker 1: kicked off the modern system that we have in During
Speaker 1: World War Two, they started withholding taxes instead of just
Speaker 1: telling up your bill and paying at the end of
Speaker 1: the year. You have, as we all know and love.
Speaker 1: Now you have part of your paycheck withheld pay as
Speaker 1: you earned system. That's right, and that funds the government
Speaker 1: continuously because every pay period your employer, which who withholds
Speaker 1: the your money on behalf of the government, submits it
Speaker 1: to a federal reserve bank, and the government earns interest
Speaker 1: on it and has constant income. That's right. It's like
Speaker 1: a paycheck for the Government's exactly what it is. Uh
Speaker 1: So let's let's walk people through. Uh And and I
Speaker 1: think this article does right by it like picking out
Speaker 1: just one person. I don't want to call him Joe.
Speaker 1: I'm so tired of that, What do you want to call?
Speaker 1: While I have Cyrus written down? All right, we'll go
Speaker 1: with Cyrus. Right, the Cirrus gets a job, Cyrus gets
Speaker 1: away age, he agrees to with his employer and says,
Speaker 1: all right, this is fair, We'll take this job. And
Speaker 1: the employer says, all right, Syryus, you gotta fill out
Speaker 1: this W four and um, that's one of your tax
Speaker 1: forms and you gotta do it right when you get hired.
Speaker 1: And it's gonna list all your withholding allowances and all
Speaker 1: your dependents and child care expenses and basically everything that
Speaker 1: you need to know, Mr employer, like how much money
Speaker 1: to hold out of my paycheck? So I fill out
Speaker 1: the W four. Now you know, now you're withholding. And
Speaker 1: now at the end of the year, me, Cyrus, I
Speaker 1: want to see if I can kind of project how
Speaker 1: I did this year. Am I gonna be paying? Am
Speaker 1: I be getting it back? So here's how you do that.
Speaker 1: So you take your gross income, the number that we
Speaker 1: all wish we actually made. Right, Yeah, that's all the
Speaker 1: money you have from salary, from interest, income from pensions. Yea,
Speaker 1: all the money you have coming in, that's your gross income, right,
Speaker 1: and then you go through adjustments, and adjustments are basically
Speaker 1: um uh, little little mulligans that the government gives you, says,
Speaker 1: all right, you can you can subtract this from your
Speaker 1: gross income, which alimony, let's say, sure, or if you
Speaker 1: um uh tax on your self employment, if you moved,
Speaker 1: moving expenses for your job, that's one to stuff like that,
Speaker 1: and all these things. So adjustments, deductions, which we'll talk about,
Speaker 1: all of these things, credits, they're all basically behaviors that
Speaker 1: the government wants to encourage, so they give you, they
Speaker 1: give you the ability to subtract those amounts from your uh,
Speaker 1: your gross income. Yeah, they incentivize these things. Yeah, Like
Speaker 1: they want you to work, so you can deduct childcare
Speaker 1: expenses under some some regimes. Or they want you to
Speaker 1: go to college, so you can deduct college expenses things
Speaker 1: like that. So that your adjusted gross income. Right when
Speaker 1: you subtract your adjustments from your gross so that's your
Speaker 1: A g I. And then you've got a couple of
Speaker 1: choices here when you go to fill out your tax forms.
Speaker 1: You can either do the standard deduction or itemize everything out.
Speaker 1: You're gonna want to choose whichever one is greater. Obviously,
Speaker 1: so you can get the biggest chunk for yourself. Um,
Speaker 1: all sorts of itemized deductions. Like if we had a
Speaker 1: tax accounting in here, they would probably laugh if we
Speaker 1: tried to break down itemized deductions. There's a lot of them,
Speaker 1: and they get really weird. Like, for example, a good
Speaker 1: example that, um, if you're a bodybuilder, a professional body building,
Speaker 1: which I am, Uh oil body oil, I write off
Speaker 1: all my oils can be written off as a business expense. Yeah,
Speaker 1: and you know I want. I used to freelance in
Speaker 1: the film industry. They are all sorts of cool things
Speaker 1: you can write off, like your movie tickets and your
Speaker 1: cable bill and uh stuff like that. Um, you can
Speaker 1: write off your interest on your home mortgage, charitable contributions,
Speaker 1: some medical and dental expenses, all sorts of things within
Speaker 1: the law that you can they call him right offs
Speaker 1: your deductions or you can just go with the standard
Speaker 1: deduction again. Right, you don't have to itemize everything out No,
Speaker 1: but a lot of text people say, uh, tax professionals say,
Speaker 1: at least go through and make sure you shouldn't be
Speaker 1: itemizing because if it's even a penny more maybe not
Speaker 1: a penny, but if it's a little more. It's worth
Speaker 1: the trouble most of the time, and it is a
Speaker 1: lot of extra paperwork. Um, but you know, you save
Speaker 1: yourself some money as you're deducting from it. You're deducting
Speaker 1: from your income. And then finally, after you have your
Speaker 1: justice gross income and you subtract all the deductions for it,
Speaker 1: that the number that you have that's your taxable income.
Speaker 1: So the more you can deduct from it, the lower
Speaker 1: your tax burden is going to be. Yeah, I can't
Speaker 1: remember which. There's a commercial going around now about one
Speaker 1: of the accounting firms that says that Americans left a
Speaker 1: billion dollars on the table for Buffalo while Wings cafe.
Speaker 1: If you're getting your taxes done at Buffalo Well Wings,
Speaker 1: then you get a free dozen wings. That'd be awesome.
Speaker 1: Did you hear that they may have Dorito's flavored wings
Speaker 1: coming out. I can't tell you how excited I am
Speaker 1: about this. I don't get the whole derito ization of everything.
Speaker 1: You need to get on the bandwagon, dude, because there's
Speaker 1: a lot of fun to be had eating Dorito based food.
Speaker 1: Remember we were kids and that was derritos. That was
Speaker 1: it was like the guy with a mustache would sell
Speaker 1: you this one derito And now there's like, wait, what
Speaker 1: where are you buying derrito's one at a time? From
Speaker 1: a guy? When down the commercial he was he looks
Speaker 1: for like jeans Shallotte. Oh, you're talking about the frido bandido.
Speaker 1: That's different. I'm talking about the Dorito's guy. Really know
Speaker 1: you're thinking of Mr Pringle's. But now they you know,
Speaker 1: you go the store is just overwhelming. It's ridiculous. Yeah,
Speaker 1: but different shape flavors, and they're they're just like, let's
Speaker 1: throw everything at the let's see what sticks. Just give
Speaker 1: me a derita or cool Ranch. Cool Rance is great.
Speaker 1: I have to abide by the color ranch. They brought
Speaker 1: the original version out too, and those are pretty great
Speaker 1: to just regular nacho cheese doritos. You know, even before
Speaker 1: that there was an original version. It's like taco basically
Speaker 1: it's orange bag. It's an orange bag. I think that's
Speaker 1: that is when I grew up on. Obviously, no, the
Speaker 1: nacho one is the red bag and then blue is cool.
Speaker 1: What is this like the nine twenties? What do you
Speaker 1: mean when they had the original like the sixties or fifties,
Speaker 1: even before your time. So you've got your taxable income,
Speaker 1: you go to the I R S tables. If you
Speaker 1: make less than a hundred thousand dollars a year, you
Speaker 1: go to the rate schedules. If you earn more than
Speaker 1: a hundred thousand dollars a year. And like we said,
Speaker 1: it's a marginal tax rate system. Um or graduated their
Speaker 1: different tax brackets depending on how much you make. Yeah,
Speaker 1: there's seven this year and two. So what's still low?
Speaker 1: Is it still ten percent? Yep? Ten percent, fifty three percent,
Speaker 1: thirty five percent, and then for earners of four hundred
Speaker 1: thousand or over, I think single earners of four k
Speaker 1: or over, it's thirty nine point six percent of your Hey.
Speaker 1: But so it's a marginal tax rate, meaning that um
Speaker 1: that you fall into one bracket or another. If you
Speaker 1: earn a hundred thousand dollars, um you're not gonna owe
Speaker 1: I think twenty eight thousand dollars. I think it falls
Speaker 1: into maybe they percentile you wouldn't owe twenty eight thousand
Speaker 1: dollars of your adjusted gross income or yeah, what you
Speaker 1: would owe is ten percent up to the top of
Speaker 1: the ten percent bracket of the high of the fifercent bracket.
Speaker 1: And so on until you reach your bracket and you
Speaker 1: subtract your adjusted gross income from the top of that
Speaker 1: or from the bottom of that bracket, and then you
Speaker 1: owe percent of that. That makes more sense. It's a
Speaker 1: lot easier if if say, like you know, if you're
Speaker 1: making a hundred thousand dollars less, you just go to
Speaker 1: the text table and you're like, there it is. But
Speaker 1: it's also fairly easily calculated as well. So what do
Speaker 1: you want to make? Well, here's the thing. You want
Speaker 1: to make as much as you possibly can, I think,
Speaker 1: But then you want to have that's what you're Into're
Speaker 1: not saying everyone has to pursue the dollar, right, But
Speaker 1: if you are pursuing the dollar and you don't want
Speaker 1: to pay more tax than you have to, UM, you
Speaker 1: you want to make a high salary and then have
Speaker 1: a lot of adjustments. UM. The problem is is that
Speaker 1: there's this thing that was introduced in the sixties nineteen
Speaker 1: sixty nine I think, or maybe the seventies. UM was
Speaker 1: the alternative minimum tax. Sorry that came around in the eighties.
Speaker 1: The alternative minimum tax was introduced to keep high earners
Speaker 1: from just deducting absolutely everything and paying a very a
Speaker 1: low tax. Um, and it made sense of the time
Speaker 1: because it was imposed on higher earners. The problem is
Speaker 1: is the cut off that was originally introduced, something like
Speaker 1: sixty thou or something like that at that time was
Speaker 1: a lot of money, but it was never index to inflation.
Speaker 1: So as the value of the dollar grew weaker over
Speaker 1: time through inflation, why didn't they index it to inflation.
Speaker 1: That's weird. Well, because now something like of wag earners
Speaker 1: fall subject to the minimum tax, so it's basically like
Speaker 1: an extra tax now. And what the alternative minimum text
Speaker 1: does is say, okay, great, you went through and you
Speaker 1: figured out all your deductions. That's beautiful. What we're gonna
Speaker 1: do is take your adjusted gross income minus deductions, that
Speaker 1: nice little number that you got it too, and we're
Speaker 1: gonna add those deductions back and we're gonna come up
Speaker 1: with your alternative adjusted alternative income figure. And then we're
Speaker 1: going to figure that how much ex tray you oh,
Speaker 1: on top of your normal ten forty and that's your
Speaker 1: full tax. You're gonna add that to the ten forty
Speaker 1: tax amount that you owe, and we're gonna come up
Speaker 1: with the actual tax you oh, including alternative minimum And
Speaker 1: apparently Basically, everybody's subject to it one way or another.
Speaker 1: Even if you don't itemize, even if you choose the
Speaker 1: standard deduction, you probably owe something on the alternative minimum tax.
Speaker 1: So it sounds like what you're saying is that no
Speaker 1: matter what we do, and no matter how clever we
Speaker 1: try to get with our accounting, all they have to
Speaker 1: do is throw in the word another adjust right, they
Speaker 1: add those adjustments right back them. They can just throw
Speaker 1: in another word no, no, no, we need to adjust
Speaker 1: it again and some at some point you gotta stop adjusting, right, exactly.
Speaker 1: So the key here is then if you're still if
Speaker 1: you're like, okay, I'm subject to the alternative minimum tax,
Speaker 1: I'm um, I want to earn a high salary, but
Speaker 1: I don't want to pay too much tax. The thing
Speaker 1: that doesn't the adjustment or the deduction, I'm sorry, that
Speaker 1: doesn't get added back um to your your gross income
Speaker 1: when you're figuring the alternative minimum taxes charity charitable contributions.
Speaker 1: So the key then would be to max those out
Speaker 1: as much as possible, and then that would, I imagine,
Speaker 1: lower your tax a little bit as far as alternative
Speaker 1: minimum tax goes. Alright, it's like here's your tax, and
Speaker 1: then now do it again and pay more. That's because
Speaker 1: they didn't adjust it to inflation. All right, I think
Speaker 1: we're here towards the end of this portion. You have
Speaker 1: your gross tax liability finally, and we should say also,
Speaker 1: I'm sorry, um that as of two thousand twelve it
Speaker 1: became finally index to inflation. But I mean for thirty
Speaker 1: years it wasn't, and it just kept hitting more and
Speaker 1: more and more people. Well it's important though, that's good. Uh.
Speaker 1: So we have your gross tax liability. Now Cyrus is
Speaker 1: Cyrus is going to subtract any credits that are still there,
Speaker 1: and then that final number is Cyrus's net tax. So
Speaker 1: that's either what he's gonna pay or what he's gonna
Speaker 1: get back. And come April, uh, some time between January one,
Speaker 1: when he gets his W two from his employer in April,
Speaker 1: he's gonna have to figure all that out, either by
Speaker 1: himself or with the help of someone who knows what
Speaker 1: they're doing. Um, your W two is gonna break down, uh,
Speaker 1: everything you made Basically, it's also in your final paycheck,
Speaker 1: but the W two is what you send in, so
Speaker 1: you need a separate copy and Supposedly, the UM, your employer,
Speaker 1: you're anybody who who is going to send you money
Speaker 1: about income you made or documents about income you made,
Speaker 1: UM has to give you those documents by January thirty one.
Speaker 1: That's right, okay. Uh And then here's the fun part.
Speaker 1: They take all your information and they store it on
Speaker 1: magnetic tape machines from the nineteen fifties. Yeah, you found this, UM,
Speaker 1: this is pretty crazy easy. Well, it stood out to
Speaker 1: me when I saw magnetic tape machines. I was like,
Speaker 1: how old is this right? And apparently that's still the
Speaker 1: case because UM they don't have the funding to upgrade
Speaker 1: their systems, so they have the magnetic tape program. And uh,
Speaker 1: Obama's is trying to think UM in two thousand twelve
Speaker 1: to increase funding to correct that by like a billion
Speaker 1: and a half dollars two point one billion. I don't
Speaker 1: know if it went through or not. So, like you found, Chuck,
Speaker 1: you stumbled upon the very reason why tax refunds take forever,
Speaker 1: because there's up to a two week period between when
Speaker 1: this the refund or the tax return is filed UM
Speaker 1: and and it ends up on the magnetic tape where
Speaker 1: it's like it doesn't even exist as far as irs
Speaker 1: is can. There's no data whatsoever because they're using magnetic tapes. Um.
Speaker 1: All right. So oh and apparently also in this article
Speaker 1: that you sent, UM, they were saying that the the
Speaker 1: encryption for the I r US is like pretty sad
Speaker 1: as well, that's parting. Yeah, and the security breaches is
Speaker 1: all but inevitable. Yeah, if it hasn't happened, like if
Speaker 1: it doesn't happen in a daily basis already. Wow. All right.
Speaker 1: So that a lot of people complain about taxes in
Speaker 1: this country and probably worldwide. Um. So over the years
Speaker 1: have been a lot of different UH solutions proposed, different
Speaker 1: kinds of taxes, alternatives, if you will. One very popular one, um,
Speaker 1: because it keeps coming back up at least is the
Speaker 1: flat tax. UM. I think also people like to say
Speaker 1: it flat tax. Uh. Steve Forbes and Dick Army, Um,
Speaker 1: we're big on the flat tax. And that was one
Speaker 1: of Steve Forbes's big one of the foundations of his
Speaker 1: presidential campaign was a flat tax of se ish um. Basically,
Speaker 1: everyone pays the same tax no matter what. Um, You're
Speaker 1: complicated tax code is going to be bye bye, and
Speaker 1: you're gonna get something about the size of a postcard
Speaker 1: to fill out about ten lines your personal income, any
Speaker 1: personal allowances, your wage, your salary, and then what is
Speaker 1: your seventeen percent and nut that you owe? Makes sense?
Speaker 1: What's the problem seventeen percent? That'd be great for everybody. Yeah, Well,
Speaker 1: critics will say that it's a favorite the wealthy and
Speaker 1: puts higher taxes on the burden on those who don't
Speaker 1: make as much money. Yeah, because if you're paying ten percent,
Speaker 1: if you're in the ten percent bracket, suddenly you're paying
Speaker 1: seven percent more on your income. True. Under Dick armies
Speaker 1: um flat tax that he proposes, anyone making less than
Speaker 1: thirty six thousand, eight hundred pays no taxes, which is
Speaker 1: different than Forbes is right, which if if that's still
Speaker 1: part of his plan, I couldn't find if he'd adjusted it,
Speaker 1: then that that it actually is a pretty good plan
Speaker 1: if it would still satisfactorily fund the government, because that
Speaker 1: would mean that everybody, if you were like you, would
Speaker 1: pay no tax for thirty eight six right, and so
Speaker 1: anybody above that would still be paying less because that
Speaker 1: falls in the bracket, which means that you would automatically
Speaker 1: everybody would automatically be downgraded tax wise, which is pretty good.
Speaker 1: The problem is, you know, would that fund the government?
Speaker 1: Is that the issue? Well? Yeah, I mean think about this.
Speaker 1: So we're at historically low levels of income taxes right
Speaker 1: like UM in the sixties under JFK and lb j's watch,
Speaker 1: the tax rates were in the nine percentile, the highest
Speaker 1: TAXI was up to and it was like, people think
Speaker 1: taxes are bad now that it's not. There's been plenty
Speaker 1: of other times during the during boot mean times like
Speaker 1: the post war period saw high taxes where taxes have
Speaker 1: been up to sev for people UM, and these are
Speaker 1: the high this is the highest bracket, but there have
Speaker 1: been many times where it's very high, very low. And
Speaker 1: apparently the situation is we UM will have like a
Speaker 1: bubble an economic boom cycle and as a result will
Speaker 1: lower taxes, and then things get tight and then extremely
Speaker 1: high taxes follow. So apparently, considering the amount of federal
Speaker 1: spending going on right now, our taxes are alarmingly low.
Speaker 1: So the idea of a seventeen percent tax across the board,
Speaker 1: we basically bankrupt the the the US, well, maybe they
Speaker 1: should be a little smarter with how they spend their money. Well,
Speaker 1: it's a lot of people say that. Maybe we talked
Speaker 1: about that in the Dead Ceiling episode. Um. But there
Speaker 1: are some some countries that have instituted flat taxes, especially
Speaker 1: a handful of Baltic states. I mean, they've been doing
Speaker 1: it since the nineties, some of them have. It's kind
Speaker 1: hard to compare though, you know, yeah, because I mean,
Speaker 1: you know, apples to oranges, apple to a slightly different
Speaker 1: type of apple, Smith to the red delicious. Um. But
Speaker 1: there's also a lot of people who say, well, yeah,
Speaker 1: Estonia is still around, its economy is growing, but there's
Speaker 1: also this thing called the value added tax that is
Speaker 1: really helping their revenue as well, is in addition to
Speaker 1: the flat tax. Interesting. So another alternative, the national sales taxes,
Speaker 1: been floated for a while now, and it seems to
Speaker 1: be gaining traction or maybe I'm just reading into it. Um. Basically,
Speaker 1: this is the argument that taxing income decreases productivity, which
Speaker 1: sort of makes sense when you think about it. Like, basically,
Speaker 1: what they want to do is eliminate corporate income tax,
Speaker 1: eliminate capital gains tax, eliminate a state in gift taxes,
Speaker 1: and institute anywhere between fifteen and National Sales Tax also
Speaker 1: eliminate Social Security tax the employer part employee part, and
Speaker 1: abolished the I R S as they want to repeal
Speaker 1: the sixteenth Amendment. Yeah, pretty much, um and under I
Speaker 1: don't know if it was Alan Keys, if it was
Speaker 1: his plan specifically or just generally. With the National Sales Tax,
Speaker 1: they would exempt all consumption up to the poverty line.
Speaker 1: So at the end of the year, if your total
Speaker 1: expenditures were less than the poverty line, then you would
Speaker 1: get all that money refunded to you that you paid
Speaker 1: a national sales tax. That's a big deal because the
Speaker 1: National sales tax any is a consumption tax, and a
Speaker 1: consumption taxes um by nature regressive, meaning that the burden
Speaker 1: is is heavier on the poor. And the reason the
Speaker 1: burden is heavier on the poor with the consumption taxes
Speaker 1: because the poor spend more of their money on necessities
Speaker 1: that would be taxed. These are retail items, right, so
Speaker 1: therefore more of the poor's income is tax and somebody
Speaker 1: who's wealthy like if the poor, Like if if you
Speaker 1: have a lower income person spending eighty percent of their
Speaker 1: money on necessities, food, whatever, um, that means eight percent
Speaker 1: they pay an eight taxes or they pay taxes on
Speaker 1: eighty percent of their income, Whereas if you're wealthy and
Speaker 1: you're spending twenty of your income on these necessities, you're
Speaker 1: only spending you're only being taxed on of your income, right,
Speaker 1: So that makes it a regressive tax, which is the
Speaker 1: big the big criticism of the sales tax, the National
Speaker 1: Sales tex that and it probably wouldn't provide enough funding
Speaker 1: to fund the government once again to fund a big
Speaker 1: bloated government at least, and they say that, Uh, some
Speaker 1: people that advocate for it said, well, if we tweetd
Speaker 1: it to where it was only retail and it was
Speaker 1: also stocks and bonds included, then that might change the
Speaker 1: arguments um um. But there is definitely an argument to
Speaker 1: be made that the current system punishes people who save
Speaker 1: money like that that don't spend, because you get tax
Speaker 1: don your money, and then let's say you want to
Speaker 1: take that money and put it in your bank, you
Speaker 1: get tax on that again on the interest you learn,
Speaker 1: all right, so it's that like you're getting taxed twice.
Speaker 1: So there's the government has set up a lot of
Speaker 1: incentive to go out and earn as much and save
Speaker 1: as much as you can. Yeah, you know. Well, plus
Speaker 1: banks aren't exactly encouraging savings right now with the terrible
Speaker 1: interest rates they are offering. Yeah, yeah, that's true. Um,
Speaker 1: what about corporate taxes? You know much about those? I
Speaker 1: know that the income tax national income tax would get
Speaker 1: rid of corporate income tax as well as the individual right.
Speaker 1: So with corporate income taxes as it stands now, the
Speaker 1: US has a U flag guess a flat rate of thirty.
Speaker 1: But um, very famously, a lot of companies have great
Speaker 1: accounting departments that are really good at getting around paying taxes.
Speaker 1: Companies do that. Yeah. So ge in two thousand ten
Speaker 1: made fourteen billion dollars. Okay, that's more than me, almost
Speaker 1: five and a half bill And that's more than you
Speaker 1: and me combined. Almost five and a half billion were
Speaker 1: made in the US, and um, they paid zero dollars
Speaker 1: in taxes in the US and in fact applied for
Speaker 1: a three point two billion dollar tax credit. Okay, okay, um.
Speaker 1: Apple paid zero taxes to any government between two thousand
Speaker 1: nine and two thousand and twelve despite making thirty billion dollars.
Speaker 1: But their iPhones are so cute, right, And then um,
Speaker 1: in two thou also Warren Buffett very famously pointed out
Speaker 1: that he paid UM six point nine million dollars in
Speaker 1: personal income taxes, but where his assets not incorporated in
Speaker 1: Berkshire Hathaway, he would have paid um one point six
Speaker 1: billion dollars and extra billion dollars in income taxes. So
Speaker 1: he points us out to say, like, the corporate tax
Speaker 1: system is broken. You don't like anybody can get around it.
Speaker 1: So we need to fix this as well, not do
Speaker 1: away with it. You need to close the loopholes that
Speaker 1: are allowing this. But then that brings up the big argument, Well,
Speaker 1: it's going to keep America from being competitive because we're
Speaker 1: gonna pay higher taxes. It's going to drive jobs overseas,
Speaker 1: and companies are gonna shut down here in the US.
Speaker 1: Apparently that's not ever been proven that that's all this
Speaker 1: kind of hot air. Yeah, um, they they Some people
Speaker 1: contend that high tax rates on the rich, um, don't
Speaker 1: hurt the economy and don't disincentivize people to work hard. Um,
Speaker 1: like you said, in the fifties and sixties, it was,
Speaker 1: and the economy and the stock market were booming back then.
Speaker 1: And I'm not arguing for any of it. I think
Speaker 1: it's all just broken and and I don't know if
Speaker 1: there is a solution because corporations and wealthy are the
Speaker 1: very people that have the ability to find the loopholes. Yeah,
Speaker 1: that's where people go to H and R Block and
Speaker 1: just still out their taxes in bam. Yeah, it's sad
Speaker 1: like that's that's we don't have an accounting department. You
Speaker 1: and I know, like you know, we hopefully get as
Speaker 1: many deductions as we want and then we get slapped
Speaker 1: with the alternative minimum tax and they get added right
Speaker 1: back in. I don't do you have a Swiss bank account.
Speaker 1: I'm not talking about that, you have a bank in
Speaker 1: the Cayman Islands. Let's change the subject. But yeah, that's
Speaker 1: I mean, just the unfairness of it is is um
Speaker 1: reason enough to change the tax structure of the tax code.
Speaker 1: Well that's why a flat tax initially makes a little sense,
Speaker 1: because it's just everyone pays the same. But people will
Speaker 1: still find their way around that. Well, healthy people will
Speaker 1: still find their way around it. It seems like somehow
Speaker 1: the way that you find your your way around it
Speaker 1: is it's just again, it's through loopholes. It's through and
Speaker 1: whether it's a personal deduction or if you hold your
Speaker 1: money overseas, you don't owe tax on it. If you
Speaker 1: do away with loopholes and instituted a flat tax of
Speaker 1: sev then for corporations as well, then that would I mean,
Speaker 1: if it could, if it could fund the government, if
Speaker 1: it didn't have to cut social service is and all
Speaker 1: this other stuff, then I'm all for it. All right,
Speaker 1: we have you found an interesting story from about fourteen
Speaker 1: years ago where some businesses decided to stop paying taxes. Yeah,
Speaker 1: and we'll talk about it right now, right, no, right
Speaker 1: off this message break, Okay, all right, So you found
Speaker 1: this story which I thought was pretty interesting, where some
Speaker 1: small businesses in the early two thousand's thought they had
Speaker 1: found a loophole um that basically said that they are
Speaker 1: not subject to pay taxes as a small business owner.
Speaker 1: Right that not only personal income, right, but the business both. Okay.
Speaker 1: So basically there's this thing called the eight sixty one
Speaker 1: arguments that legally you don't really have to pay income tax. Yes, okay,
Speaker 1: that's not true though, Uh well it was up for interpretation.
Speaker 1: I think had these people um sued the government and
Speaker 1: continued to pay taxes, this movement would have had a
Speaker 1: lot more teeth but instead a lot of people, just
Speaker 1: a lot of tax resistors, just out of protests stop
Speaker 1: paying taxes. There's a trend in the late nineties and
Speaker 1: up to two thousand, two thousand three or four where
Speaker 1: people were very loudly in public, holding press conferences saying
Speaker 1: I'm a business owner and I'm not paying income taxes
Speaker 1: any longer, and I'm not going to withhold my employees
Speaker 1: taxes on behalf of the federal government. I don't have to.
Speaker 1: That's a service that businesses provide the federal government. It's
Speaker 1: not a mandate, and I think it's illegal that they're
Speaker 1: paying taxes. So we're not doing it, and we're not
Speaker 1: filing taxes either as a business. They head backup from
Speaker 1: a former I R. S employee, right that said, you're right,
Speaker 1: they can't come after you. Yeah. So apparently in the
Speaker 1: code there's um there's a a part called eight sixty
Speaker 1: one where it says that taxes are generated by non
Speaker 1: American business activities. So the eight sixty one position is
Speaker 1: that if you work for an American company and you're
Speaker 1: an American, like any income you make it's domestic, which
Speaker 1: is anything that you or I do, or anything most
Speaker 1: people do um is not subject to taxation, and these
Speaker 1: people tried it. They tested it, but they didn't really
Speaker 1: test it in the courts, and most of them got
Speaker 1: dragged to jail and are have just gotten out of
Speaker 1: prison or are still serving prison terms, but a lot
Speaker 1: of them aren't being forced to pay back taxes, which
Speaker 1: is weird. Well, apparently the I r S is woefully
Speaker 1: underfunded in terms of how much they can pursue these people.
Speaker 1: That's why you could be a tax cheat and get
Speaker 1: away with it, right if you're if your number isn't called,
Speaker 1: but you know, you take that risk. That's why they
Speaker 1: were Um. They apparently these people misinterpreted the i r
Speaker 1: S is inability to prosecute them with the IRIS is
Speaker 1: umbility legal ability to go after them, and they took
Speaker 1: it as I r S capitulating to their argument and
Speaker 1: instead really it was like, um, we were kind of
Speaker 1: busy right now, but we'll come get you in two
Speaker 1: thousand five. What was your name again? And they did,
Speaker 1: thank you sir. Yeah, So a lot of people went
Speaker 1: to jail. Um and six one is kind of dead
Speaker 1: and Wesley Snipe's famously invoked argument, interesting, wonder if Willie
Speaker 1: did uh not that I saw. You know, there's a
Speaker 1: big push now that the um, you know, the NFL
Speaker 1: National Football League is tax exempt, and there's a lot
Speaker 1: of stink being you know, because I don't think a
Speaker 1: lot of people knew this until sort of recently, and
Speaker 1: of course now the internet. He gets on social media
Speaker 1: and people are like what they're They're not a nonprofit?
Speaker 1: So um yeah, socialition helps things quite a bit, doesn't it. Yeah,
Speaker 1: their petitions going around, Uh, remove the NFL from that text?
Speaker 1: Why would they be tax exempt? Uh, it's complicated, it's
Speaker 1: so stupid. It's like you, Joe Public, you're paying the
Speaker 1: alternatimentum text, But this enormous economic engine over here is
Speaker 1: is exempt? Why not? Yeah? And not the individual teams
Speaker 1: and owners like Arthur Blankett, the Falcons and the Falcons
Speaker 1: organization has to pay taxes, but the NFL as a
Speaker 1: as the larger body does not. But um yeah, it's
Speaker 1: kind of messed up. They should probably pay taxes. So
Speaker 1: we could sit here all day alternately giving facts and
Speaker 1: railing on um, yeah, the income tax. But I think
Speaker 1: we we got it. Yeah, and I'm sure we'll hear
Speaker 1: from all sides on this one. Bring it on I
Speaker 1: look forward to it. If you want to learn more
Speaker 1: about the income tax, you can type income tax into
Speaker 1: the search part how stuff works dot com. And uh,
Speaker 1: since I said search part how stuff first dot com,
Speaker 1: it means the time for listener mail. I'm gonna call this.
Speaker 1: We may have saved the life. Hey guys, my name
Speaker 1: is Zach Freeland. I'm a graphic design student at Grand
Speaker 1: Valley State University, Go lakers Um. This is about its concussion.
Speaker 1: He I went to sit down his bed one night
Speaker 1: in his dorm and smacked the back of my head.
Speaker 1: My roommates bunk heard a bit, but I went to
Speaker 1: class and forgot all about it. About five hours later,
Speaker 1: in a drawing class, I began to get all the
Speaker 1: symptoms I usually got with a migraine. The next day
Speaker 1: I had a bit of a headache, and then the
Speaker 1: next day as well. So that Wednesday I started to
Speaker 1: suspect I had a concussion and planning to go to
Speaker 1: the hospital the next day. But that night I put
Speaker 1: on the podcast and listen to the one on concussions,
Speaker 1: and he said it was alarming enough to where I
Speaker 1: went to the e R immediately and didn't wait till
Speaker 1: the next day. And at the e R the doctor
Speaker 1: told me I had an aneurysm or brain cancer, and
Speaker 1: I was it was odd to predecide relief to find
Speaker 1: out it was only an aneurysm. Um, I talked to
Speaker 1: the doctors. Well, it's better than brain cancer. I guess. Uh.
Speaker 1: I talked to the doctors. They said I should be
Speaker 1: fine to finish my time at school, which made it
Speaker 1: possible for me to get further treatment at home. Went
Speaker 1: into surgery. They off my aneurism with platinum coils. I
Speaker 1: guess that's what they do. And the doctor said if
Speaker 1: I had not have come in, I might not have
Speaker 1: lived a whole lot longer. Uh. The aneurism had already
Speaker 1: grown from the first hospital visit to this second. So guys,
Speaker 1: I want to say thank you for letting you know that.
Speaker 1: Uh you make this podcast. And because of the concussion
Speaker 1: one hadn't scared the crap into me, I might not
Speaker 1: be here today. That is pretty awesome. And hey, if
Speaker 1: this ends up in the air, give a shout out
Speaker 1: to the Detroit City Football Club minor league soccer team
Speaker 1: most passionate fans in the nation. No joke, So uh
Speaker 1: go Detroit City Football Club. Yeah, let's good shout up.
Speaker 1: That's Zach Freeland. Thanks Zach. If you're recouping well, sir,
Speaker 1: this is a while ago. Yeah, sorry it took so
Speaker 1: long to get on the air. Take care of Zach.
Speaker 1: Thank you for listening to us and letting us save
Speaker 1: your life. If we saved your life, you know me
Speaker 1: and Chuck always want to hear about those. You can
Speaker 1: tweet to us at s y s K podcast. You
Speaker 1: can join us on Facebook dot com slash Stuff you
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Speaker 1: Stuff Podcasts at Discovery dot com and has always joined
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