ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Friday, February 06, 2009

Bill McClellan is Off the Reservation ... bless his heart

My goodness, somebody at the Post actually gets it.

When will ethical actions start paying dividends?
By Bill McClellan
Wednesday, Feb. 04 2009

Last year, I earned $1,130 in dividends. I just received a note to that effect from my employer, Lee Enterprises Inc.

"This is important tax information and is being furnished to the Internal Revenue Service," the note said.

Well, fine. I consider that a warning, and an appropriate one. If I were inclined to cheat on my taxes, this is probably where I would do it. That's because I feel that my dividends are misleading.

Let me explain. Several years ago, Pulitzer Inc. began offering its employees a 15 percent discount on Pulitzer stock. I sought the advice of a friend, who said, "If somebody offers to sell you a dollar for 85 cents, buy it."

I did.

I'd accumulate a little bit of the stock, and then I'd sell it. When Lee Enterprises bought Pulitzer, it offered the same program and I enrolled. Sadly, the stock has not done well. It has gone from about $44 to about 35 cents. I have ridden it down. I began last year with about 1,100 shares of stock worth about $16,000. I ended the year with about 3,000 shares of stock worth about $1,000.In other words, I took a beating.

But while my stock was plummeting, it continued pumping out dividends, which, in my case, were automatically used to buy more stock. Although my investment went from $16,000 to $1,000, that represents a paper loss, and does not become a real loss in the eyes of the IRS until I sell.

But the dividends are real. I will have to pay taxes on them. Here is the question I have to ask myself: Would I pay taxes on that $1,130 if the IRS didn't know about it?

Timothy Geithner wouldn't.

He's the new secretary of the Treasury. He's in charge of the IRS. He was selected for that post, and confirmed to it, despite the fact that he cheated the IRS out of tens of thousands of dollars in payroll tax.

Before becoming the chief of the New York Federal Reserve Bank, he worked for the International Monetary Fund, which did not withhold payroll taxes but compensated U.S. citizens who were then supposed to pay those taxes on their own. Geithner took the extra compensation but didn't pay the taxes.

The IRS audited him and forced him to pay the back taxes for 2003 and 2004. All right, he was caught and he paid. But he didn't go back and pay for 2001 and 2002, even though he clearly knew he owed for those years, too. So there is no doubt that he intentionally cheated the IRS.

Why then was he confirmed for the post? Because he's smart. That's what the senators said. Our financial system is a mess, and we need somebody smart to work on it. Think about that. Our new president and our senators did not believe they
could find somebody who is both smart and ethical.

That tells me two things. One, this country is in worse shape than I thought, and two, we have to forget this business about a tax collection system based on voluntary compliance. For voluntary compliance to work, people have to have faith that other people are paying what they're supposed to pay. If you have that faith, you haven't been paying attention.

On Tuesday, two people slated for big jobs in the administration had to withdraw because of tax problems. Former Sen. Tom Daschle was going to head the Department of Health and Human Services. Nancy Killefer was going to be the government's chief performance officer. Think about that for a minute. Chief performance officer.

Part of the problem is human nature. People tend to try to get away with things. Part of the problem is the fact that the tax code was set up to be gamed. It is thousands and thousands of pages long. It contains millions of words. Every few years, somebody talks about simplifying the tax code — "It's a disgrace to the human race!" said Jimmy Carter in 1976 — but there's a reason it's long. None of those words got in there by accident.

People wanted them in there.

Why do you think that is?

This would be a good time to reform the system. Never has it been so apparent that it's broken. We've put a tax cheat in charge of the IRS. That is the proverbial elephant in the room, isn't it? The first thing we ought to do is go to a simple flat tax. It could still be progressive. But no more deductions. Maybe just charities, but that
would be it.

A 10-page tax code. The truth is, you could write it over a weekend.
Get a few economists together, keep the politicians away, and presto. Here it
is. If you make this much, you pay this percentage. If you make that much, you
pay that percentage. Benefits count, too. No trying to finesse things. If
somebody gives you a car and driver, that counts as income. Of course it

Naturally, corporations and other businesses would be required to report
all compensation to the government. Penalties would be severe if they didn't —
and it would be the corporate chiefs who would pay those penalties.

Such a system would make ordinary citizens feel better. I know the thing that has always bugged me is the suspicion that I pay everything I am supposed to pay while
richer people somehow avoid taxes. Now that's no longer just a suspicion.

Meanwhile, I'll go ahead and pay taxes on my misleading dividends. But
I'll think about Geithner while I pay, and it will hurt.

Your Co-Conspirator,
ARC: MontereyJohn