Money Blue Book

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.“

- Honorable Learned Hand, U.S. Appeals Court Judge, Helvering v. Gregory, 69 F.2d 809 (1934).

The above quote is one of my favorite tax quotes from law school and one that I concur with wholeheartedly. It was a historical statement from a well known and respected former United States Appeals Court Judge regarding the minimalist extent of our obligation as citizens to pay taxes. The opinion reflects the view that we have no ethical or even patriotic duty to pay taxes beyond what has been legally assessed upon us. Thus, as the message advocates, it is within our compete given right to do everything within legal boundaries to minimize our personal tax liability exposure. If society deems the income and tax bracket disparity to be unfair or unjust, it is our duty as voters to ensure the government legislates fairly, rather than evade individual tax obligations out of protest.

Difference and Distinction Between Tax Avoidance and Tax Evasion

The practice of tax avoidance is essentially the credo of most tax attorneys and tax preparers. It is completely legal and there should be no moral or patriotic implications as it is in complete compliance with the law. Tax avoidance is simply the practice of working within the legal confines of tax law and regulations to maximize tax deductions while minimizing tax liability. In contrast, tax evasion works outside the rules by trying to duck legal obligations by hiding income through nondisclosure, or improperly taking deductions that one is not qualified for. There is a clear distinction between the two.

However, many people seem to inaccurately equate legal tax avoidance with the same type of immorality implications of those who practice tax evasion. For example, there are some who point out that wealthier people, through clever tax manipulation and deductions are able to drastically keep their tax liability very low. Even the Oracle of Omaha himself, Billionaire Warren Buffet noted that he only paid a 17.7% tax rate on his $46 million of taxable income in 2006, while his own employees paid an average 32.9% tax rate. His own receptionist reportedly paid a 30% tax rate.

This might not seem fair in my eyes or yours, but none of these moral questions obligate Warren Buffet or anyone else from having to pay more taxes than they are required to do so, as long as they fully comply with all existing tax regulations. If there was truly an injustice or immoral component or dichotomy to the current tax structure, it is the obligation of the federal government to implement a fair taxation policy, and ours as voters to ensure that the government do so.

We Should Not Confuse the Government’s Duty To Create A Fair Universal Tax System As Our Own

It’s been said that there are certain things in life that are simply inevitable, including death and taxes. Society needs taxes to function and requires an empowered government to execute the uniform exaction. Making the tax system voluntary would obviously never work because individuals would not be able to effectively enforce the collection without resorting to vigilante tactics. Thus it’s a necessity to have a strong government that can legislate and enforce tax codes, and mandate obligatory payments based on whatever sliding scale system it deems in the best interest of society. We have expressly given the government this power to legislate fair marginal tax brackets and to create an equitable system of tax deductions and tax credits to promote certain values and interests for the betterment of society.

It is not our own individual duty to draft our own federal tax returns to what we personally think will benefit the government. That duty has already been delegated away. Our responsibility as citizens is to operate in good faith within that tax framework to ensure we legally abide by the rules. If the day comes when we deem change is necessary, then our role is to change the individuals to whom we have delegated this legislative power to. However, our framed roles as taxpayers never expands beyond mere compliance.

So Long As We Abide By All Legal Tax Codes, We Are Free To Maximize Opportunities

Because our tax system is universally applied with every single income producing resident subject to it, we should not feel any moral, ethical, or patriotic duty to pay extra beyond what is demanded of us. So the next time you sit at your desk to prepare your tax return, you should not feel guilty about being able to cleverly duck certain tax obligations through legal manipulation. So long as you are fully abiding by the tax code, you are fully in the right. Our duty is to put the right people in power to make these difficult social and moral choices for the betterment of society. Once the universal tax codes have been laid in place, we are perfectly within our right to use every legal trick, tax loophole and strategy to minimize our own tax assessment to the betterment of ourselves.

As the taxpayer, we are under no obligation to provide any more to the government than we are required to. The tax code and our tax obligation is not in the nature of church tithing that we voluntarily offer out of altruistic feelings or charitable obligation. It’s a regulated and systematic way for the government to mandate fairness and to ensure equality of its citizenry. There is no tip that needs to be paid to the government. This is not a restaurant and the servers are not being paid minimum wage and dependent on our generosity. So long as we abide by legal regulations and aren’t resorting to the illegal practice of tax evasion, we are within our legal and moral right to try to reduce our own tax liability down to zero (if possible).

Thus the next time you feel guilty about being able to successfully and properly claim a whole slew of deductions, don’t be. There is nothing inherently wrong with the legal practice of tax avoidance. Thus, pay what you owe and nothing more. That’s the most responsible thing we can all do.

Updated – The IRS has released the official 2008 Economic Stimulus Payment Schedule.

Also, read about the prospects and chances of an Obama stimulus check for 2009.

Based on the substantial traffic and comments I’ve been receiving for the article I wrote explaining and breaking down the details of the 2008 Stimulus Rebate Package, it’s clear that everyone in the United States is concerned about their rebate checks. Everybody wants to know how large their own tax rebate check will be and when they can expect to receive it.

There are many questions to be answered and I’ve been trying my best to respond to them all. While most questions have been straightforward, others have been slightly more complicated with issues relating to Chapter 7 and 13 bankruptcy filings, or issues relating to wage garnishment and student loan liens. But I will continue to do my best to answer your flurry of tax rebate comments and e-mails.

Visit The IRS Website For The Official Source Of Tax Rebate News and Updates

While I can’t necessarily state that all answers that I provide are definitive, I do try my best to answer accurately based on research and reasonable information. One thing I have noticed is the vast amount of misinformation and speculation that is available on the internet. There seems to be much conjecture and rumors surrounding the tax rebate, particularly as it relates to timetable and the order that the checks will be sent out. I wish to remind readers that the only definitive source for tax rebate news and updates is the official IRS Economic Stimulus Payments Information Center (official website). There, they’ve done a pretty decent job of addressing the seemingly endless stream of tax rebate inquiries, even providing answers to popular tax rebate questions (Tax Rebate FAQ). The IRS tax rebate website provides stimulus check payment hypotheticals and answers questions pertaining to Social Security recipients and veterans living on disability. They post updates regularly and understandably so. Here’s a quick link to some of the official tax rebate questions and answers for various filing scenarios:

1. Single without children
2. Head of Household, with children
3. Married, with children
4. Married, without children
5. Married Filing Separately, with or without children

Here’s the official information release for recipients of alternative types of income:

1. Recipients of Social Security Retirement Income or Disability
2. Recipients of VA Benefits, Disability, or Survivor Benefits

If you still have unanswered questions, please continue to post comment questions to my original Bush Tax Rebate article. I will try my best to diligently answer each one as best as I can. Keep in mind that while I do have a legal and financial background, you will be best served asking your own tax professional or hired attorney the more substantive tax and legal questions, particularly when it relates to more delicate legal issues surrounding bankruptcy and liens. My informal opinions should only be viewed and regarded as general background information rather than seen as authoritative financial advice.

As one who used to practice law as an attorney, I’ve only had a smattering of exposure to ambulance chasing – the layman’s term for legal work that embodies mostly straight forward and very lucrative personal injury type cases. However based on the exposure I’ve had, I still retain some pretty strong opinions in counter response to persistent public calls for handicapping the wheels of litigation and placing caps on large damage awards.

Much of this anti-lawyer sentiment is based on mainstream public mistrust of trial attorneys and the work that they do. While I agree that our population has evolved into a society a bit too obsessed and even paranoid about lawyers and lawsuits, I think the passionate furor and lemming-like disdain of litigation beguiles its importance as one of the key cornerstones of what makes our country so democratic and free. Lest we forget, it is because of our pro-litigation society that our businesses and services have been able to consistently deliver such quality and corruption free excellence. Not all of society and the business world will forever remain pure and blameless, but should their actions harm or damage any person or entity, we as Americans can always rest assured that the offending parties will be held accountable. No where else in the world is there such a reliable guarantee in place.

A Pro Litigation Society Protects Quality and Advances Our Individual Rights and Freedoms

I frequently hear and read about writers and individuals who like to complain about lawsuits and denounce those who file claims for substantial amounts of money that the writer deem as frivolous. In my opinion, such genuinely frivolous causes of action would ultimately be summarily dismissed by the presiding judge of the case. But before that can happen, everybody must be able to have their entitled day in court. Thereafter, if the suit was initiated without merit or the reasonable likelihood of success, there are counter fines and sanctions available to punish the plaintiff for wasting the court’s time.

Many people like to blame greedy individuals and sleazy lawyers for filing frivolous and wasteful lawsuits. I agree that there are some wrongfully filed claims out there, but the majority are legitimate and in pursuit of damages for legitimate redresses of injury. I think most people in the United States would boldly state that they are against lawsuits – that is, until it is their turn to sue somebody. If the God forbid day should ever arrive when an uninsured business van driver negligently slams into your car, permanently rendering a close family member paralyzed for life, you’ll be glad we don’t live in a society where they tell you to just brush it off and let it go. You’ll be glad we live in a nation where you can personally seek the court’s protection to compensate you and your family member for your injuries and to ensure it never happens again. It is not above revenge, but about justice and fair play.

Without the developed and reliable ability to file individual lawsuits, as citizens, we would be powerless to effect positive societal change beyond begging and lobbying our own governmental representatives to legislate the law in our favor. Living in a litigious society is actually empowering for the lowly individual. It is by this developed common law system of precedence and judicial resolution that has compelled American businesses to become the most safe and reliable in the democratic world.

In the infamous McDonald’s millionaire dollar hot coffee case, a woman accidentally spilled hot coffee on her lap while waiting at a McDonald’s drive-thru and badly burned herself. Although the case seemed trivial and common-sensical, the case set the precedent for more improved temperature safety warnings and control. When we buy American products and utilize the services of American doctors today, we have very high expectations of quality and competence. It’s easy to blindly blame the unrepresentative pool of greedy lawyers out there, but remember, it was the successfully litigated precedents set by the product defect and physician malpractice test cases that made our system so driven towards fighting wrongdoing and rooting out faulty products. It’s not a perfect system, but it’s the best we’ve got for our large diverse population.

Money Is How Our Civilized Society Settles Disputes

This is no longer the wild wild west. When you have a problem with someone, when your personal property is damaged, or when you are injured due to someone else’s negligence, you don’t attempt to duke it out through hand to hand combat or resort to one-on-one pistol duel challenges anymore. More modern and civilized methods of dispute resolution have developed and evolved – culminating into a common law adversarial legal system that centers around the recovery of monetary damages. The reason why we always hear about plaintiff individuals filing lawsuits for money is because money is the primary medium of recovery that our legal system permits. Sometimes when monetary damages is insufficient, the court will permit specific performance or injunctive action, but in the vast majority of cases, the mode of redress is by forcing the losing defendant to pay the plaintiff.

The reason why recovery damages sometimes soar into the millions of dollars is because other than compensatory damages designed to put the plaintiff back in the same position he would have been in had the injury never occurred (thereby “making him whole”), courts sometimes grant additional punitive damages on top of that. These type of punitive or treble damages are usually extremely high, and designed with punishment in mind. In one case I read about, a defendant was found by the court to be liable for intentionally setting his neighbor’s cat on fire and burning the kitty to death. The court awarded a mere $200 of actual damages for the cat, regarded as personal property, but slapped something like an additional $5,000 of punitive damages to punish the defendant for his outrageous action. This is what justice is all about and the type of grievances our pro-litigation society was meant to protect.