IRS Audits - We Need More

Everyone hates the IRS.  Who could possibly love them?  People hate the idea of audits even more.  An audit brings to thought nail biting, grand iquisitors, hot coals and bamboo under the fingernails.  The reality is much simpler where most people make an honest mistake and have to rethink their income or deductions.

In a survey, 96% of the respondents agreed with the statement "it is every American's duty to pay their fair share of taxes."  93% agreed that everyone "who cheats on their taxes should be held accountable."  In the same survey, only 62% felt that fear of an audit was why they paid their taxes correctly.  The numbers have only shifted slightly in 2008 to 89% feel you should pay all of the taxes you owe, but it is still a very high margin and even higher margins say the government should punish those found to cheat.

The IRS did a survery in 2001 of 46,000 random returns and found that the tax gap, the amount owed versus what was paid,  was $345 Billion or roughly the same amount as th deficite for that year.  The part of the income that has only 1% error is wages, salaries and tips.  The non-farm proprietor incomewas off by 57% or $57 Billion.  Non-farm income is covered by self employed or owners of businesses.  The problem is that the only person reporting the income for these business owners is the owner himself/herself.  The wage earners have to report income each pay period.  This means that the self employed person has a much higher ability and incentive to cheat.  I am sure we all know of the self employed painter, business owner or restauranteur that doesn't count income/receipts paid in cash. 

Why doesn't the business ower pay his fair share of taxes?  It is the right thing to do according to him and 93% of all Americans.  The reason is that the chance of being audited is so small at less than 0.2% of all individuals.  He/she also looks at the other burdens he faces in state compliance and those are costs that he has thanks to our regulations.

Part of the problem is the "cash" basis that some businesses operate under.  Too many places only accept cash, only record trackable transactions (credit cards and checks), and pay employees on a cash basis to avoid FICA.  Part of the problem is that people feel they pay too much already and are entitled to this "minor" entitlement.

Each of these issues cannot be easily solved by the current system.  It also would not be solved by any "Fair Tax" system where only goods sold would be taxes.  It would immediately cover the cash payments to your help because paying them in cash has no benefit or detriment.   A Fair Tax approach eliminates under reporting income because income is not taxed, spending is taxed, therefore saving is encouraged.

However, it would encourage those businesses that already rely on large quantity of small cash transactions, that they do not report now, to continue to not report them.  They have an even larger incentive to pay in cash because the tax savings is even larger versus the income tax.  It covers that portion of the illegal aliens that pay taxes at regular stores, but it still does not cover those small businesses that under report transactions each year and would encourage more in kind trading, to avoid the onerous sales tax.

The net impact of a Fair Tax should be neutral but it does not impact government spending more money than it takes in, but that is the problem with our current system too.  In times of poor spending, like 2009, the income receipts drop just like they do with the current system, but it might create a magnifier.

So, to get back to the basic Blog, we should encourage more audits, not less.  It will statistically increase the percentage of people that report their income.  The audits should cover more self employed and businesses where it is easy to lie about deductions and income.  Since relying on honesty is not motivational then the only alternative is to rely on fear of an audit.  If people should truly pay what they owe and are agast at people cheating on their taxes, then increasing the number of audits is a good thing.  Collect the money due the government, monitor those places prone to small frequent cash transactions for incorrectly reporting receipts, and force more places to use trackable payment methods.  Then the quote from 1984 will prevail.

"There was of course no way of knowing whether you were being watched at any given moment. How often, or on what system, the Thought Police plugged in on any individual wire was guesswork. It was even conceivable that they watched everybody all the time. But at any rate they could plug in your wire whenever they wanted to. You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard, and, except in darkness, every movement scrutinized"

I do feel that more audits makes sense.  It is mentally straining, but it you are honest, you have nothing to fear from an audit.  I disliked my audit, but once it was done, I can appreciate why the audit was triggered and that taxes must be paid.  If I pay my part and try to be honest in my tax reconciliation, I expect the same from everyone else.

Polite versus Correct

Much has been said about bowing to foreign dignitaries.  Many have said that a president never did it before.  They are wrong.  Nixon did it.  Eizenhower did it to many people including the Pope, the President of France, and a host of others.  Oh my gosh, even president Bush bowed to the Pope and kissed and walked hand in hand with the King of Saudi Arabia.  Does this mean that any president is subserviant to another person?  Does it mean Bush was gay? Seems that bowing and other non-tranditional greetings and familiarities by Presidents is not uncommon.  And what is more curious is when important figureheads shake hands with the worst despots on earth, such as Sadam and Mao.  Many Presidents have shaken hands with these incredibly vicious people.  In reality, we end up doing things today that look good and bad in the future and that is reality.  The main point is that it was correct and polite at the time.

If one cares about such things, then with a cursory reading of polite customs in different countries will see that being polite and subserviant are two different things.  In Japan and China, I bowed to many people and there is a class people in Japan take on the correct level to bow in each circumstance. 

As Mr. Miyagi said in Karate Kid, always look at the eyes is the general approach, but the bow itself in Japan is to show respect where touching another person is frowned upon.  The bow to a figurehead, like the emperor of Japan is also not the same as a bow to the head of their government.

Should he have bowed?  IRL who cares except people that have a problem with Obama in general.  Was it polite, absolutely.  Was it correct?  It is correct if you assume that following the customs of the guest country are reasonable.  Do you point the bottoms of your feet towards a Saudi in his country, absolutely not!  Always stand for your Host enterring a room and clean your plate in Indonesia.  Are any of these offensive to us or indicate we are subserviant to another person?  I would think they are merely polite and show courtesy to your host.

Did he bow too low?  Possibly, but unlike the Chinese, the Japanese don't structure their bows as much as the Chinese, but since he was in Japan, his bow was reasonable and nobody really cares. 

To Quote a excerpt from a Fox News Poll -

Despite an overwhelming number of conservative comments, the majority of Americans, don't have a problem with it. Even among Republicans, 53% see no problem with it and 67% of all Americans don't have a problem with it.

Manners, whether we like it or not, are sadly missing from our day to day dialog.  Cutting people off, insulting them, and crying foul for reasonable manners is more of a problem than the deed itself.  Being polite and accurately informed is the best way we can help correct many problems that face the country.  When we are treated politely, we are more likely to seriously consider diverging dialog.  The opposite is also true, so bowing is fine by me if it helps open a door for meaningful discourse.  Just do it right and with the right people..... ;o).

Vanishing English in Business

Thanks to Cheryl for this topic.  It is an interesting one for those that read or converse as much as we do each day.

Today, my boss, the controller and myself were having a discussion....... HOLD IT RIGHT THERE.  How many times do you see "send that to myself when you are done",  "the second quarter results delighted both the CFO and myself.” and the ever infamous politcal speech

The other candidates and myself agree on this issue.

Both John and myself have plans in place to solve this problem.

Myself should not be used there.  It seems that many people forget to use the simple proper "I" or "me" in speech and written letters.  The same thing applies to yourself when it should most often be "you". 
The correct use is described at this link.

Correct use is very limited, for example -

Use myself to reflect back to an I earlier in the sentence:

I would like to take that question myself. (I . . . myself)

I myself instituted a similar program. ( I myself)

I can speak for myself. (I . . . myself)

Maybe the people think that speaking in this manner makes them look smart, or maybe they think it makes them appear to be unbiased bystander.  This is really common on the edutainment shows such as Maddow, Olbermann, Hannity and O'Reilly.  It is also common on the blurbs announcing news events on our nightly new - Stay tuned to John and myself.......

A related but different topic is that there are words and phrases that should be banned from our normal business vocabulary since they are used wrong, cliches, or just plain over used.  I'll start the list and let others add to it.

Manage Expectations
Paradigm shift
Individual contributor
Circle back
Engaging a customer - why not just talk to him or write an email

Stay tuned while Cheryl and myself edit all the posts........

Two Legged Cat versus WTF

One night, while having dinner with my wife and friends,  they started laughing about a strange two legged cat at Youtube. There are multiple posts out there showing various four legged animals that are missing or born without legs and and one of those is shown herein. We started using the phrase "two legged cat" instead of "that's crazy" or that is beyond belief.

It got me thinking. What is the difference between "two legged cat" and "what the f*(@" abreviated as WTF. I've come to conclusion that the "cat or TLC" is a strange but true incident while the wtf refers to merely increduous and crazy crap that is probably false.

So how do you differentiate?

TLC is the strange but true things that go on our world. For example, the youngest mother on record gave birth at the age of 5 years, 7 months and 21 days.  This is an amazing and sad case, but entirely true and documented with pictures in 1939.  It is a terrible case also because the father was never identified and should have had the most severe punishment possible for having sex with a five year old.  Other two legged cats might be where the most haunted town in England cancelled Halloween.

A most amusing TLC is found in Boise ID.

A teenager who tried to copy a scene from the hit file 'American Pie' by shagging an apple pie was rushed to the hospital with serious burns to his penis.

Dwight Emburger, 17, couldn't wait for the tasty pastry to cool down and after he slid in his pecker he was badly scalded by the hot filling.

A hospital spokesman in Boise, Idaho, said: "This demonstrates that producers should consider the effect their films have on young and impressionable people."

I think the hospital spokesman should have been more worried about horny young idiots, than about impressionable young people.

 The teenager probably will be on the list of Darwin Awardees and may fit the category perfectly because he will be hard pressed to reproduce.  Lucky for us.

The WTF category has some of the most amusing items that are often portrayed as real when with little review they are found to be fake.  For exampe, Iraqi militants reported they had captured a soldier and were going to behead him.  The soldier turned out to be an action figure.  A picture of the captured soldier and the action figure kit is shown below.

I find it amusing that AP thought this was a real story and did not confirm the news before running it.

A Foster's Beer ad was portrayed as real when a bungee jumper was bitten by a crockodile during a jump. 

We find many WTF in our political arena but they are too many to cover in such a short space. 

Enjoy your own WTF and TLC videos and pictures.  They make the world a fun place to live.  My definition may be off base but then WTF.

NC Tax Incentives - A Figment of Value

Dell Computers decided to leave our state after we gave them the ability to receive rebates of up to $287 million in incentives to come here. Dell thinks everything is fine.  They are paying back the earned incentives and Dell even gets a discount for being a prompt payer.  The problem is that Dell is not repaying the actual costs that are incurred for this sweetheart deal.  The people in our NC government that encouraged the deal think this is fine and we are getting back everything spent. 

Dell got a nice parcel of land with utilities, roads, etc. all set up with the potential of up to 8,000 people employed, when adding in the spin off jobs created. Now we have 1,400 people directly unemployed people at a time when jobs are scarce.  It is even worse when one considers that the jobs are not really "lost" at Dell.  They just moved the jobs to other locations, including Mexico.  So for our investment in Dell they used us until it wasn't convenient and moved the work to other places. 

I would love to see what the real costs to the state were for this wonderful opportunity.  The reimbursed fees do not cover the actual costs for items like roads and other improvement costs, including the full unemployment amounts for Dell personnel and their suppliers.  Forbes magazine says that

millions of dollars won't be returned. Public agencies paid to prepare the Dell site for construction, widen roads leading to the plant, and equip community colleges to train company workers before the plant opened.

The biggest part of Dell's incentives were targeted tax breaks specifically created to draw large computer manufacturers to the state. The company could keep tax savings for milestones that were met, but could not claim the rest.

The added money that Dell invested in plant and equipment is not lost because they will move it or sell it.  North Carolina, Winston Salem and sourrounding localities don't have that option to recover their investment which might have been better used by spreading the lost tax revenue by decreasing taxes for everyone instead of one employer.

I don't have a problem with limited incentives that involve training.  Trained employees can move from one job to another easier than unskilled employees.  But incentives that benefit only one employer at the expense of all other employers and people that pay the taxes in the state don't make economic sense without unconditional guarantees.  The 90 acres of land next to the abandoned site that Winston Salem receives doesn't solve the problems for the city.  They still lost money on their gamble and now have land that is worth less today than it was when purchased.

To quote one of the original proponents of the incentives by Tonya Vinas - Industry Week Magazine:

The next time someone complains about all the good U.S. manufacturing jobs moving overseas, be a contrarian and tell them about Dell Inc.'s new plant in Winston-Salem, N.C.

Now that the US manufacturing jobs are moving to Mexico, does he still feel exactly the same way?  Dell got the incentives and still moved away after less than 5 years.  Dell did exactly the same thing in Lebonon, TN where they did not insist on legal language for the incentives provided.  In the TN case, the incentives were tiny compared to NC's.

The comments made by others describe the feelings of many people. 

The state has argued for years that the incentives are actually grants for jobs created and new money spent, but if Dell is actually returning money, and they are. . .

The Department of Commerce said Tuesday that the company fully returned grant payments (of $1.5 million) from 2006 and 2007. Officials in Winston-Salem have said the company is also in the process of repaying $26 million in local incentives.

. . then we have to assume that money was given with NO benefits received for the state. It was simply gambled away to a favored company by a foolish legislature and all too eager Governor. The state was fooled, plain and simple and it doesn’t stop there. With Google, Apple and others in the periphery, is North Carolina getting what it gambled for

It is time for us to tell our politicians that they are supposed to be working for us and not for companies.  Yet it appears we did not do our own homework and offered incentives almost 8X greater than our competitor Virginia. We even calculated that the spin off jobs would be twice as high as our neighboring state. While helping companies grow has benefits for the state, having the state determine the winners and losers in the incentives game makes me feel that they feel fine gambling with my money.  If I want to gamble, I will go to Tunica or Vegas or on a cruise and feel that it is my decision on whether to double down or not. 

No matter how big the incentives are, the company will remain loyal to profit and stockholder value and not to their employees or any state.  I don't blame Dell for requesting incentives either.  It is our politicians that offered them in such abundance that made the deal too good for the moment for Dell to ignore them.  As they say in the song, "the thrill is gone" and now so is Dell.

Religion and Evolution

I was reading a post thanks to another blogger entitled silly religous beliefs that descirbes several interesting philosophies.  One item in particular doesn;t make much sense.  The argument appears to be that if you believe that God has a hand in evolution, he would speed things along to make us better.  For example, 

If there had been a divine hand tinkering with the process, we would expect evolution to have proceeded radically differently than it has. We would expect to see, among the changes in anatomy from generation to generation, at least an occasional instance of the structure being tweaked in non-gradual ways. We would expect to see -- oh, say, just for a random example -- human knees and backs better designed for bipedal animals than quadrupeds.

This statement makes an assumption that God, would have some desire to forcefully make our individual lives better, to make us live longer, or live better lives.  The basic error of this thought appears to be that He would direct us to move along faster, yet if He wanted us to move along faster, why wouldn't he just make us better for the start?  Maybe the whole idea is for us to start as single cell creatures and develop as best we can and use the tools available to make ourselves better.   We can create an environment for ourselves to grow or we can also kill ourselves off.  If we believe in the basic nature where He gave us free will, He also probably gave everything and everyone the same free will.  The beauty of that thought is that it allows us to be totally different in many ways yet does not disprove or prove evolution.  I personally belive that evolution is a great a mechanism used to help us evolve towards the human beings we should become.

Could everything be random?  Yes it is possible, but we eventually come to basic question of the science alone does not prove or disprove a God.  Even if we look at the billions and billions of stars, and assume a big bang occurred at some time to make everything, where did the original matter come from to make the big bang?

I will admit that there are parts of the bible that don't make sense and can't be accepted as devine inspiration or God's handiwork.  There are many ritualistic things that are unrealistic, too many inconsistencies, for the entire bible to be entirely true.  Where did the wives of Cain and Able come from for example? 

Unfortunately, the bible was written by men, translated by men, books to be included in the current bible were editted and selected by men at the Council of Nicea, etc.  In the name of the chuches, Catholics burned and tortured people, Popes sent children to be slaves in the Children's Crusade, Protestants tortured Catholics in Ireland, and I am sure none of those items are listed as tenants of good faith in the bible.  We assume that the people making the decisions would be unjudgemental about the legitimacy of each potential text but that "free will" part keeps getting in the way.  For the bible to be literally accepted as proposed, it presumes that everyone making these judgements and edits and selections were doing it with complete pure thoughts with no vested interests in the outcome. 

Maybe it is the cynic in my personal thought, but after decades of living, I have yet to see a group of people that don't have a personal bebefit in mind when decisions are made.  That makes it hard for me to believe in literal language of the bible, mainly because men have a bad tendency to do what is in their own best interest.  Individually, a man might do the right thing, but as a group, we tend to not always act properly. 

While a 100% literal belief is desired by conventional religion, it is easy for me to believe that the book is a series of thoughts on how we SHOULD behave.  That is the guidance that we all need in our lives to do what is right for people, to encourage others to also do what is right.  That is the important thing to be learned from the bible. 

We all need to find a way to get along and most religous texts tell us that being good to others will make our own lives better and more fulfilling.  The belief in the basic good in mankind makes life worthwhile.  If we can at least consider that there are good things found in believing that religion is beneficial then it no longer needs to be proved or disproved.  And whether evolution is God inspired or not, it is irrelevant to whether there are great teachings in the bible.

Entitlements and Obligations

There are lots of things that fall into the category of entitlements. An entitlement, to me, is where something of benefit is given via the governments hands to you. I won't go into whether any or all of the entitlements are reasonable, fair, or justified. What is justifiable to one person is not justifiable to another. For example, some people feel it is a right to have free schools. Others would say, that since government schools are doing such a bad job, let us take the money and give it to the people we want educating our children. Both thoughts are right and wrong, depending upon which side you take on the issue. What I will talk about today is the argument that if you get something in the form of an entitlement, it also means you simultaneously acquire an obligation. Many people don't feel that you owe anything for those "free" services, called entitlements. I disagree with that school of thought and will give some examples.

The first ones I will deal with are the easy ones, protection from illegal activity and harm by others, fires and medical transport. We pay for our police, fire and ambulance services. Most people don't consider this an entitlement, but please give me some slack here. It was my first choice as a basic explanation. We are entitled to have them show up in a reasonable period of time and do their best to provide the necessary services. In each of those cases, we also have obligations too. Most people don't see those obligations as just as important to the proper functioning of the service. Without people reporting crimes, offering testimony, participating in juries, the whole area of crime becomes impossible to manage. Without changing batteries in our smoke detectors, reporting smoke from a neighbors house or making it easy to find our houses with bright, easy to find numbers, we are failing in our obligation to make this work. Often people complain the police don't want to show up at a crime scene or a fire is out of control before the fire truck arrives. Why is this happening? Because "nobody saw nothin' or you don't snitch" traits abound. I will blame media for part of this by glamorizing the criminal element via gangster movies and other sources. I do not understand how people can complain about slow service, when they make it impossible to perform the service. If you don't fulfill your obligation to provide basic assistance in fighting crime, don't be surprised if when the crime happens to you, that no one saw nothin'. If your house is engulfed in flames, could it be that you let junk cluster where it shouldn't? Did you forget that if police aren't safe in your neighborhood, then the fire personnel probably have the same feeling, in spades? If you are one of the few in the neighborhood that fulfill your responsibilities, then it behooves you to make sure others follow suit because you get services based on the company you keep.

Next, lets talk about much harder ones. Aid to Families with Dependent Children and other child related social services and the resulting obligations. Children can't help being born to parents that are irresponsible. We have some duty to make sure that they get some food and some basic medical treatments. The only way for people to move forward our of poverty is to give them a chance. At the same time, I do not understand why those children being given free breakfasts, lunches and medical care are not the smartest bunch of kids around. Sounds crazy but many of those kids have parents that are unemployed, on welfare or other assistance. This means they must be home when the kids are out of school. So why aren't they the ones demanding that their children, do their homework, study for tests, read with their children, attending PTA meetings, taking the kids to the library, etc. They have the time but they are not fulfilling their obligation to put their children first to help them rise out of poverty via a good education.

Many people would say that these parents probably can't read, or don't read well and can't help out their children. I counter that argument by stating that what better use of their time is possible than to educate yourself at the same time your kids are learning. I recently had to help my grandchild in her math homework. It was difficult for me to understand the work but I fumbled through it. If you go through the work at the same time as your child, you will keep up and be learning too. If you are spending time with your child, he/she is less likely to become involved in trouble making activity and you can provide a positive guidance to him or her. Who doesn't want their child to succeed? Obviously those parents that assume that all learning happens at school and kids need time to play video games. If parents receiving support and were unemployed would put the same emphasis into helping their kids out that they put into their personal pursuits for self gratification, their own lives would be better (maybe find a job easier because your basic skills were better) and their children would be in much better shape.

Now lets talk about Social Security disability. People become disabled and people chose paths that are devastating for their health, via drugs or alcohol. Now there are people with disabilities that cannot work and those people are to be helped. That is what society should do for it's sick. But there are also people with limited disabilities or disabilities that are continuously self inflicted that receive full disability payments. Our system appears to have a short attention span with respect to disability. I am sure several people you know are on disability but for some strange reason, once disabled, it is difficult to become un-disabled. I am guilty of this myself. The man I bought my 1st house from was disabled after getting his back hurt on the job. He received a large settlement and continued to receive checks. He also was performing carpenter work, built an addition on his house and did other things, all while receiving his disability payments. He took his salary in cash to avoid paying taxes. I would think that someone that could do carpentry wasn't disabled or at least was not fully disabled, yet he is still getting his govmint checks to this day, 25 years later.

Why does our Social Security group not see the fraud associated with that activity. Technically, SS does have a fraud department but it would take a "snitch" to advise them of the fraud. Unless the fraud is enormous, they don't re investigate adequately. They do not look and see that someone that can't lift 60 lbs may be able to sit at a desk 3-5 days per week. I personally believe that everyone should be re-evaluated periodically for disability payments until they reach SS age limits of 65-66 and that might need to include a discussion with your neighbors, if there is any question. Sounds a bit big brotherish to me, but how else will we catch fraud like this?

It also seems that the rules of the hood apply to my subdivision. I never thought of turning my neighbor in, yet I complain loudly when I see my $6K/year going into SS, paying his disability check and worrying that I won't get a penny back when I retire. It seems that I am also just as much a failure in my obligations as the next man/woman. I hate it when my own argument applies to my own inaction.

So, where are we going wrong? We all fail to do what we should be doing, which is help enforce the rules of the system and change the rules so that there are actions required for receipt of an entitlement. We let people allow their children to fail by not insisting that the free lunch requires that you teach them at home too. Part of your free lunch should be requiring that the parents participate in the learning process too. Sounds complicated until you realize that millions of uneducated kids will generate millions more uneducated kids. It magnifies with each generation and is already scary. It has to stop someplace.

We complain that police don't solve crimes in our neighborhood, yet we fail to report our neighbors kids busting in the other neighbors door. We ignore people we know that don't pay taxes because "everyone cheats on their taxes." We are all failing in our obligations to earn our entitlements.

I am just as guilty as the next person. I will think of those things that I can do to make sure I am not adding to the costs of these entitlements. I will start out easy, because an easy 1st step means that I might stick with it longer, just like dieting.

Now.....where are those 9 volt batteries for the smoke detector? I can't have the firemen coming late to my fire just because I forgot to do my part. I might have had to complain about a slow response time....

Next I will work on the children. My wife already does some of that and I am proud of her efforts. I need to join her.