The Thing About Taxes

Everyone in Washington is talking tax cuts, but the IRS has a different idea in mind, and it’s not compassion for tax evaders.

In what the agency bills as its largest heist to date, the IRS sent out 300 armed agents coast to coast and as far south as Costa Rica to arrest people involved in businesses that encourage a panoply of evasion schemes. Those arrested were running shady offshore trust companies and cockamamie websites promising tax freedom at a price.

One site, for example, pitches the idea that the IRS does not really require everyone to file a tax return; people can instead file a "statement" that makes themselves tax-exempt for life. The site offers many testimonials (probably phony) from people who say that they first suspected that this was illegal only to find that the courts backed up the group’s claims. Click here, pay up, and you are a free man.

As you might expect, the IRS does not think much of these schemes. And when the person filing the "statement" gets a threatening letter, the group is there to propose more schemes to hide his money, which lead to ever-more elaborate tricks that finally end in disaster for the people involved. When the victims find themselves penniless, they are as reluctant to sue for fraud as the person who has been ripped off in an illegal-drug deal is to go to the DEA to file a complaint.

A quick internet search shows that it’s been well-known for years that these outfits are scams. Instead of letting you keep more of your money, users have found themselves sacked of all their savings. If the allegations are true, these groups act much like the government itself, promising services up front but stealing your money in the end. Adding insult to injury, the victims find themselves hounded by the tax authorities for the rest of their lives.

It should be clear why the IRS likes to go after these groups. It allows them to conflate two meanings of criminality: the moral meaning when people steal your money and the purely technical meaning of violating a government regulation. These targeted groups do both.

But will the IRS raids stop such practices? Of course not. There will be other groups, other pitches, and other schemes. As with the drug war, the government is going after the supply side without coming to terms with the real reason these groups exist in the first place. They are meeting a demand that the government itself created.

The users of these schemes have one thing in common: they want to avoid certain types of taxes and were scouring around for a means to do so that wouldn’t get them in legal trouble. Tired of waiting for a tax cut from Washington, they worked to give one to themselves. The impulse is as valid as it is naive: Washington is awash in money and no one but a dogmatic socialist could believe that Americans aren’t overtaxed.

Absurdly high taxes create a constant demand for some way out. In today’s atmosphere, the demand tempts shady types to promise amazing paths to tax freedom.

The way to go about dealing with the demand side is to provide tax relief, and we are not talking about something so piddling as a ten-year plan to cut the increase in government revenue by a couple of percentage points. If we want to end the problem of tax-scam ripoffs, we have to end the biggest tax ripoff of all, which is the tax system itself.

Most people intuit that there is something morally wrong with the present tax system. We work from January 1 to May 3 exclusively for the government, and only after that do we keep our own money. The growing tax burden of the 1990s can be measured this way too: we work two extra weeks for the government now than before Clinton. Taxes are higher now than ever. It’s no wonder that sleazy groups appear to exploit the desire to avoid the system entirely.

The Tax Foundation offers another way to look at the problem: the number of hours per day working for government. In an eight hour day, 2 hours and 42 minutes are spent working for government. That’s more than we work for food, clothing, and housing combined. What’s more, there is no national emergency that could possibly be used to justify this. As Amity Shlaes says, the tax system is evidence of government greed and nothing else.

Now, it would be one thing if we were getting fantastic services from government. But far from giving us services, government actually works to suppress free-market alternatives in areas like the mails, roads, schooling, and security. And think of all that American families could provide for their children and their favorite charities if taxes weren’t so high. Imagine how prosperous we would be if taxes — shorthand for wealth destruction — were eliminated.

The bulk of taxes are paid by the most productive classes in society — the "rich," as the media derisively call them. Yet some taxes are unavoidable no matter what your income. Every time you make a phone call, buy an airline ticket, grab a pack of smokes, or fill up your gas tank, you pay tribute to the State.

One’s heart goes out to those who seek ways out. But there are no easy ways. The thing about taxes is that they are coercive, not voluntary (despite what the IRS and the scam groups say). You pay them or else. They are like a protection racket: shell out and you avoid trouble. And this is why people continue to pay, not out of patriotism, but to avoid conflicts with the armed minions of the State.

There is nothing compassionate about taxes. They are the price we pay for permitting the government to dismantle the civilization created by the market economy. Indeed, the great Spanish theologian Juan de Mariana said that the only civilized country is one in which no man is afraid of the tax collector. You can see where on the scale that puts the US of A.

Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama. He also edits a daily news site,

Lew Rockwell Archives