by T. R. Reid
I hit the jackpot on this project when I hired a brilliant and diligent researcher, Chris Steele, who teaches history at Regis University in Denver. At the start of this project, Chris barely knew the difference between an excise tax and an import duty; by the end, he was teaching me about the intricacies of national tax regimes.
I’m grateful to many friends who tolerated years of questions and complaints from me and provided valuable advice at various stages of the project. These cherished kibitzers include Bill Bradley, Jay Brown, Ricki Hadow, Marc Hecht, Ted Hoster, Bert Kerstetter, Walter Isaacson, Wendy Liu, Sachiko Nakahira, Joe Ptacek, Ann Saybolt, Ed Stein, Kirsten Thistle (who wanted to title this book The 32-Year Itch), and Yoshida Makiko.
As she has done before, the genius literary agent Gail Ross figured out what this book was about before the author did, and kept me on course over the years. As she has done before, the genius editor Ann Godoff shaped a rather chaotic manuscript into a coherent volume. Casey Rasch of Penguin Press skillfully supervised its transformation into a finished book.
Last but foremost, McMahon Thomas Homer Reid, O’Gorman Catherine Penelope Reid, and Erin Andromache Wilhelmina Reid put up with the author and the manuscript in good spirits for years—a task far more demanding than writing any book.
Denver, Colorado, 2013–2017
NOTES
Chapter 1: Policy Laboratories
1.This quirk of the tax code, known to economists as “the mysterious 60% band,” is explained at www.milnecraig.co.uk/the-60-income-tax-band/.
Chapter 2: “Low Effort, Low Collection”
1.You can find the Gallup poll results for 2015 at “More Than Half of Americans Say Federal Taxes Too High,” www.gallup.com/poll/168500/half-americans-say-federal-taxes-high.aspx.
2.World Bank, “Tax Capacity and Tax Effort” (Policy Research working paper 6252).
3.OECD, Taxation of Wage Income 2000–2013.
4.Compiled by Ernst & Young; www.cato.org/sites/cato.org/files/pubs/pdf/tbb-066.pdf.
5.Sales Tax Institute, www.salestaxinstitute.com.
6.EY, Worldwide VAT, GST, and Sales Tax Guide, at www.ey.com/Publication/vwLUAssets/Worldwide-VAT-GST-and-sales-tax-guide-2015/$FILE/Worldwide%20VAT,%20GST%20and%20Sales%20Tax%20Guide%202015.pdf.
7.Kyle Pomerleau, “How High Are Other Nations’ Gas Taxes?,” Tax Foundation, Mar. 3, 2015.
8.Liz Emanuel, “State Cigarette Tax Rates in 2014,” Tax Foundation, July 2, 2014, http://taxfoundation.org/blog/state-cigarette-tax-rates-2014.
9.Le Monde Diplomatique, Dec. 2014, 3.
10.“Las aventuras de Ivo la Chinchilla,” www.planetasii.cl.
Chapter 3: Taxes: What Are They Good For?
1.Mark 12:41–44; Luke 21:1–4.
2.For example, Joel Slemrod and Jon Bakija, Taxing Ourselves (Cambridge, Mass.: MIT Press, 2008), 44: “Indeed, the progressive rate structure might be regarded as the reason for the existence of the income tax.”
3.275 U.S. 87 (1927).
4.OECD, “General Government Fiscal Liabilities as a Percentage of GDP,” www.oecd-ilibrary.org/economics/government-debt_gov-debt-table-en.
5.“The War of 1812,” Smithsonian Magazine, July–Aug. 2014, 40.
6.Sven Steinmo, Taxation and Democracy (New Haven, Conn.: Yale University Press, 1993), 1, 3.
7.“Mulled Wines,” Economist, Dec. 21, 2013, 62.
8.Slemrod and Bakija, Taxing Ourselves, chap. 4.
9.Richard M. Bird, Tax Policy and Economic Development (Baltimore: Johns Hopkins University Press, 1992), 7.
10.F. A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 2011), 316.
11.Edwin R. A. Seligman, The Income Tax, 2nd ed. (New York: Macmillan, 1914), 4–5.
12.Ibid., 368.
13.Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 607 (1894).
14.An excellent history of the first U.S. income tax can be found in Steven R. Weisman, The Great Tax Wars (New York: Simon & Schuster, 2002).
15.Liz Alderman, “In Pursuit of Greek Tycoons and Tax Cheats,” New York Times, Feb. 26, 2015, B1.
16.Lucy Martin, “Taxation, Loss Aversion, and Accountability” (Yale University, Department of Political Science, 2014).
Chapter 4: BBLR
1.Union des Associations Internationales, Yearbook of International Organizations, 2014–2015 (Brussels: Brill, 2015).
2.John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Macmillan, 1936), 372.
3.James R. Hines Jr., “Do We Really Want a Tax System with a Broad Base and Low Rates?” (PowerPoint presentation, Dec. 9, 2014).
4.OECD, Choosing a Broad Base–Low Rate Approach to Taxation (OECD Tax Policy Studies 19, 2010), 11.
5.Johan Christensen, “Bringing the Bureaucrats Back In: Neo-liberal Tax Reform in New Zealand,” Journal of Public Policy 32, no. 2 (Aug. 2012): 141.
6.Steinmo, Taxation and Democracy, 163.
7.John Witte, The Politics and Development of the Federal Income Tax (Madison: University of Wisconsin Press, 1985), 380.
8.Bradley wrote a postmortem on the success of the 1986 reform in “Tax Reform’s Lesson for Health Care Reform,” New York Times, Aug. 30, 2009, 30.
9.Jeffrey Birnbaum and Alan S. Murray, Showdown at Gucci Gulch (New York: Random House, 1987), 5.
Chapter 5: Scooping Water with a Sieve
1.Stanley Surrey, “Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures,” Harvard Law Review 83 (1970): 705.
2.Internal Revenue Code Section 179.
3.OECD, Choosing a Broad Base–Low Rate Approach to Taxation, 38.
4.Congressional Record, U.S. Senate, July 6, 2011.
5.OECD, Choosing a Broad Base–Low Rate Approach to Taxation, Annex A.
6.IRS, Publication 15-B, 2015, 19.
7.Peter Klenk, “Maximizing Charitable Income Tax Deductions When Donating Art,” at www.klenklaw.com.
8.Patricia Cohen, “Writing Off the Warhol Next Door,” New York Times, Jan. 11, 2015, Sunday Business, 1.
9.www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.
10.Stephanie Strom, “Grab Bag of Charities Grows,” New York Times, Dec. 3, 2010.
11.OECD, Choosing a Broad Base–Low Rate Approach to Taxation, 81.
Chapter 6: Flat Broke
1.Robert E. Hall and Alvin Rabushka, The Flat Tax (Stanford, Calif.: Hoover Institution Press, 1995). You can read most of Hall and Rabushka’s text at www.hooverpress.org/productdetails.cfm?PC=1274.
2.Steve Forbes, Flat Tax Revolution: Using a Postcard to Abolish the IRS (Washington, D.C.: Regnery, 2005).
3.Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 35–36.
4.Paul Belien, “Walking on Water: How to Do It,” Brussels Journal, Aug. 22, 2005, 202.
5.“The Case for Flat Taxes,” Economist, Apr. 16, 2005, 11.
6.See Mart Laar’s blog: blog.irl.ee/Mart/.
7.Andreas Peichl quoted in Bloomberg Businessweek, May 15, 2013, www.bloomberg.com/news/articles/2013-05-15/flat-tax-wave-ebbs-in-eastern-europe.
Chapter 7: The Defining Problem; the Taxing Solution
1.“New Data, Old Story,” New York Times, Aug. 17, 2014.
2.CBS Morning News, June 10, 2014, www.cbsnews.com/news./goldman-sachs-ceo-lloyd-blankfein-income-inequality-is-destabilizing/.
3.The White House, “Remarks by the President on Economic Mobility,” Dec. 4, 2013.
4.Matt Ridley, “Start Spreading the Good News on Inequality,” Times (London), June 2, 2014.
5.“Progressive Kristallnacht Coming?,” Wall Street Journal, Jan. 24, 2014.
6.Jon
athan Alter, “Schwarzman: ‘It’s a War’ Between Obama, Wall St.,” Newsweek, Aug. 15, 2010.
7.Joseph E. Stiglitz, The Price of Inequality (New York: W. W. Norton, 2012), 273–74.
8.Geert De Clercq, “Inequality Guru Sees ‘French Roosevelt’ in Hollande,” Reuters, Apr. 17, 2012.
9.http://ucfs.nek.uu.se./digital/Assets/129/129492_wp200913.pdf.
10.L’affaire Depardieu is discussed in detail in Lauren Collins, “L’Étranger,” New Yorker, Feb. 23, 2013, 58.
11.Seligman, Income Tax, 5.
12.Tax Policy Center, “Historical Federal Income Tax Rates for a Family of Four,” www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=226.
13.Peter Cohan, “Trump Is Right About Carried Interest Deduction,” Forbes.com, Sept. 17, 2015.
Chapter 8: Convoluted and Pernicious Strategies
1.Minutes of Caterpillar Board of Directors Meeting, Feb. 8, 2012, in “Caterpillar’s Offshore Tax Strategy,” U.S. Senate Permanent Committee on Investigations, Apr. 1, 2014, p. 411.
2.The PwC recommendation, and Caterpillar’s decision to follow it, are set forth in “Caterpillar’s Offshore Tax Strategy,” U.S. Senate Permanent Subcommittee on Investigations, Apr. 1, 2014.
3.Corporate Tax Rates, 2015: www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates-2015.pdf.
4.“Corporate Income Tax: Effective Tax Rates Can Differ Significantly from the Statutory Rate” (GAO report GAO-13-520, May 2013).
5.“U.S. Corporations Pay 35%,” Wall Street Journal, Oct. 27, 2013, www.wsj.com/articles/SB10001424052702303902404579152271744452490.
6.Offshore Profit Shifting and the U.S. Tax Code—Part 2 (Apple Inc.), U.S. Senate Permanent Subcommittee on Investigations, May 21, 2013, 152–91.
7.Jesse Drucker, “‘Dutch Sandwich’ Saves Google Billions in Taxes,” Bloomberg Businessweek, Oct. 22, 2010. Another excellent explanation of Google’s “Double Irish” system can be found in Cyrus Farivar, “Silicon Valley Fights to Keep Its Dutch Sandwich and Double Irish Loopholes,” Ars Technica, Jan. 20, 2014.
8.Offshore Profit Shifting and the U.S. Tax Code—Part 1 (Microsoft and Hewlett-Packard), U.S. Senate Permanent Subcommittee on Investigations, Sept. 20, 2012, 180–81.
9.Shayndi Raice, “Behind the Surge in a Hot Trend: Skadden Arps’s M&A Lawyers,” Wall Street Journal, Aug. 6, 2014, B1.
10.“AbbVie Chief Blames US Treasury,” Financial Times, Oct. 21, 2014, B1.
11.Helvering v. Gregory, 69 F.2d 809 (2nd Cir. 1934).
12.“Caterpillar’s Offshore Tax Strategy,” 54–55.
13.James R. Hagerty, “Caterpillar Faces Pileup of Probes and Inquiries,” Wall Street Journal, Feb. 18, 2015.
14.This is a simplified explanation of a highly complex set of intercorporate transactions. Professor Edward D. Kleinbard wrote a thirty-page study of Starbucks’s tax strategy in the U.K., setting forth the arrangement in significant detail. Edward D. Kleinbard, “Through a Latte, Darkly: Starbucks’s Stateless Income Planning,” Tax Notes, June 24, 2013, 1515–35.
15.Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes, “Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act” (MIT Sloan Research Paper 4741-09, Apr. 27, 2010).
16.Kimberly Clausing, “The American Jobs Creation Act of 2004: Creating Jobs for Accountants and Lawyers” (Urban-Brookings Tax Policy Center, Tax Policy Issues and Options No. 8, Dec. 2004).
17.John D. McKinnon, “In Biting Tax Bullet, Move to Help Fund Share Buybacks,” Wall Street Journal, Apr. 10, 2015.
18.Laurence J. Kotlikoff, “Abolish the Corporate Income Tax,” New York Times, Jan. 6, 2014.
Chapter 9: The Single Tax, the Fat Tax, the Tiny Tax, the Carbon Tax—and No Tax At All
1.All these quotations come from Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth (New York: Robert Schalkenbach Foundation, 1955).
2.Gitanjali M. Singh et al., “Global SSB-Related Morbidity and Mortality,” http://circ.ahajournals.org/content/circulationaha/early/2015/06/25/CIRCULATIONAHA.114.010636.full.pdf.
3.David Toscana, “Mexico’s Soda-Tax Gimmick,” New York Times, Nov. 5, 2013, 22.
4.Thornton Matheson, “Taxing Financial Transactions: Issues and Evidence” (International Monetary Fund working paper 11/54, Mar. 2011).
5.Ian Parry, Adele Morris, and Roberton C. Williams III, eds., Implementing a US Carbon Tax (New York: Routledge, 2015), xxiii.
6.Summers and Mankiw quoted in ibid., frontispiece.
Chapter 10: The Panama Papers: Sunny Places for Shady Money
1.Steven Erlanger, Stephen Castle, and Rick Gladstone, “Airing of Hidden Wealth Stirs Inquiries and Rage,” New York Times, Apr. 6, 2016, 1.
2.Laura Saunders, “Inside Swiss Banks’ Tax-Cheating Machinery,” Wall Street Journal, Oct. 22, 2015, B1, www.wsj.com/articles/inside-swiss-banks-tax-cheating-machinery-1445506381.
Chapter 11: Simplify, Simplify
1.This erudite reference invokes Greek myth. Cassandra, a Trojan princess, had an affair with the god Apollo but then spurned him. To punish her, Apollo gave Cassandra a cruel gift: she could foresee the future, but nobody would believe her when she told them what was coming. During the Trojan War, the Greek soldiers besieging the city of Troy appeared to give up and go home and left a big wooden horse outside the city walls. Cassandra could see the truth, and she warned her countrymen to have nothing to do with this Trojan horse (“Beware the Greeks bearing gifts”). But nobody believed her, and the Trojans happily hauled the wooden horse inside their city walls. Late at night, a troop of Greek soldiers led by the intrepid Ulysses emerged from their hiding place inside the horse and pillaged the city.
2.Internal Revenue Service, IRS Data Book (2015), www.irs.gov/uac/soi-tax-stats-irs-data-book.
3.IRS Form W-9, 3.
4.IRS Cat. No. 55389W, Instructions for Form 8938, 7.
5.IRS Form 5329, pt. 6, line 41.
6.IRS Cat. No. 13330R, Instructions for Form 5329 (2012), 3.
7.It’s at www.gov.uk/government/organisations/office-of-tax-simplification.
8.The lobbying efforts against tax simplification have been documented by the reporters Liz Day of the ProPublica news service (www.propublica.org/article/how-the-maker-of-turbotax-fought-free-simple-tax-filing) and Louis Serino of the Sunlight Foundation (http://sunlightfoundation.com/blog/2013/04/15/tax-preparers-lobby-heavily-against-simple-filing/).
Chapter 12: The Money Machine
1.“The Alchemist at Société Générale,” Euromoney, Oct. 1981, 176.
2.Both quoted in Encyclopedia of Management (Detroit: Gale, 2009), 987.
3.“The Global VAT Craze,” Wall Street Journal, Mar. 21–22, 2015, A10.
4.Richard M. Bird, “The GST/HST,” in After Twenty Years: The Future of the Goods and Services Tax, ed. J. M. Mintz and S. R. Richardson (Toronto: Canadian Tax Foundation, 2014), 17.
5.Slemrod and Bakija, Taxing Ourselves, 247.
6.The global accounting firm EY compiles this list each year. To see more countries, go to www.ey.com/Publication/vwLUAssets/Worldwide-VAT-GST-and-sales-tax-guide-2015/$FILE/Worldwide%20VAT,%20GST%20and%20Sales%20Tax%20Guide%202015.pdf.
7.Alain Charlet and Jeffrey Owens, “An International Perspective on VAT,” Tax Notes International, Sept. 20, 2010, 950.
8.President’s Advisory Panel on Federal Tax Reform, Final Report, Nov. 1, 2005, http://govinfo.library.unt.edu/taxreformpanel/final-report/index.html, chap. 8.
9.Max Ehrenfreund, “The Three Dirtiest Letters in the GOP Primary,” Wonkblog (blog), Washington Post, Feb. 19, 2016.
10.Bruce Bartlett, “VAT Time?,” Forbes, June 5, 2009.
/> 11.Cruz described his plan in some detail in the Wall Street Journal. Ted Cruz, “A Simple Flat Tax for Economic Growth,” Wall Street Journal, Oct. 29, 2015, A17.
12.Ehrenfreund, “Three Dirtiest Letters in the GOP Primary.”
13.Bird, “The GST/HST,” 4.
Epilogue: The Internal Revenue Code of 2018
1.IRS Publication 525, Taxable and Nontaxable Income, 23.
Index
The page numbers in this index refer to the printed version of this book. The link provided will take you to the beginning of that print page. You may need to scroll forward from that location to find the corresponding reference on your e-reader.
Abbott, Tony, 190
AbbVie, 157
accelerated depreciation, 55, 62
Affordable Care Act, 209, 218, 246
Afghanistan, 79, 167
Africa, 152, 201, 228
airline industry, 189–90
Alaska Permanent Fund, 192–93
alcohol tax, 37–38, 40, 105
Alliance Boots, 157–58
allowances, 2, 52–53, 60–61, 70, 72, 74, 165–66, 209. See also depletion/depreciation allowances; tax breaks
alternative minimum tax, 210, 255
Amawhe, Achilles, 35, 47
American Jobs Creation Act, 168–69
Americans for Tax Reform, 245
America We Deserve, The (Trump), 98
ancient Rome, 30, 34
Andorra, 194–95
Apple Inc., 145, 148–51, 153–54, 161, 164, 170, 229
appraisers/appraisals, 83–84, 124, 129–30
Argentina, 145, 239
art, 83–84, 124, 133
