Saturday, October 23, 2010

The IRS as Comedian

Who's being funny, now?


At IRS.gov one finds The Truth About Frivolous Tax Arguments - Section I. There is really a pretty good collection of funny arguments people have made, to try to get out of paying their taxes. Here's one:

B. The Meaning of Income: Taxable Income and Gross Income
1. Contention: Wages, tips, and other compensation received for personal services are not income.

This argument asserts that wages, tips, and other compensation received for personal services are not income, because there is allegedly no taxable gain when a person “exchanges” labor for money. Under this theory, wages are not taxable income because people have basis in their labor equal to the fair market value of the wages they receive; thus, there is no gain to be taxed.

It is frivolous, says the IRS, to claim that your wages are not taxable by saying it's an even swap. According to the rejected argument, your time and effort are equal to the wages you got paid, so there is no "gain" and nothing to be taxed.

(That was the funny part.)

The IRS rejects that argument. Your wages don't have to be more than "fair market value" to be taxable. Not only the portion above "fair market value" is taxable, says the IRS. You don't get to subtract out fair market value and only pay tax on the balance.

Now, that gets me thinking: What about business income? Why is it that only the portion of business income that is over and above expenses is subject to tax? Why do businesses get to subtract out basically all of their expenses from their income, and only pay tax on what's left?

Sounds like a double standard to me.

3 comments:

Tschäff said...

Or why tax business at all? Michael Hudson would like most of the tax burden to fall on rentiers.

The Arthurian said...
This comment has been removed by the author.
The Arthurian said...

Taxing one sector and not another changes the flow of money and skews the economy unnaturally.