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Monday, March 18 , 2019, 6:10 pm | Fair 61º

 
 
 

Harris Sherline: Stealth Taxation — Resisting Taxes

There is a slight gleam of hope shining through the fog of legislative hide-and-seek

Discussing taxes and tax policy can be a little like watching paint dry — a fact that those who want to increase taxes or create new ones rely on. But the public’s seeming lack of interest isn’t really about whether they care. It’s more about the complexity and confusion created by the myriad taxes that are employed to separate them from their money. When they become sufficiently resentful of legislative decisions about taxes, they can react quite aggressively.

America’s politicians and bureaucrats have created more ways to fleece the public than anyone can possibly identify. But that’s no surprise, given that they are able to work at it 24/7, 365 days a year — on our nickel.

The excessive complexities and inequities of the income tax are bad enough, but to me, stealth taxation is even more offensive. However, there is a slight gleam of hope shining through the fog of legislative hide-and-seek that our politicians and government bureaucrats employ to screen tax initiatives from public view, and people do sometimes fight back.

It’s not always easy to see the relationship between government actions and taxation, but transitioning from an increase in the budget to higher taxes seems like an obvious connection. Increased expenses generally lead to a search for more revenue to pay the bills, and this invariably translates into higher taxes — somehow, some way.

In a truly offensive display of political chutzpah, in July 2005, Pennsylvania’s Republican-controlled Legislature collaborated with the state’s Democratic governor to sneak a 2 a.m. vote past the public, to raise legislative salaries 16 percent to 54 percent. There was no public notice, no review, no debate. Adding insult to injury, they even managed to circumvent a state constitutional prohibition against midterm pay increases by treating themselves to retroactive expense reimbursements.

But, all’s well that ends well.

When Pennsylvania’s voters got wind of the Legislature’s sneak action by the very people who had been elected to represent them, a ground swell of opposition rapidly turned into an outright revolt that a few months later resulted in the repeal of their stealth pay raise, with only one dissenting vote.

In Indiana, the president of the state Senate, a 36-year incumbent who pushed through a bill to give lifetime health-insurance benefits to state legislators, was subsequently defeated by a political novice who rode the crest of a wave of public protest into office.

The Santa Barbara County Board of Supervisors also clearly demonstrated the nexus between raising salaries and higher taxes when they floated a proposal to increase the compensation of planning commissioners by an estimated $21,000 a year.

With a budget in excess of $800 million, the amount hardly seems worth worrying about. That is, until you consider the question of how they intended to pay for it, which the Board of Supervisors openly declared would be accomplished by raising fees or tapping the general fund. The issue becomes even more significant when Santa Barbara County’s level of fees and assessments is compared to the national average, which the National Taxpayers Union says is 38 percent higher in California. Just another example of the many government actions that lead to higher taxes.

People tend to feel that trying to resist taxation is hopeless, what with politicians and bureaucrats constantly scheming to find ways of increasing taxes while taxpayers struggle to break free of the web of tax laws that they somehow never seem to be able to understand or control. And unfortunately, litigating tax issues is well beyond the means of most taxpayers, while the government has unlimited resources to draw on in pursuing its claims.

However, Scrivener.net reported on what may be the beginning of a growing trend toward resisting stealth taxes, noting: “The federal telephone excise tax — enacted as a temporary measure two centuries back to help finance the Spanish-American War — may finally in large part be meeting its demise as the result of evolving markets, bureaucratic punting and congressional bungling.”

So, on the face of things it’s pretty clear — the Internal Revenue Service has been collecting a lot of tax on phone service that it isn’t entitled to, and in the last year companies have begun asking for that tax back — and courts have been giving it to them.

In the lead case, OfficeMax sued the IRS for more than $280,000, and a federal district court in Ohio granted the refund — and gave the IRS a lecture on statutory interpretation focusing on how the word “and,” in a phrase such as “time and distance,” does not mean “or.” Amtrak was granted an $86,000 refund from a court in Washington, D.C., and a firm called Fortis Inc. was granted a refund of more than $400,000 from a court in New York. Both decisions were by summary judgment — meaning that the judge said the IRS didn’t even have a case worth bringing to trial.

Although few taxpayers have the resources of an OfficeMax, Amtrak or Fortis, the organized resistance demonstrated by the taxpayers in Pennsylvania and Indiana does show promise.

We may get there yet, but it will take concerted political effort. There is strength in numbers, provided people can be motivated and organized to act in concert.

A beacon of hope was ignited in 1999, when irate taxpayers blanketed the Tennessee state Capitol with a parade of cars, horns blaring, to protest the imposition of a first-ever state income tax that was being debated by the Legislature. In an embarrassing defeat, legislators were so intimidated that they adjourned without adopting the new tax.

More recently, the rise of the Tea Party and the November 2010 election demonstrated that an aroused public can resist excessive taxation. Taxpayers just need to get better organized.

— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.

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