How you can resist funding the government →
the payroll / social security tax (FICA)
On a few occasions at The Picket Line I’ve mentioned the “payroll tax” — which is distinct from the federal income tax and is ostensibly used to fund Social Security and Medicare, with the money kept distinct from the general fund which is funded primarily by income tax and pays for just about everything else the federal government does.
The payroll tax is much harder to get out of than the income tax is, since there aren’t personal exemptions, deductions, credits or really anything else — you’re taxed from dollar #1 of your earnings on up to about dollar #85,000.
After that, your dollars are no longer subject to the payroll tax, which is one reason why
some people complain that it’s a regressive tax — one that hits poorer people harder than richer people.
(Another reason: the payroll tax only taxes wages, not capital gains, interest, dividends, and other such sources of income that are more common to the rich.)
While income tax rates have declined for most families in recent decades, payroll taxes have increased dramatically. , the percentage of government revenue derived from payroll taxes went up from 12 to 33.
In other words, Congress has quietly legislated a fundamental shift toward payroll taxes over ; these now provide nearly as much federal revenue ($506.8 b) as the income tax ($737.5 b).
I don’t mention this tax much here, but this is mostly because there isn’t an easy way out of it, the way there is for the federal income tax.
The idea that your payroll tax only goes to benefits like Social Security and Medicare and so isn’t as bad as your income tax (which goes to more nefarious government programs) isn’t entirely convincing.
Politicians didn’t waste much time licking their chops over this big pile of money before they figured out ways to grab handfuls of it to pay for things it was never intended for.
And, naturally, these programs accumulate the sort of absurd waste that is common to everything the government touches.
For instance, you’d think that Medicare, being a government monopoly whose clients don’t have any choice of competitors — or even a choice to withdraw from the program — wouldn’t need an advertising campaign.
You’d be wrong.
This year, the Medicare program is spending $30 million on advertising, including $600,000 to have the Medicare blimp fly over sporting events.
There are ways to get out of the payroll tax.
You can stop earning wages, for one — if you can figure out a way to make a living off of some other source of income.
You can work in the underground economy, or work as an independent contractor and simply (illegally) refuse to pay those taxes. Or you can be a member of a religious group that is conscientiously opposed to insurance (for instance because “god will provide”), that supports its dependent members, and that has existed continuously .
The Amish are an example of such a religious group; I’m not sure which other ones qualify.
I’ll feature a section from the upcoming edition of NWTRCC’s “Practical War Tax Resistance” series pamphlet #5 on low-income / simple-living as tax resistance.
I suspect that most of this section will end up being cut, for space reasons and because its subject matter is only tangentially related to the core topic of the pamphlet.
But it’s too good not to share:
How Does the Federal Government Get Your Money?
If one of your goals in resisting taxes is to stop funding the government’s war budget, it is worth investigating in what other ways the government gets its funds besides the federal income tax, and whether you can reduce your contribution to these funding sources in the course of adopting a low income lifestyle.
According to U.S. Budget documents, in 2005 the federal government brought in its revenue in the following ways:
43.0%
Income tax on individuals & families
36.9%
Social insurance taxes (FICA, self-employment tax, the “payroll tax”, Social Security/Medicare)
12.9%
Income tax on corporations
3.4%
Excise taxes
3.8%
Other (estate/gift taxes, customs duties / tariffs, Federal Reserve deposits, etc.)
Social Insurance Taxes
Although social insurance taxes are ostensibly collected to pay for programs like Social Security and Medicare, any surplus that the government collects but does not use to pay for these programs, it “borrows” to pay for other items in its budget, including the military.
For this reason, some tax resisters who do not disapprove of programs like Social Security and Medicare still try to resist these taxes.
In recent decades, the percentage of government revenue that comes from social insurance taxes has risen.
Today, most families pay more to the federal government in social insurance taxes than in income tax.
Corporate Income Tax
As an individual you can reduce your contribution to corporate income taxes by reducing your contribution to the profits of corporations, and the best way to do that is by reducing your consumption of corporate-provided goods and services.
The Indian independence movement boycotted goods that the British colonial occupation monopolized and taxed, such as alcohol.
Gandhi’s independence campaign encouraged Indians to produce their own salt and cloth, both to withdraw financial support from the British monopolies and to encourage the development of domestic industry.
Rebellious British colonists used a similar tactic during the American Revolution — making homespun cloth in patriotic “spinning bees” and boycotting British monopoly tea.
What would be a good equivalent of the patriotic spinning bee for today’s anti-imperialists?
What commercial transactions does the government tax that it would have a harder time taxing if they were the fruits of household industry rather than the marketplace?
One good candidate is home-brewed beer.
The federal excise tax on beer comes to about a nickle per bottle.
By home-brewing, you can resist this tax, learn a craft, and drink good beer — all legally!
It is a winning proposition any way you look at it.
Imagine “brewing bees” or “drinking bees” at which tax resisters belt out songs of liberty with gusto!
Wrote one home-brewer: “I like the symbolism of home brewing tax-free beer.
Gandhi’s campaign had a value that went beyond its bottom-line pounds-and-pence figure.
Spending time spinning cloth was a way of consciously participating on a daily basis in the resistance, and wearing the homespun cloth was a way of broadcasting your commitment to those around you.
Besides, brewing beer is fun and when you’re done you’ve got beer!”
Excise Taxes
The federal government taxes the sale of certain specific things like alcoholic beverages, gasoline, airline tickets, ammunition, vaccines, local telephone service, tobacco, cars & car parts, fishing equipment, and coal.
The receipts from some excise taxes fund particular programs, while others just go into the general fund.
For instance, the federal excise tax on gasoline funds highways and mass transit projects, while the federal excise tax on local telephone service may be spent on anything in the budget.
You can avoid excise taxes in a variety of ways.
For instance, you can avoid the excise tax on alcohol either by not using alcoholic beverages or by producing your own (it is legal to produce your own beer or wine).
You can avoid the excise tax on local phone service by using an internet-based voice-over-IP phone instead of a regular phone line — assuming you do not get your internet over your phone line — or, as many tax resisters do, you can simply refuse to pay it and subtract it from your phone bill.
Tariffs
Tariffs are taxes on goods imported into the country that are applied when the goods arrive.
The Washington Post reported in that “the average tariff on non-agricultural goods imported into the United States is less than 3 percent” but that “tariffs on a number of everyday consumer products — including clothing, luggage, dinnerware and handbags — range well into double digits.
The same goes for some food, such as butter and cheese.”
You can avoid contributing to these tariffs by purchasing fewer foreign-made products.
However, when you purchase from domestic producers, you contribute to their profits and therefore to the income taxes they owe and pay.
This is an example of where lowering consumption in general is the best policy.
Other Taxes
If you have less income, you will also reduce your state and local tax liability.
Many resisters are opposed to state taxes because of concerns such as unnecessary highway-building (which creates community displacement and habitat destruction), prison construction, and the death penalty.
Other Revenue Sources
The official revenue numbers do not tell the whole story.
Much of the money the government spends is money that it borrows.
In some years, this can rival the amount it gets from any particular tax.
For instance, in the federal government brought in $1,880 billion through various taxes, but borrowed an additional $568 billion.
One way the federal government borrows money is by selling U.S. Treasury Bonds; the original purchasers of such bonds are loaning money to the federal government.
The government can also manipulate the money supply for its own benefit.
By doing so, it can use inflation to quietly tax people and to reduce the value of its debt.
John Maynard Keynes wrote: “A government can live for a long time… by printing paper money.
That is to say, it can by this means secure the command over real resources, resources just as real as those obtained by taxation.
The method is condemned, but its efficacy, up to a point, must be admitted.
A government can live by this means when it can live by no other.
It is the form of taxation which the public find hardest to evade and even the weakest government can enforce, when it can enforce nothing else.”
The resistance and conscientious objection of Amish people to social insurance tax forced the government to change its tax laws.
Some Amish people felt that government-sponsored social insurance programs were both mistrustful of God and destructive to the mutual support that forms an important part of Amish community life.
When the Social Security program and its social insurance tax became mandatory, many refused to pay the tax and refused to apply for benefits.
14,000 signed a petition to Congress asking for permission to opt out of the program.
The IRS began to try to enforce the law by seizing money directly from resisters’ bank accounts.
Amish resisters responded by closing their accounts entirely.
The IRS then began to seize money from the cooperatives that purchased the resisters’ products, and then finally to seize the resisters’ property.
The local IRS Chief of Collections said: “People have no right to use their religion as an excuse not to pay taxes.”
After a number of sympathetic resisters had been subjected to IRS seizures — in one case they seized a man’s horses as he was using them to plow his field — public outrage and Amish petitions finally convinced Congress to give the Amish the legal right to opt out of Social Security and cancel the outstanding tax bills of 15,000 resisters.
The Amish and Other Exceptions to Social Insurance Tax
In general, social insurance tax (also known as “FICA”, the “payroll tax”, or the “social security/medicare tax”) is hard to avoid if you earn your income in the above-ground economy.
Your employer is required to withhold money from your paycheck starting with the very first dollar you earn, and you cannot qualify for a refund no matter how little you make.
If you are self-employed, be aware that social insurance tax is assessed on incomes much lower than the minimum threshold for the income tax.
For most people, the threshold is $400 per year.
For an employee of a church or church-controlled organization, the threshold is $108.28 per year.
In addition, if you are self-employed, you are required to pay the tax by certain deadlines, four times a year.
The federal penalties, both civil and criminal, for refusing to pay social insurance tax are the same as those for refusing to pay income taxes.
The IRS does not distinguish between these two kinds of taxes in terms of applying penalties.
There are a few exceptions from the general rule that everyone must pay social insurance tax.
An exemption applies to the Amish and a handful of other religious groups that have been around at least since and that have religious scruples against participating in social insurance plans (see the sidebar).
If you do not earn any income — that is, if all of your income comes from interest, capital gains, pre-existing savings and the like — you do not have to pay social insurance tax on that money.
In addition, there are a few job categories that can provide income exempt from social insurance tax:
State and local government workers who participate in alternative employer retirement systems
Election workers (people who are employed by the government to staff polling places during elections) who earn $1,200 or less a year
College students who work at their academic institutions
Household workers (housekeepers, maids, baby-sitters, gardeners, etc.) who earn less than $1,500 from an employer
Self-employed workers with annual net earnings below $400
Paid ministers, members of religious orders, and Christian Science practitioners who elect to be exempt
Like a lot of people, I’ve been keeping a fraction of an eye on the U.S. Treasury Department’s megalomaniacal thrashings about of late.
The more I learn about it the more bafflingly absurd it seems, but I also realize I’m in way over my head and don’t really have any expertise to draw on in interpreting what I learn.
On the other hand, those who do have the requisite expertise don’t seem to have the humility to understand that even so, they don’t really understand what they’re doing and have so far led things to ruin — they’re just certain that with a tighter grip on the wheel and a whole lot more money (why don’t we ask the taxpayers for a big loan — they’ve never said no before!) the cards are bound to come up better sooner or later and then this will all be like a bad dream.
The U.S. Treasury is seeking (or has just assumed) the “authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets.
The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans” (I’m quoting from the Treasury Department’s press release).
If the U.S. Treasury just seized/purchased your mortgage… now there’s a dilemma!
What’s a tax resister to do?
When FDIC head Shelia Bair says her agency might have to bolster the FDIC’s insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there’s an actual FDIC fund in need of bolstering.
We were wrong. As a former FDIC chairman, Bill Isaac,
points out here, the FDIC Insurance Fund is an accounting fiction. It
takes in premiums from banks, then turns those premiums over to the Treasury,
which adds the money to the government’s general coffers for “spending… on
missiles, school lunches, water projects, and the like.”
The insurance premiums aren’t really premiums at all, therefore.
They’re a tax by another name.
You’ll recognize this as similar to the trick the government plays with the quasi-insurance trust funds for social security and medicare — the government goes out and spends the money, replacing it with IOUs which it has no plans to honor.
And so I got to thinking about how many other ways the government reaches into our pockets, and to what extent we can resist these.
As I noted , a large and growing percentage of Americans do not pay
any federal income tax. This poses a bit of a challenge to the American war
tax resistance movement, since most of their literature involves resisting
that tax. (And the rest mostly concerns the excise tax on local telephone
service — which is also becoming less relevant as more people are switching to
cell phones and internet telephony.)
…we need to have something to say when we encounter an activist in the non-income-tax-paying 40%.
It may be difficult to recruit someone into war tax resistance when most of our literature concerns a tax that a lot of folks aren’t paying anymore…
…[It] might be a good idea for war tax resisters to consider ways of refining their messages so as to take some of the emphasis off of the federal income tax and instead cover the whole spectrum of ways people fund the government and its policies.
Which is a good question, and one I don’t know the answer to (or if there’s an answer, especially with things changing so rapidly lately).
I took a look at the federal budget to see what kind of numbers they use.
I’m sure that it’s misleading, but it does itemize many of the ways money we earn becomes money they spend.
According to the budget for , the government brought in $2,567,672,504,536 in “budget receipts” — mostly what we typically think of as taxes.
These can be broken down as follows:
45%
individual income tax
34%
social insurance / retirement
14%
corporate income tax
3%
excise taxes
1%
estate & gift taxes
1%
customs duties
2%
miscellaneous
Confusingly, one section of the report threw the FICA acronym in with the “individual income taxes” section instead of the “social insurance and retirement” section where I would have expected to find it.
So even at this level of granularity, I’m a little confused as to what the numbers mean.
Each of these categories is further subdivided. Under the individual income taxes section, for instance, you can learn that $49,779,182 was donated by the foolish and insane to the presidential campaign fund to help pay for those marvelous political conventions and advertisements we’ve
been seeing lately.
The “excise taxes” category is subdivided to show the various taxes and trust funds involved — though there are negative numbers in the column as well, and I’m not sure why — do some of the trust funds give out refunds? do some relinquish their money into the general fund somewhere else? do some involve so much overhead that they don’t end up in the black?
In any case, the biggest item here is deposits into the highway trust fund / leaking underground storage tank trust fund — totaling about $40½ billion of the $65 billion in the “excise taxes” category (if I’m reading the numbers right) and coming from the gas tax.
There’s a catch-all subcategory also called “excise taxes” that runs another $15 billion, and then another $11½ billion coming from the airport & airway trust fund — money that eventually comes from inflated airline ticket prices I’d imagine.
And there are many also-rans: vaccine injury compensation fund, black lung disability trust fund, tobacco excise tax, etc. Because there’s an obscurely-labeled negative $7½ billion or so in the mix, the numbers I’ve given here don’t add up like they ought.
The customs duties aren’t subdivided according to what the duties applied to — except for arms and ammunition — so that’s less helpful. The estate/gift tax
is an unsubdivided line-item.
The miscellaneous section has some interesting bits in it.
Most of it comes from federal reserve deposits and doesn’t much concern us.
Another $10 billion comes from user fees, licenses, filing fees and the like, including that “universal service fund” fee you see on your phone bill (that’s $7½ billion of the ten) and immigration, passport, and consular fees (another billion).
The government hauls in $4½ billion from assessing fines, penalties, and from seizing stuff and selling it at auction.
It brings in $241 million from “gifts & contributions” — you heard that right — including (get this) $3,594,405 from something called the “Conscience Fund”:
Money voluntarily paid to restore amounts which the donor considers to have been wrongfully acquired or withheld from the Government.
Also includes moneys from those… motivated by personal feeling to ease their conscience from wrongful acts against others.
Go fig.
And that wraps up the “budget receipts.” But there are a whole bunch of other
receipts that apparently aren’t budgetish. This includes $12 billion in
interest on money the government has lent out, for instance to other countries
or the international monetary fund. And there’s $3½ billion in dividends on
investments it makes via funds it controls and is allowed to invest (e.g. the
national railroad retirement fund). It brings in $4 billion in royalties &
rents on public lands, for instance when it leases mining, harvesting, or
grazing rights. It gets nearly a billion for actually selling stuff — such as
timber, mineral products, or power (for example, the government owns the
Tennessee Valley Authority, so if you pay your electric bills to them, you’re
contributing to the profits of a government-owned utility, and therefore to
the federal budget).
In addition to those sales, there’s another $16 billion in sales of government property — almost entirely sales of military equipment to foreign countries.
The government also “sells” insurance, collecting $50 billion in medicare premiums, and another $12 billion or so in other stuff, including the new medicare prescription drug scheme, nuclear waste disposal fees, and veterans life insurance.
There’s a $13 billion item called “negative subsidies & downward
reestimates” that I could make no sense out of, $2½ billion in miscellany, and
a negative billion worth of “receipt clearing accounts.” You tell me.
When you get to the bottom of that, you’ve got another $126½ billion in “proprietary receipts from the public” in addition to the “budget receipts.”
“But that’s not all!” Stick with me as I put on my straw hat and gesture with
my cane at the “Intrabudgetary Receipts Deducted By Agency.” What could these
be? I think they’re money that one government agency pays to another, that
have to be included as receipts to make the accounting come out right. As
such, I think we can safely ignore ’em.
After this comes “undistributed off-setting receipts” — $260 billion that seem to me mostly like more of the same, but it’s hard to tell.
There’s “interest received by trust funds” which I’m guessing is grouped near the previous bunch because the interest is being paid by the government and the funds are being invested in Treasury securities, but perhaps not.
There’s also $6¾ billion in rents and royalties on the outer continental shelf and about the same from the federal communication commission’s auctioning off of bits of the broadcast spectrum (an item that gets duplicated in the list, so perhaps the money is doubled as well).
From here, we hit the final item: “offsetting governmental receipts” — that is
to say “regulatory fees” and “other”. The first is over $6 billion worth of
fees for things like “mobile home inspection and monitoring,” “pipeline
safety,” “bankruptcy oversight,”, “student and exchange visitors” and
“immigration user fees.” The latter only comes to $27 million, so I won’t
dwell.
Whew!
And that doesn’t even cover the various state governments and other sub-franchise operators that the federal government authorizes to take our money from us (or to run monopolies like the state lotteries).
And it also doesn’t count the various ways the government can compel us to labor directly for it (rather than supporting it indirectly through money) — everything from prison labor and stop-loss orders, to the hours we spend filling out paperwork.
Nor is the hidden tax of inflation and the devaluation of government debt through its underreporting included here.
And the various government powers that have significant economic value — for instance the power of eminent domain, the power to print currency, the power to make the rules — don’t make the balance sheet.
The challenge will be to start with something like this and end with some sort
of a practical guide for people who want to boycott and divest from
Washington. Any ideas?
Well, this is a little embarrassing.
I got another letter from the IRS and they’ve made some changes to the tax forms I filed this year.
If you remember, they did this also, but the only change they made was to inexplicably eliminate my personal exemption — as though they thought I was being claimed as a dependent on someone else’s return or something — and so the upshot of it was that I just had to file an amended return reinstating the exemption.
Not that it mattered much anyway, as the bottom line was the same in either case.
This time they’ve made three different changes to my return.
The first change I can’t figure out.
The way they put it is this:
We changed the amount of capital gain or loss on Line 13 of your Form 1040 because there was an error on Schedule D, Capital Gains and Losses.
The error was in the:
Computation of the capital gain or loss from Part Ⅲ of your Schedule D and/or
Transfer of that amount to Line 13 of your Form 1040.
Capital losses are limited to $3,000 ($1,500 for Married Filing Separately).
I thought I had $4,276 in capital gains last year; the IRS apparently thinks I had $4,050.
I don’t know where they got their numbers, but since this cannot do anything but lower my taxable income, I’m not going to raise a fuss.
The second screw-up is most embarrassing.
I’ve been so accustomed to telling folks that it’s easy to get under the federal income tax line, but that there really is no practical way to make a living under the payroll / self-employment tax line, that I forgot that in fact there is such a line and, given my particularly bad business year last year, I slipped under it.
We reduced or removed the total self-employment tax on Line 57 of your Form 1040.
Your net earnings were less than $400; therefore, they are not subject to self-employment tax.
Finally, they changed the recovery rebate payment credit I applied.
After doing the recovery rebate credit worksheet in the tax booklet, I was under the impression that it is a non-refundable credit that couldn’t be higher than whatever income tax I owed.
This would have made it a $176 credit for me (given my corrected, lower taxable income), which would reduce my income tax to zero.
The IRS apparently thinks differently.
They think I should have been able to get a $300 refundable credit, which means that (minus the $176) I was due a refund of $124 for last year.
They credited me accordingly, but seized the refund immediately to apply to the taxes I didn’t pay for 2007.
I gotta say… I pay a lot of attention to my taxes, I volunteer to do tax preparation and have taken classes for this, and I’m not a particularly dumb bunny — but still, this stuff is just ridiculously hard to get right.
So the latest word on my taxes for last year is that if you combine all of my self-employment tax and federal income tax for the whole year… the government owed me $124 for the privilege of having me as its citizen.
Even my not-at-all-magical crystal ball is clear enough that I could look into it last week and see the future: the liberal wing of House Democrats would whine a lot about the tax package Obama negotiated with the Republicans but in the end they’d just give in like they always do.
Not that this is a bad thing in this case.
The Obama-Republican version of the bill means much less for the Treasury than the liberal alternative — and is even (hide your eyes, liberals!)
a better deal for the poor, particularly with its temporary payroll tax cut.
Indeed the payroll tax cut means even my tax rate will be going down next year, and I haven’t paid federal income tax since .
But, to be on the safe side, I refrained from blogging about this tax plan until it got through Congress and to the President’s desk.
But now I’ll highlight some of the features that may be of interest to tax resisters:
The bill allows for something called “bonus depreciation” of assets that businesses purchase between , at 100%.
What this means is that for assets that qualify, a business can write-off the whole cost of the asset as a business expense rather than portioning out the expense over a particular span of time.
Tax resisters who have a business or who are self-employed can use this feature to lower their taxable income this year or next year if they are in danger of rising to a taxable income level.
The bill also raises the limit for “Section 179” depreciation, which I believe applies to a larger class of business assets.
The bill temporarily reduces the “employee portion” of the payroll tax by two percentage points (for only).
The employee portion is what you see on your paycheck stub (your employer pays what used to be an equivalent amount that you don’t see on your paycheck stub).
Self-employed people will just see their self-employment tax rate drop by two percentage points (the income tax deduction self-employed people take based on the amount they’re charged for self-employment tax, however, will not change, which will make this calculation a little more complex).
You may wonder: “isn’t Social Security and Medicare running low on cash?
What is going to happen when their trust funds are taking in so much less payroll tax?”
Well, as I’ve tried to patiently explain before, these trust funds are just accounting fictions, and the government takes money from wherever it wants and puts it wherever it wants without much regard for trust funds or particularly-earmarked taxes.
In this case, the new bill explicitly says that the General Fund (where your income tax money goes) will pay into these trust funds any money they would have received from the payroll tax rate if it had not been lowered by the bill.
A number of tax credits and deductions that Congress perpetually extends “just one more year” have been extended for one more year yet again.
Also extended is the provision that allows people who have reached retirement age to exclude from income amounts they donate to charity directly from their 401ks and IRAs.
A Joint Committee on Taxation report on the U.S. tax system has a lot of good historical summary information, including the following graph, which vividly shows the increasing government reliance on the payroll tax to fill its coffers:
Notes about an especially aggressive IRS levy of Social Security payments, and about the agency’s retreat from its overzealous infliction of “frivolous filing” penalties on people who added messages of protest to their tax forms
A note about an Independence Day war tax protest at which IRS forms went up in flames, and about pioneering war tax resister Juanita Nelson’s 90th birthday
Some resources that would be appropriate for the upcoming “Nuclear Free Future Month”
News about the upcoming NWTRCC national gathering and the New England Gathering of War Tax Resisters
