Advisor Today > > April 2000 Cover Story: When You Are Sued

The Cost of Doing Business: You Can Keep What You Make—Soon

Ronald E. Hauenstein, CLU, ChFC

Congratulations! You’re almost there. In just a few weeks you will start making money for yourself this year.

That’s right. According to the Tax Foundation, “Tax Freedom Day” will arrive this year about mid-May.

Tax Freedom Day means that everything you’ve earned until that day is used to pay your federal, state and local taxes. Last year the combined per capita tax bite was $10,298, which was divided into the median income of $28,878 to arrive at May 11 as the day you began making money you could keep. In 1993, Tax Freedom Day was April 30.

No wonder Will Rogers said the income tax has made more liars out of the American people than golf. Coincidentally, golf is a lot like taxes: you drive hard to get to the green and then wind up in the hole.

Frankly, I’m schizophrenic about taxes, and I suspect most of you are too. Every year I gear up with less and less enthusiasm for the bean-counting ritual. The drill is the same: maximize deductions, fudge questionable expenses, groan over the burden of IRS record-keeping requirements and then humbly crawl to the IRS office to deposit the return, followed by a sprint to the loan window to cover the check.

America is the only country where it takes more brains to make out the income tax return than it does to make the income. Some years I owe the government so much money that it doesn’t know whether to throw me in jail or recognize me as a foreign power.

On average, we will work 49 days to pay federal income taxes and 37 days for payroll taxes. In an eight-hour work day, two hours and 51 minutes is spent working to pay taxes. It’s getting so my children will have to be taught “damn” and “taxes” are two separate words.

Ronald Reagan once observed that the taxpayer is someone who works for the federal government but doesn’t have to take the civil service exam.

Conversely, I like the taxes that other people have to pay because it helps me make the money I need to pay my taxes. Our industry thrives because of the onerous burden of income taxes and taxes on savings and assets. Give a plain-vanilla whole life product enough time and it will sizzle compared to a 40% tax bracket CD. As long as life insurance can be bought for pennies on the dollar, it always will be the most efficient way to transfer assets to the next generation.

So I’m intrigued by what George Bernard Shaw once said: “The government that robs Peter to pay Paul can always depend on the support of Paul.” Taxation, it is said, is the gentle art of plucking the goose in such a way as to secure the greatest amount of feathers with the least amount of squawking. That explains why the sales tax is so popular with politicians. Little plucks that raise no squawks, yet every time the cash register rings more money is swept into the government coffers. It’s so accepted it’s an almost invisible form of taxation. This supports my belief that we’ll have some form of death taxes for a long time to come, since “the rich” are still such a small segment of the population and politicians are reluctant to support tax breaks for “the rich.”

I can emotionally support what Rep. Bob Schaffer of Colorado says about death taxes: “No taxation without respiration.” But intellectually I know that those death taxes provided a substantial portion of my income last year.

I fear, however, a coming revolt by the rich. In 1997, the top 1% of taxpayers made 17% of the income, but paid 33% of the total federal income tax. The top 5% of taxpayers paid nearly 52% of all federal income taxes. And the top 10% (adjusted gross income above $79,200) contributed 63%.

Maybe taxation with representation isn’t so hot either.

I expect to owe about $2,600 this year. My plan is to borrow a lesson from Pentagon purchasing agents and pay my obligation by sending in two hammers and a toilet seat.

A veteran producer, Ron Hauenstein represents New York Life in the Spokane area. Comments on his column may be addressed to Mr. Hauenstein at 818 W. Riverside, Suite 500, Spokane, WA 99201, or rhauenstein@ft.newyorklife.com.

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