From Mises Blog, July 12, 2006
Taxing Astronauts and the President
Maybe some tax expert can set me straight on the following assumptions, but from what I can tell, federal income tax law technically should make it virtually impossible to have a space program and to have anyone but a billionaire as president. Bear with me.
Federal income tax law requires (please don’t bug me, tax cranks and conspiracy nuts) tax to be paid on income. Now there is an exception for “imputed income,” which is where a person uses his own household durable (personal residence, car or television) or services to provide an economic benefit to himself or his family. The idea is that it’s too difficult to value such benefits, or they are not clearly realized, the costs and difficulties of reporting and enforcement, etc.So, for example, if you grow your own vegetables, you get a benefit from growing them and harvesting or consuming them instead of buying them (or being a paid a salary to use to buy them), but it’s imputed income so not counted as gross income. If you wash your dishes, you don’t have to pay tax on what you save from paying a maid to do it. Etc. With me? On the other hand, if the veggies were sold, tax is owed on the money made—it’s income. Now also, if there is barter, both sides of the exchange owe tax: if you give a dentist veggies in exchange for his fixing your teeth, you are both supposed to pay income tax on the value of what you received. (Incidentally, some jerks favor “taxing ‘imputed rental income,’ i.e., the money purportedly saved because a homeowner owns and occupies a home rather than renting it out. But I don’t know why that idea makes sense, let alone so much sense that the absence of such taxation is an “egregious” “loophole.”” There are also those who argue that the imputed income rule means that “acquisition of virtual assets from a massively multiplayer game could be taxed by the IRS.” For a critique of the concept of imputed income, see p. 456 of George Reisman’s Capitalism treatise.)
Now, one more point. It’s my understanding that a salary paid has to be reasonable—for example suppose you own your own company, and you decide to pay yourself $10 a year. The reason is you pay almost no income tax on this, and also no employment taxes. Instead, if your company is profitable, the money accumulates in the company and maybe you take it out as a dividend later. And if the company is, say, offshore, the IRS would really be upset about that. So the IRS would, I believe, in some cases re-characterize your salary as what it “really” is. It’s similar to the idea of taxing the value of barter: the idea is that the “real” value to someone of an exchange or “payment” is what is taxed, not the dollar numbers the participants attach to it.
None of this makes sense or is ethically or economically justifiable, of course, but there you have it.
Now, it has always seemed to me that many people would pay money to be President—probably every single person who runs for President would be happy to serve with no pay, and even pay say $50million a year for it. After all, look how much is spent on campaigns; look how much people give in campaign donations just to sleep in the Lincoln bedroom. The President gets to ride on Air Force One and live in a priceless building. Yet this is not considered part of his remuneration. Why not? Shouldn’t the IRS say the President is “really” being paid millions of dollars in value? In exchange for his services, he is given free room and board, fame, unique experience, etc., that no doubt has a market value of millions. Shouldn’t he have to pay tax on this? Which would mean he would have to be a millionaire just to be able to afford being President.
And think of jobs like astronauts. These guys get paid to take trips to outer space, which is a perq if I ever heard of one—after all many people are willing to pay millions to take a ride on a spaceship. Seems to me that means all normal career-employee astronauts owe income taxes of millions to the feds, which means that the space program would have to be dismantled—or only use millionaires as astronauts, in which case NASA could perhaps make a profit.
July 12, 2006 at 12:32 pm-
Good point. There’s no end to the absurdity in taxing “imputed income”. But then, that’s kind of like shooting fish in a barrel (or bucket or whatever), in terms of the things you can come up with. George Reisman has a great discussion of imputed income starting on p. 456 of Capitalism. He makes some hilarious points about the “barter” in getting married, i.e., should you have to count some imputed income every time you engage in “marital duties” due to how you “avoided having to pay hookers”?
July 12, 2006 at 12:48 pm-
Great article. Now I just wish I knew the justification for my employer-provided life insurance accumulating taxable imputed income.
July 12, 2006 at 12:55 pm-
for some reason this outlook on tax law just doesn’t hold up for me. Most of us receive health insurance from our employers, as this non-monetary benefit is not taxed, as well as a host of other ‘perks.’ If your company pays for your cellphone, with which you make personal calls, is that supposed to be taxed? I think the tax law outline a little more clearly which non-monetary forms of compensation are to be taxed.
I do give you points for creative thinking though, but i would be a little horrified about what the outcome would be if the resident owed $50M a year. We would probably wind up with the most bleeding heart liberal you could find, soemone who would look down on wealthy people for not giving ALL of their money away
July 12, 2006 at 1:10 pm-
I’m sure there is some kind of hypocrisy clause somewhere in the tax code. If it’s not there yet, I’m sure they would have no problem making one when and if necessary.
I guess the imputed tax would also apply to the military particularly during peacetime. I’m being serious when I say it’s tremendous fun flying in helocopters and blowing up crap in the Palm desert with mortar & artie rounds, 500lb bombs, 50cals. I think being a Marine Battalion commander during a combined arms exercise is worth at least 8 million of imputed income, and being a PFC maybe a million.
I guess the only government workers who don’t really receive imputed income are people who work at places like FERC, NERC, EPA, HHS, and the like.
July 12, 2006 at 1:16 pm-
Person:
Thanks for the Reisman reference. I’ll add it to the post if I can find it.
Carl:
for some reason this outlook on tax law just doesn’t hold up for me. Most of us receive health insurance from our employers, as this non-monetary benefit is not taxed, as well as a host of other ‘perks.’
There is a specific exclusion for health insurance benefits, I believe. If fact this is what some people point to as distorting the market and pushing us to a more expensive health care system. Some therefore advocate getting rid of this “loophole” although I never would advocate ever increasing any tax, except maybe a tax on liberals.
If your company pays for your cellphone, with which you make personal calls, is that supposed to be taxed?
Dunno, I think if it’s de minimus you can get away with it; but I do believe, for example, if you have a company car you are supposed to report the miles used for work, and personal, and have to pay tax on the “value” of the personal use. But I am no tax expert.
July 12, 2006 at 2:00 pm-
When I had a company vehicle, the tax pitfall was avoided thus; I was strictly forbidden to use it for anything other than business purposes (HA), and;
because this is a practical impossibility, I was charged a fee for imputed personal use of $15 per week. So much for consistency.Other large companies do something similar, while most smaller companies ignore this completely (this is in the environmental construction business, YMMV).
July 12, 2006 at 2:16 pm-
Isn’t such non-money “benefit” impossible to objectively measure? It’s not like miles on the company car or specific phone calls which are themselves already metered. I consider it impossible to measure “profits from future speaking engagements” or “better flavor from my own tomatoes.”
Taxation itself is a contradiction, it is merely extracted tribute on arbitrary measurements. At least a poll tax, “$10/person”, is specific and obvious.
I guess this means I should be paying twice the sales tax on every purchase of chocolate, since I know I like chocolate at least twice as much as other people do. Chortle.
July 12, 2006 at 3:25 pm-
I wonder what the smug self-satisfaction of giving away other people’s money is worth? That might be one legitimate way to tax liberals.:~)
July 12, 2006 at 7:25 pm-
WRT imputed tax on the use of a company car.
Very soon now, new cars will be fitted with transponders. Every mile you drive will be recorded and available for analysis. Do not worry, you’ll have exactly the correct amount of tax extracted from you.
AND think of all the crime this sort of thing will prevent. Goodness gracious! Perfection!
Sione
PS BTW any person who votes should pay an imputation tax on that. It would be a large amount.
July 12, 2006 at 8:24 pm-
The IRS of course doesn’t follow any sort of rule of law. They pick and choose who they go after to scare the most people. George W. Bush won’t be taxed for his use of government aircraft and buildings etc. any more than he is going to end up in Gitmo as a terrorist for his foreign policy. The presidents use the IRS to harass political enemies not themselves.
I remember hearing of a musician giving a personal concert to some charity case who was then ordered to pay taxes on the value of a personal concert. I remember it being in the $thousands. Maybe someone here remembers exactly what I’m thinking of.
Here in Indiana we are supposed to send in sales tax to the state of Indiana for out of state purchases. This is supposed to be filed on the state income tax form. Think very many people actually pay this? Renters can claim rental payments as a deduction on the state income tax form though.
Doesn’t the UK have a tax on assumed rental income for peoperty?
July 12, 2006 at 9:44 pm-
“At least a poll tax, “$10/person”, is specific and obvious.”
The sentence before this one is the real crux of the issue…that taxes are arbitrary…how “hard” they are to understand is a moot point in my opinion. After all, who says it should be $10 a person…and what if I think my personal value is more than yours, so I should pay $100 and you only should have to $1.As a tax accountant (Hey…don’t knock it ’til you’ve tried it
, yes the personal use of a company vehicle can be/is considered taxable, and someone got to waste a lot of their lifetime writing the convoluted regulations regarding what is taxable and what isn’t!
Would you believe that airlines can offer free stand-by flights to their employees and they aren’t considered taxable? Of course, the “rational” behind a lot of the taxable vs. excludable rules for “fringe benefits” relate to how easy it would be for a company executive to abuse “loopholes” in order to get huge “benefits” without any cost to himself (who wouldn’t give themselves a (insert dream car) if they didn’t have to pay for it personally????)Of course, the other issue is that taxes (here in the United States at least) are used mainly as a political tool. Those who get the ear of the party in power can help shape tax “policy” to their advantage (an example would be passive loss rules and how those whole deal with real estate have several beneficial regulation bones thrown to them).
I could go on…but I’m sure you’d prefer that I not!
July 13, 2006 at 11:49 am-
Anyone ever try to come up with a true estimate of the President’s total compensation?
- July 13, 2006 at 5:03 pm
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“As a tax accountant (Hey…don’t knock it ’til you’ve tried it
”If you are good at finding loopholes and getting what people “owe” down to $zero, then good for you.
July 26, 2006 at 4:48 pm-
Let’s begin a FAIR TAX campaign.
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