Stealth taxation - Part III

 

Finding ways to tax Americans without their being aware of it seems to be the name of the game for politicians and bureaucrats, and generally what should be readily transparent to taxpayers is deliberately obscured.

For example, we usually don’t think of the fines that are generated by our local police or sheriff’s department for traffic and other infractions as taxes — or, city and county fines for violations of building codes, or OSHA fines for workplace safety violations, or FCC fines for inappropriate radio and TV programming.

 

Many of these fines can be exceedingly harsh, especially for small businesses or non-profits, many of which have a hard time staying afloat.

Just about every government agency levies some sort of fines for infractions of various rules. Estimates of potential revenue from these sources are included in the annual budgets of most government agencies because they are really just another form of stealth taxation. As far as I know, other than city councils, county boards of supervisors and the like, not one citizen of any community ever has the opportunity to vote on them.

 

Property has often been confiscated and sold, even though the owner was not involved in anything criminal, and they did not have to be accused or charged with a crime. The police have been able to go to court and, without a trial, obtain a court order to confiscate and sell the property of someone who was suspected of a drug crime. The mere fact that the property was involved in some way has been sufficient. The theory that makes this possible is based on “a technicality in the law that allows the government to claim that it is suing only the item of property, not the property’s owner.”

Even if that’s justice, what happens to the money? 

 

Between 1991 and 1995, federal confiscation of property under the forfeiture laws increased by 1500 percent, to a total of $644 million. And seizure of property by state and local governments also amounted to hundreds of millions of dollars.

But the amount of money that’s generated by forfeiture laws is only a small part of the total funds received by government from fines and penalties, ranging from the lowly citation for illegal parking to major penalties imposed by agencies such as the SEC, FCC, etc.

For example, in 2004, Time Warner agreed to a settlement with the Securities and Exchange Commission that included a $750 million fine. And in 1995, the international accounting firm KPMG agreed to pay a $456 million fine to the SEC in a case that involved tax shelter investments.

 

When an agency takes in a fine amounting to hundreds of millions of dollars, the money disappears into the black hole of government accounting and no one ever seems to ask what happened to it.

The explanation usually given is that these fines are levied to recover the costs of investigation and enforcement incurred by the agency involved.

However, funding of government agencies does not appear to be reduced by the fines and penalties it collects in excess of those amounts that may be built into their budgets.

If that’s the case and the investigating agency recovers more than the amount of revenue budgeted from this source, why isn’t their funding reduced accordingly?

 

If you think about it, fines and penalties are actually another form of stealth taxation: first the public is taxed to fund the operation of an agency, law enforcement, regulatory, etc. And, when revenue from fines exceeds budgeted amounts, instead of using the excess to offset operating expenses, the money is used for some other purpose. At the very least, the public pays the cost again by virtue of the fines that are not applied to help cover the costs of funding the agencies involved by a like amount.

Another interesting fact is that fines and penalties are not tax deductible. When violators, corporate or individual, pay their income taxes, in effect they pay additional taxes on the amount of the penalty that has been imposed because it cannot be included as part of the cost of doing business.

Thus, a $450 million corporate fine could actually amount to something on the order of $600 million ($450 million plus $150 million tax).

When it comes to finding ways to fleece taxpayers without their even being aware of it, politicians and bureaucrats are usually found at the head of the class.

But, that’s just my opinion.

 

©2008 Harris R. Sherline

All Rights Reserved

 

 

NOTE: Read more of Harris Sherline’s commentaries on his blog at “opinionfest.com.”