Tax Breaks for the Big Guys, Changing Tax Law by Memo

A remarkable Washington Post story on how long-standing tax policy was changed by administrative notice hit the wires last Sunday.

It’s not every day that a popular press story deals with an obscure section of the tax code. But these aren’t regular times. Amit R. Paley does a good job explaining how, in the heat of financial chaos and the clamoring to do something, a tax policy of some 22 years was quietly reversed by a mere memo published by the Treasury Department.

In a nutshell, Congress passed Section 382 in the 1980s to attack certain kinds of tax shelters. The code had allowed corporations to buy companies that had a “net operating loss” or “built in loss” and then apply that loss to their books to reduce taxable income. The loss companies had no real value except for the tax benefit. Section 382 drastically limited the types and amounts of loss that the buying company could write off.

Although many business-oriented economists and tax policy experts (certainly not all) argued that the rule was too heavy-handed, Congress steadfastly refused to change it. This is consistent with Congress’s general power to set tax and fiscal policy.

Until Treasury, in the heat of the financial meltdown, decided to do away with it by an administrative notice.

The notice essentially does away with the limitations for institutions that participate in the “Capital Purchase Program (CPP) implemented by Treasury under the authority of the “Emergency Economic Stabilization Act of 2008 (aka Bailout Bill). The idea was to ease the tax consequences of bank mergers. The Washington Post article points out:

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

But, apparently, Congress was surprised and not happy about what has come to be called “the Wells Fargo Ruling.” According to the article, estimates of the hit to federal revenue range from $105 billion to $140 billion.

Some commentators are very surprised as well. From the article:

Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

Reading the Notice, I can see why he said this. It is only 2 ½ pages long. The memo is written in technical terms that are incomprehensible to anyone not familiar with the operations of Section 382. However, under the “Background” header is a paragraph that insouciantly states the authority for the action:

Section 101(c)(5) of the Act provides that the Secretary is authorized to issue such regulations and other guidance as may be necessary or appropriate to carry out the purposes of the Act. Section 382(m) of the Code provides that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of sections 382 and 383.

Parse that a little. The first sentence says that “the Act” (aka Bailout Bill) gives the Treasury Secretary authority to issue regulations for the purpose of carrying out “the Act” (aka Bailout Bill). OK, nothing very controversial about that.

The next sentence says something similar about Section 382 of “the Code” (in Treasury lingo, this means the “Tax Code”). The Treasury Secretary is authorized to issue regulations “to carry out the purposes of section 382. . . .”

The problem is obvious. The “purposes of section 382” has nothing to do with the Bailout Bill. The purpose of 382 is to stop a certain kind of tax shelter.

And, as far as I know, the Bailout Bill did not grant the Treasury Secretary authority to amend the Tax Code. The Bailout Bill did deal with the tax code in three separate areas: capital gains, executive compensation, and help for homeowners. It does not give the Treasury Secretary authority to amend the Tax Code. (The Bailout Bill is a mere 451 pages long, maybe you can find something in there I have missed, but I doubt it.)

Yet the Secretary of Treasury did amend the tax code because, apparently, it seemed like a good idea. Certainly the merging banks are getting a huge break. And maybe it is a good idea, but this sort of sweeping change to tax policy, under cover of administrative ruling and in the heat of confusion, is decidedly unusual and ominous.

BTW, don't expect this change in the law to benefit any small companies that might want to buy out other struggling companies. It's only for the big kids, the "too big to fail finance companies," who have been able to sell their smoldering and nearly worthless instruments to the government.

(Post first appeared on Tax and Tribute blog.

Um, yes, there is a law that says you have to pay income tax

There's a bit of a buzz going on about the acquittal of Tom Cryer, a Lousiana attorney who had been charged with the federal crime of failing to file his tax returns. Misleading articles, such as "IRS loses challenge to prove tax liability", kindle hopes that someone somewhere has finally convinced a court that we don't have to pay taxes.

A quick look at the Cryer case, however, demonstrates that the government failed to prove the "willful" element of the crime of failure to file. As with all elements of a crime, this must be proved beyond a reasonable doubt. The jury apparently decided that Mr. Cryer's mental state was not criminally willful, perhaps because they were convinced that he had a reasonable belief that he didn't have to file. But the legality of the tax law itself was not at issue in the trial. Cryer's motion to dismiss using that argument was denied before the trial.

But tax protestors everywhere are cheering, shouting "show me the law!" In the interests of public service, I show the law below. It's not as straigtforward as it could be, but it's there. If you earn income, and if it is high enough, you have to file a return. If you have to file a return, you have to pay the tax. Plain language leading to plain duties.


Title 26 United States Code
§ 1. Tax imposed (a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of -
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: If taxable income is: The tax is:
Not over $36,900 15% of taxable income.
Over $36,900 but not over $5,535, plus 28% of the excess over
$89,150 $36,900.
Over $89,150 but not over $20,165, plus 31% of the excess
$140,000 over $89,150.
Over $140,000 but not $35,928.50, plus 36% of the excess
over $250,000 over $140,000.
Over $250,000 $75,528.50, plus 39.6% of the
excess over $250,000.

. . . .

(c) Unmarried individuals (other than surviving spouses and heads
of households)
There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table:
If taxable income is: The tax is:
Not over $22,100 15% of taxable income.
Over $22,100 but not over $3,315, plus 28% of the excess over
$53,500 $22,100.
Over $53,500 but not over $12,107, plus 31% of the excess
$115,000 over $53,500.
Over $115,000 but not $31,172, plus 36% of the excess
over $250,000 over $115,000.
Over $250,000 $79,772, plus 39.6% of the excess
over $250,000.

Note, a tax is imposed on taxable income. Taxable income is figured out from gross income:

§ 61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
. . . .
§ 63. Taxable income defined
(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).
. . . .

So a tax is imposed on taxable income, who has to report this income? This statute tells us that everyone with gross income above a minimum amount has to file:

§ 6012. Persons required to make returns of income (a) General rule
Returns with respect to income taxes under subtitle A shall be made by the following:
(1)
(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount. . . .


And finally, some people demand to know where it says that a person with income is liable. The statute below says that if you have to file, you are required to pay whatever you owe as deteremined by properly filling out the return:

§ 6151. Time and place for paying tax shown on returns(a) General rule
Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

So the law is there. It says people with income over a certain level (which elsewhere is defined as being over the exemption amounts) have to file their return. If their return indicates taxable income, they have to pay.

So be careful out there. People claiming that there is no law requiring you to pay income tax are either deliberatly not looking or they are deceived.

And, even though Mr. Cryer was found not guilty of a tax crime, I am pretty sure the feds will get their money. Plus interest. Plus penalties. It's not a pleasant scenario.

Just when the slumber was getting pleasant

Suppose there is family down the street with a wayward son or daughter who is just not "right." Suppose this straying child has become enflamed about what is going on in Iraq. And suppose this child sends some internet advice (of a technical nature) to some "freedom fighters" (we would call them insurgents) whom the child has met on an internet board somewhere. And finally, suppose these insurgents actively and violently seek to disrupt our administration's goals in Iraq.

Of course, this is a very bad thing. Dangerous even. The government monitors such things. It even claims the authority to seize all the assets owned by such a wayward soul.

Now suppose in its zeal, the government freezes the bank accounts of the entire family, not just those of the foolish child. The family will not be able buy groceries. They will likely be scared and confused. They probably would be angry at their child too.

But suppose in the mean time you feel sorry for the neighbors and bring over a casserole as they try to sort this all out.

Under an Executive Order dated July 17, 2007, all of your own assets may be blocked and seized too.

"all property and interests in property of the following persons, that are in the United States, that hereafter come within the United States, . . . are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: any person determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Defense. . . ."

The persons this applies to are those who have been determined (by the government):

"(ii) to have materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, such an act or acts of violence or any person whose property and interests in property are blocked pursuant to this order. . . ."

Of course, good people won't fall under this, right? The government isn't really going to freeze the assets of the neighbors down the street. And if they do, they wouldn't really go after someone who brought them a casserole, right?

Maybe, but the language of the order asserts that very option.

As Han Solo said when things got weird: "I've got a bad feeling about this, Chewey."

Fender benders and stealing cars, the DEA does it all.

The War on Drugs gets even weirder. DEA agents now have authority to stop a suspected vehicle by pretending to be drunk and colliding into it with another vehicle. They then may pretend to steal the car and drive it to an unknown location to allow for an "administrative search" to look for drugs. The tactic is a novel method of getting around the 4th amendment--the amendment which used to mean that the government could not conduct unreasonable searches and seizures without a warrant. I know the facts sound bizzare, so I quote directly from the the recent 9th Circuit Court of Appeals decision. It was filed June 8, 2007.

"We consider the Fourth Amendment’s limits on the use of trickery and force in conducting seizures.

Facts: Ascension Alverez-Tejeda and his girlfriend drove up to a traffic light. As the light turned green, the car in front of them lurched forward, then stalled. Alverez-Tejeda managed to stop in time, but the truck behind him tapped his bumper. As Alverez-Tejeda got out to inspect the damage, two officers pulled up in a police cruiser and arrested the truck driver for drunk driving. The officers got Alverez-Tejeda and his girlfriend to drive to a nearby parking lot, leave the keys in the car and get into the cruiser for processing. Just then, out of nowhere, someone snuck into their car and drove off with it. As the couple stood by in shock, the police jumped into their cruiser and chased after the car thief with sirens blaring. The police then returned to the parking lot, told the couple that the thief had gotten away and dropped them off at a local hotel.

The whole incident was staged. DEA agents learned that one of the leaders of a drug conspiracy was dealing drugs out of his car and deduced from several intercepted calls and direct surveillance that Alverez-Tejeda, one of the conspiracy’s subordinates, was using the leader’s car to transport illicit drugs. The agents decided to stage an accident/theft/chase in order to seize the drugs without tipping off the conspirators. Every character in the incident, other than Alverez-Tejeda and his girlfriend, was either a DEA agent or a cooperating police officer." (emphasis added)

The lower court found that the seizure was unconstitutional. It ordered the evidence obtained by the seizure to be suppressed. Although it acknowledged that the car, which had been used in previous documented drug selling activity, was subject to immediate seizure under forfeiture laws, even such seizures have Constitutional protection from "unreasonable" seizures. The lower court decided that the staging of an accident and car theft was not reasonable:

"The seizure in this case needs to be contrasted against the principles discussed above. Unlike a normal seizure by law enforcement, this seizure appeared to be a car theft. Any person seeking information on the theft would reach a dead end. Local authorities were told to deny knowledge of the event if asked. Even during the pendency of the case before this Court, defense attorneys were told that there was no record of such an event in the Deschutes County Sheriff’s Office records. No inventory was filed. No judicial determination was made of the need for a covert search. No judicial determination was made of the period of time needed to delay notification. No judicial review of the inventory was made. All of the decisions normally made by the judiciary were made by the officers involved. It is difficult to conclude that the authors of the Fourth Amendment contemplated such discretion be afforded to the Executive branch."

But the 9th Circuit reversed. In a rather cavalier decision, it essentially reasoned as follows:

1.The government had the right to seize the car (even if not the right to seize the property of the occupants).
2.Nobody got hurt.
3.It was reasonable because the government's interest in preventing drugs from entering the market, and its interest in avoiding tipping off the driver that the car was seized outweighed the relatively minor inconvenience of the driver. (The second point is important because the government could not arrest the driver at the time of the seizure because they did not have probable cause to know if drugs were in the car).

Of course, what is left unsaid in the 9th Circuit's analysis is what happens if the government's information is wrong, or if it identified the wrong car, etc. It has essentially given the green light for government agents to stage pretend crimes, carjackings, and other phony scenarios in order to buy time to search a car and obtain an arrest warrant for the driver.

There was never a question that the officers could have obtained a warrant prior to the seizure. Indeed, under today's drug forfeiture laws they could have seized the car at any time (because they had probable cause to believe that it had been involved in a prior drug crime). Despite these powerful tools, US government has decided to step up the tactics another notch. The so-called liberal 9th Circuit has given its blessing. We can only wonder what other creative methods our government will come up with to prosecute this endless "war."

One minor moral of the story is to never leave your keys in the car when asked by a police officer to leave it. They just might steal it.

Copy of the 9th Circuit opinion here:
http://www.ca9.uscourts.gov/ca9/newopinions.nsf/C2D95381F1084FD9882572F30082587B/$file/0630289.pdf?openelement


The US District Court ruling here:

http://blog.wired.com/27bstroke6/files/ordertosuppressalverez_tejada.pdf

Madness and Blindness

Helicopters hovered, hundreds of news cameramen gathered, breaking headlines worldwide, on the internet and, apparently, on televisions across the country. Yes, Paris is going back to jail.














Meanwhile, hardly noticed at the June 5 New Hampshire Republican Presidential debate, all of the candidates except one agreed on one thing: it is morally proper to unilaterally drop nuclear bombs upon a country that is utterly incapable of attacking the United States.


Of course, the one candidate who thought this was insane was Neo-Con public enemy No. 1: the principled Ron Paul.

When I was young, which in the scheme of things was not really that long ago, we practiced "duck and cover." We were instructed to dive under our desks if we heard the air raid sirens go off. We were convinced that the Russians were as likely as not to drop nuclear missiles upon us and were told that hiding under our desks might help. It was madness and everyone knew it. The Russians were incalculably evil for pointing their nukes at us and it was only fair that we pointed ours at them.

Now we are nonchalantly talking about nuking Iran, which doesn't have any missiles remotely capable of pointing at us. Our putative leaders think that a unilateral nuclear strike on a Muslim country will make things fine in the world. The term blow-back (as in over a billion people suddenly taking a personal interest in our destruction) is too complex of a thought for these blowhards.

Long ago, people were warned what could happen if they turned from the Word of God:

The LORD shall smite thee with madness, and blindness, and astonishment of heart:
And thou shalt grope at noonday, as the blind gropeth in darkness, and thou shalt not prosper in thy ways: and thou shalt be only oppressed and spoiled evermore, and no man shall save thee.

Deuteronomy 28: 28-29.

May God deliver us from this incredible madness. May He grant our country repentance.

When big numbers mean nothing.

One annoying aspect of modern life is the use of statistics to drive public opinion. Please, someone help me see why this example is not a particularly bad one:

100,000 Chinese die annually from passive smoking.

A study says that 100,000 people a year die in China from passive smoking. I don't know how they came up with that figure, but I am pretty sure it is meaningless.

China has about 1.3 billion people. According to the CIA World Factbook, China's death rate is about 6.9 per 1000. That means that about 9 million people die each year. What is the level of confidence of this figure? I don't know, but I'd be surprised if the figure is more precise than + or - 100,000 deaths.

So the 100,000 figure probably falls within the range of error. If so, it can't be used to make any meaningful statement.

Yet it is front page news on Yahoo!

Another sobering thought: it is estimated that more than 99% of households who have suffered a death this past year possessed a refrigerator*.

No question that all that smoking in China is unhealthy, but using a such a level of precision to support a policy change is plain misrepresentation. And it happens all the time. The global warming hysteria is another late example. Government inflation figures are just as misleading. Is it no wonder that people distrust the authorities?

Yes, there are too many dangers to comprehend. The biggest one, though, is almost statistically certain**: 90% of statistics used by policy makers are lies.

* Source: personal observation, every household I've been in in the past 30 years owned a refrigerator. (In other words, I made this up).

** This is my personal estimate based upon a tightly focused study(in other words, I personally took a sample of 1 statistic and extrapolated from there. . . .)

Republicans have their Pee Wee Herman moment

About 20 years ago I was at the house of some relatives. Their four year old son was watching a television program called "Pee Wee's Playhouse" with some friends. I had never heard of the show, but it seemed bizarrely odd. I sat down with the kids to watch.

One feature quickly became annoying. A particular word was chosen at the beginning of the show. Whenever that word was spoken, alarms and sirens would go off. The kids were instructed to run around in circles screaming. They learned that lesson well. Every 5 minutes or so the word would get mentioned: sirens went off, and the living room erupted into screams as the crazy kids spun and flapped their arms.

The Republican Party in 2007 apparently follows a similar pattern. There is some prescribed phrase that triggers insanity among them. Ron Paul, last Tuesday, apparently found the magic words to set them off.

"Fruitcake." "Wackjob." And to a Paul supporter: "You disgust me." These are phrases you can find at prominent conservative blogs regarding Ron Paul's sparring with former mayor and drag-queen impresario Rudy Giuliani in the latest Republican debate. (Below I set out the exchange from the transcript).

Ron Paul reminded people that the traditional conservative foreign policy was non-intervention. One does not meddle with other countries' internal affairs. He invoked the old conservative icon Robert Taft. He reminded us that this was the view of the founders of the country. The fact that the US doesn't understand the Middle East and nevertheless tries to insert itself there leads to hatred and a desire to attack us.

Rudy Giulinai didn't like this. In fact, he stated that he had never heard of such a view before. (Keep in mind that this explanation is also set out in numerous government reports, including a CIA analysis. Rudy needs to read some of the government's findings.) He demanded that Paul retract his statement. Paul, of course, refused. He reminded Giuliani that it was the CIA that coined the term "blowback", refering to Iran's retaliation against the US for deposing a duly elected leader and installing the oppressive Shah.

So-called conservatives are now spinning and screaming. Michigan Republicans want Ron Paul banned from their debate. Other Republicans are accusing him of being in the wrong party (which is odd, considering Paul's reference to Taft). Nasty names are being thrown about. This is what passes for political discourse in our time.

At least some of the conservatives are taking a breath and reconsidering. R.E. Finch has a thoughtful post on the conservative blog redstate.com.

I hope others come to their senses too. I'm not expecting a lot, however. Ron Paul has merely pointed out what used to be common wisdom. Who knew that such simple ideas could cause such panic?

From the transcript:

MR. GOLER: Congressman Paul, I believe you are the only man on the stage who opposes the war in Iraq, who would bring the troops home as quickly as -- almost immediately, sir. Are you out of step with your party? Is your party out of step with the rest of the world? If either of those is the case, why are you seeking its nomination?

REP. PAUL: Well, I think the party has lost its way, because the conservative wing of the Republican Party always advocated a noninterventionist foreign policy.
Senator Robert Taft didn't even want to be in NATO. George Bush won the election in the year 2000 campaigning on a humble foreign policy -- no nation-building, no policing of the world. Republicans were elected to end the Korean War. The Republicans were elected to end the Vietnam War. There's a strong tradition of being anti-war in the Republican party. It is the constitutional position. It is the advice of the Founders to follow a non-interventionist foreign policy, stay out of entangling alliances, be friends with countries, negotiate and talk with them and trade with them.
Just think of the tremendous improvement -- relationships with Vietnam. We lost 60,000 men. We came home in defeat. Now we go over there and invest in Vietnam. So there's a lot of merit to the advice of the Founders and following the Constitution.
And my argument is that we shouldn't go to war so carelessly. (Bell rings.) When we do, the wars don't end.

MR. GOLER: Congressman, you don't think that changed with the 9/11 attacks, sir?

REP. PAUL: What changed?

MR. GOLER: The non-interventionist policies.

REP. PAUL: No. Non-intervention was a major contributing factor. Have you ever read the reasons they attacked us? They attack us because we've been over there; we've been bombing Iraq for 10 years. We've been in the Middle East -- I think Reagan was right.
We don't understand the irrationality of Middle Eastern politics. So right now we're building an embassy in Iraq that's bigger than the Vatican. We're building 14 permanent bases. What would we say here if China was doing this in our country or in the Gulf of Mexico? We would be objecting. We need to look at what we do from the perspective of what would happen if somebody else did it to us. (Applause.)

MR. GOLER: Are you suggesting we invited the 9/11 attack, sir?

REP. PAUL: I'm suggesting that we listen to the people who attacked us and the reason they did it, and they are delighted that we're over there because Osama bin Laden has said, "I am glad you're over on our sand because we can target you so much easier." They have already now since that time -- (bell rings) -- have killed 3,400 of our men, and I don't think it was necessary.

MR. GIULIANI: Wendell, may I comment on that? That's really an extraordinary statement. That's an extraordinary statement, as someone who lived through the attack of September 11, that we invited the attack because we were attacking Iraq. I don't think I've heard that before, and I've heard some pretty absurd explanations for September 11th. (Applause, cheers.)
And I would ask the congressman to withdraw that comment and tell us that he didn't really mean that. (Applause.)

MR. GOLER: Congressman?

REP. PAUL: I believe very sincerely that the CIA is correct when they teach and talk about blowback. When we went into Iran in 1953 and installed the shah, yes, there was blowback. A reaction to that was the taking of our hostages and that persists. And if we ignore that, we ignore that at our own risk. If we think that we can do what we want around the world and not incite hatred, then we have a problem.
They don't come here to attack us because we're rich and we're free. They come and they attack us because we're over there. I mean, what would we think if we were -- if other foreign countries were doing that to us?

Don't panic, the fish are OK

Today, May 8, 2007, they found melamine was fed to fish, but it's not likely to cause any trouble.

Farmed fish fed contaminated material

But the safety of the fish isn't what caught my eye. It was this quote by Dr. David Acheson, "the FDA's assistant commissioner for food protection":

"What we discovered is these are not wheat gluten and rice protein concentrate but in fact are wheat flour contaminated by melamine."

So, according to Dr. Acheson, it never was imported Chinese gluten. Instead, it seems to have been simple contaminated flour all along.

Yesterday, on May 7, 2007, the FDA issued a news release titled FDA/USDA Joint News Release: Scientists Conclude Very Low Risk to Humans from Food Containing Melamine.

That article talked about how meat from hogs and chickens which were fed contaminated feed was no big deal either. As far as it goes, and if this were the only issue, I'd accept the analysis.

But the FDA release was continuing the party line that the contamination came from imported gluten and rice protein:

"In the course of the investigation, it was discovered that pet food was contaminated by wheat gluten and rice protein concentrate that contained melamine and its compounds."


But after the fish story of today and Dr. Acheson's admission that it was flour that is contaminated, not gluten, the obvious question is raised: "How safe is the supply of flour?"

The other obvious question is: "how long has the FDA known about this?"

As of this writing, there is no reference on the FDA or the USDA website regarding this new observation. They are still reassuring us about pork and chickens. It's their job, of course, to make sure we don't panic.

Brought to you by the War on Drugs

If a thief be found breaking up, and be smitten that he die, there shall no blood be shed for him.
--Exodus 22:2

Blackstone, Commentaries on the Laws of England:

Burglary, or nocturnal housebreaking, has always been looked upon as a very, heinous offense, not only because of the abundant terror that it naturally carries with it, but also as it is a forcible invasion and disturbance of that right of habitation, an invasion which in such a state would be sure to be punished with death, unless the assailant were the stronger. But in civil society, the laws also come in to the assistance of the weaker party; and, besides that they leave him this natural right of killing the aggressor, if he can. . . .

On November 21, 2006, three armed men burst through the door of Kathryn Johnston's house. It was about 7 pm, which according to my almanac, was about an hour and a half after sunset. Ms. Johnston was reported to be 92 years old. She owned an old pistol. She shot once at the invaders.

The men who kicked down the door returned 39 shots and killed her. They were on a mission in the name of the Atlanta Police Department. They were performing a drug raid under authority of a no-knock warrant obtained by perjury and on the tip of an unnamed informant. The informant later stated that he was coerced by the police to lie about buying drugs at the house.

Today, two of the officers pled guilty to manslaughter and other crimes, including violation of oath, criminal solicitation, and making false statements. One of the officers admitted committing perjury. They pled down from charges of felony murder. The other officer faces trial.

http://www.cnn.com/2007/LAW/04/26/atlanta.indictments.ap/index.html

The two guilty officers are facing 10 years in prison.

By Biblical standards, the English Common Law, and the State of Georgia's statutes, Kathryn Johnston was justified in shooting at the intruders. They were committing the felony of residential burglary--breaking into a house unlawfully. It was unlawful because they were using a warrant obtained by perjury. And the guilty officers admit that.

Under the felony-murder rule, generally, if a person causes the death of an innocent person while committing a felony, it is punishable as murder. Nevertheless, the vagaries of our modern justice system apparently compelled the prosecutor to agree to a lesser charge. Soft "justice."

Whoso sheddeth man's blood, by man shall his blood be shed: for in the image of God made he man.
--Genesis 9:6.

Those who favor the police using military tactics, no-knock warrants, warrantless wiretaps, and constant surrveillance consider this:

You have long since lost assurance that the armed wing of the state will leave you alone if you "have nothing to hide."

Thank the War on Drugs, the War on Terror, and whatever other War on Abstractions yet to come. As they say, Freedom isn't free.

Learning sin through the tax code

What shall we say then? Is the law sin? God forbid. Nay, I had not known sin, but by the law: for I had not known lust, except the law had said, Thou shalt not covet.

But sin, taking occasion by the commandment, wrought in me all manner of concupiscence. For without the law sin was dead.

Romans 7:7-8

Internal Revenue code, 26 U.S.C. 6050I:

Returns relating to cash received in trade or business, etc.
(a) Cash receipts of more than $10,000
Any person -
(1) who is engaged in a trade or business, and
(2) who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions), shall make the return described in subsection (b) with respect to such transaction (or related transactions) at such time as the Secretary may by regulations prescribe. . . .

I'm spending many hours learning about tax crimes. I already knew about the requirement that you had to report business cash transactions of more than $10,000, but I never really thought that failure to do that would be a felony. But it is:

26 U.S.C. 7203:

Willful failure to file return, supply information, or pay tax.

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting "felony" for "misdemeanor" and "5 years" for "1 year".

Before I ran across this, I never had a desire to deal in cash transactions over $10,000. But now I have a perverse desire to do this every day. Of course, I would file the required form each time just to add to the work of the Treasury Department.

Paul was right, "Nay, I had not known sin, but by the law: for I had not known lust, except the law had said, Thou shalt not covet."

Thank God I don't have $10,000 cash with which to go around transacting.

Just a Reminder

It's not really yours. And, at least according to the tax man, it isn't God's either.

Most of us believe in private property rights. As Americans, and even nominal Christians, we think that such rights are ordained and established by God. Our representative government has a different view. That entity also employs men with badges and weapons to enforce that view.

I'm not talking now about property taxes. Everyone is familiar with that aspect of state ownership of our "property". Nor am I even talking about the "use tax" that many states employ (including my home state) for the "use and enjoyment within the boundaries of the state" of personal property.

No, right now I'm simply talking about everything you own.

The Internal Revenue Code contains numerous provisions for taxing transfers of property. If it is done after you die, it is the estate tax. If you make the transfer during your life, it is subject to a gift tax. Happily, for us peons,* Congress has made exemptions. It has graciously allowed us to give up to $12,000 per person to anyone each year without having to pay tax. (There are other exemptions too.) If an exemption doesn't apply to you, the government claims up to 40%. Actually, if you are moderately wealthy and make a few bad choices, you could be liable for 113% of the gift in certain scenarios.

The important thing is the presumption: you owe the tax unless Congress has granted a special exemption.

One of the classic elements of the right to private property was the power to dispose of it as you wished. But, for a long time, Congress has not recognized such a right. Instead, it considers such a transfer to be a privilege subject to its discretion:

"Like provisions in earlier acts have been generally upheld as imposing a tax on the privilege of transferring the property of a decedent at death. . . ." Chase Nat'l Bank v. US, 278 US 327, 334 (1929).

We can pray that Congress will continue to be merciful. As it is now, we have no real claim of right. Short of a political revolution (or other kind), it is not likely to change.

In the meantime, the sovereign reserves its right to follow history:

And now whereas my father did lade you with a heavy yoke, I will add to your yoke: my father hath chastised you with whips, but I will chastise you with scorpions.

1 Kings 12:11

Nevertheless, the God with whom we have to do, our avenger and our judge, lays a greater claim: ". . . for the world is mine, and the fulness thereof." Psalm 50:12. As we pay obeisance to the rulers of this world, we can still pray and protest, invoking Psalm 2:

Be wise now therefore, O ye kings: be instructed, ye judges of the earth.
Serve the LORD with fear, and rejoice with trembling.
Kiss the Son, lest he be angry, and ye perish from the way, when his wrath is kindled but a little. Blessed are all they that put their trust in him.


*Peon (noun)
. . . a person held in compulsory servitude to a master for the working out of an indebtedness
b : DRUDGE, MENIAL

Merriam-Webster Online Dictionary

Will the 500th visitor here please leave?

A friend sent me this article from World Net Daily. At first I was skeptical because I think Joseph Farah tends to hype things. But I looked up the bill and he's right. Congress is proposing to further regulate what we once called "freedom of expression".

http://wnd.com/news/article.asp?ARTICLE_ID=53813

The proposed legislation is included in Senate Bill 1. I looked it up on the Thomas website this morning. It seeks to add some forms of "grassroots lobbying" to the list of entities required to register as lobbyists. It is a convoluted bill, but in essence it states that an activity called "paid efforts to stimulate grassroots lobbying" will be a regulated activity requiring registration (a license from the government to practice free speech).

This "paid efforts to stimulate grassroots lobbying" includes by negative implication any attempt to influence the general public if directed at more than 500 people. The "paid" element seems to include any payment whatsoever. If a group of people pooled their resources to print a brochure, or if a blogger received payment, perhaps just to cover expenses, it probably would apply.(Note, there is a $25,000 per quarter provision for "Grassroots Lobbying Firms", but this seems to be independent of "paid efforts to stimulate grassroots lobbying").

There are a flurry of amendments that have been proposed seeking to remove this language, but the legislation as drafted now is appalling. Political free speech used to be the most protected right under the Constitution. Now it looks to be on its way to becoming the most regulated.

Here is the quoted segment of section 220 of S1. You can look it up for yourselves at http://thomas.loc.gov/ (type in S.1 in the bill number search, there is no permanent link).

(A) IN GENERAL- The term `paid efforts to stimulate grassroots lobbying' means
any paid attempt in support of lobbying contacts on behalf of a client to
influence the general public or segments thereof to contact one or more covered
legislative or executive branch officials (or Congress as a whole) to urge such
officials (or Congress) to take specific action with respect to a matter
described in section 3(8)(A), except that such term does not include any
communications by an entity directed to its members, employees, officers, or
shareholders.`(B) PAID ATTEMPT TO INFLUENCE THE GENERAL PUBLIC OR SEGMENTS
THEREOF- The term `paid attempt to influence the general public or segments
thereof' does not include an attempt to influence directed at less than 500
members of the general public.

So, if this bill passes, please do not send me any money. And if you are the 500th person to see this post, please leave immediately. Or at least don't tell anybody.

I have no intention of registering.

Double Entendre and Double-Speak

The lot is cast into the lap; but the whole disposing thereof is of the LORD. Proverbs 16:33.

And he cast for it four rings of gold, to be set by the four corners of it; even two rings upon the one side of it, and two rings upon the other side of it. Exodus 37:3

I took my last LLM tax final for the quarter last night. As I left the building after the three hour exam, I thought to myself, "The die is cast."

Then I noticed the delightful double entendre. When you toss a die, as in one of a pair of dice, you are doing what Proverbs 16:33 describes. The outcome is determined and out of your control. It is in God's hands.

But as an amateur foundryman, I've cast molten metal into dies. There again, I'm reminded of God's working hand. He formed me in the womb. He casts the outcome of all things as if pouring his will into his handcrafted mold.

Perhaps overdoing it, I thought of how machinists can use a die to stamp metal into a certain shape. Again it reminded me of God's hand: he casts the handle to the die-press which forms me by force and some violence to conform to what he has determined.

So the die has been cast, my first quarter of the tax program is behind me. God has been gracious in sustaining me.

Now for something completely different:

As I mused about double entendres, I noticed another example of double-speak in the news. Senator Tim Johnson of South Dakota apparently had a form of brain hemorrhage yesterday. He has undergone surgery and his doctors are optimistic. It is big news among the political types because he is a Democrat. If he has to step down, the Republican governor of South Dakota decides his replacement. If the replacement is a Republican, the Democrats lose control of the Senate.

So while a man is in critical condition recovering from surgery, the political vultures are hovering over the outcome. Shades of Jude 1:9, perhaps, but neither side is aligned with Michael.

But the double-speak was this:

"A person familiar with Johnson's condition said the 59-year-old senator's underlying condition caused the stroke-like symptoms and doctors will be watching him closely for the next 24 to 48 hours. The person spoke on condition of anonymity out of respect for the senator's family."

http://news.yahoo.com/s/ap/20061214/ap_on_go_co/johnson

The person claims anonymity out of respect for the senator's family? Not likely, if the family wanted privacy. No, the gossiper (which is what he is if the family wanted privacy) spoke on the condition of anonymity out of respect for his own fear of being exposed.

I've written about this sort of thing before. It's a plague on our language and our thinking.

Dignities and the dishonorable

But chiefly them that walk after the flesh in the lust of uncleanness, and despise government. Presumptuous are they, selfwilled, they are not afraid to speak evil of dignities.

Whereas angels, which are greater in power and might, bring not railing accusation against them before the Lord.

But these, as natural brute beasts, made to be taken and destroyed, speak evil of the things that they understand not; and shall utterly perish in their own corruption.

2 Peter 2:10-12.

I come from a big-time political family. My "godfather" was a U.S. senator. My Dad was his field aid. My grandfather was Attorney General and later a Supreme Court Justice in Montana. My great-grandfather was instrumental in getting Harry Truman on FDR's ticket. Our family was steeped in the old-time Democratic Party tradition of back-room politics presenting itself as populism. I grew up among the sausage makers: lobbyists, news broadcasters, greater and lesser politicians, the behind the scene wheeler-dealers with bloodshot eyes and hangovers who mastered the art of patriotic spin. I even tried running for office myself but couldn't pull it off. I was too introverted. It made me very tired.

And I committed the greatest act of family rebellion by occasionally voting for Republicans.

From that background I naturally developed a cynicism that plagues me still. I am sorely tempted to rail against "dignities". I am tempted to rationalize that because they are so undignified, I get a pass. Peter tells me otherwise.

Calvin considers the civil magistrate to be ordained by God:

The Lord has not only testified that the office of magistrate is approved by and acceptable to him, but he also sets out its dignity with the most honorable titles and marvelously commends it to us.
. . .

This amounts to the same thing as to say: it has not come about by human perversity that the authority over all things on earth is in the hands of kings and other rulers, but by divine providence and holy ordinance.

Calvin's Institutes, 4.20.4, McNeil Edition, Westminster John Knox Press, 1960.

So I am reluctant to gratuitously attack our leaders. I do believe I have warrant to point out their errors, but that is for another time.

Happily, I feel no such constraint concerning a former leader, Mr. Contract with (on) America, Former Speaker of the House Newt Gingrich. He is considered (perhaps only by himself) to be a potential presidential contender. He is notorious for his wit and somewhat less well-known for his callousness.

But he is adding new foundations to his notoriety. Two months ago he advocated initiating war with practically every country in the Middle East. A couple of days ago he clearly called for the government to reconsider the First Amendment. He wants to monitor what Americans say and how we say it:

"Gingrich Says Free Speech Helps Terrorists"

Ironically, Mr. Gingrich claims to want to expand free speech in one realm: the activity of giving money to politicians. He apparently thinks that civil liberties are something to be distributed by the government to its friends.

Mr. Gingrich is a history professor; he understands the purpose and spirit behind the First Amendment. He clearly thinks the time for such things has passed. Of course, the First Amendment is not limited to speech, but addresses religion and assembly too. In a few years your website might be shut down. In a few more years, perhaps your assembly will be too. In Mr. Gingrich's world, it will all depend upon how loyal you are to the cause du jour.

My suggestion: keep an eye on Newt and his friends. They came on the scene masquerading as conservatives. Whether by the corruption of power or by original design, the so-called new conservatives are looking more and more like old fascists. The old true conservatives have been licking their wounds since Goldwater's defeat.

Calvin, in his Institutes, ended his discourse about the civil magistrate with these words:

The Lord has declared his approval of their offices. Accordingly, no one ought to doubt that civil authority is a calling, not only holy and lawful before God, but also the most sacred and by far the most honorable of all callings in the whole life of mortal men.

Id.

Would that God would send men who realize this truth, and keep us from the judgment of being ruled by those who don't. God directs us to honor the dignities. May God be merciful to grant us dignities who are honorable.

Another twist: taxing what you don't receive.

Or what man is there of you, whom if his son ask bread, will he give him a stone?
Or if he ask a fish, will he give him a serpent?
If ye then, being evil, know how to give good gifts unto your children, how much more shall your Father which is in heaven give good things to them that ask him?

Matthew 7:9-11.

If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.

Exodus 22:25.


Generations from all cultures have recognized the virtue of giving gifts. Sometimes the gift takes the form of an interest-free loan. It's a good way for parents to help their children start out while still instilling a sense of responsibility and gratitude. But if that loan is more than $10,000, beware. The federal government will tax the person giving the loan for the interest he could have gotten had he made the loan on the open market. 26 U.S.C. § 7872.

There is something called the "applicable federal rate." If you make a loan with interest below that amount, the government wants you to pay income tax on the difference between the magical federal rate and what you charged.

So, for instance, if you made a no-interest loan of $40,000 to a child to help him make a down payment on a house, the government imputes interest income to you. The October 2006 federal applicable rate was around 5%. Presto, even though you haven't gotten any income from the loan, you will be taxed as if you had received $2,000. (There are convoluted adjustments possible, but this is the general idea).

Even though there is a gift tax exemption for certain amounts, it is only by the grace of Congress. In the meantime, remember that even if you don't want to charge usury to your family or friends, the watchful grace-enforcers will tax you as if you did.

There is another nifty little feature in tax law. If you let your adult children (or anyone else) use property you own, perhaps a cabin by the lake or an extra house to live in (or, conceivably, even a car or boat), the IRS can impute rental income to you. This is decidedly not Calvin's doctrine of imputation. But that is another story for a different time.

Federal Income Tax and the Doctrines of Grace

Spend a little time reading tax cases or commentary upon tax law and you are likely to run across a phrase such as this:

"Deductions are a matter of grace and Congress can, of course, disallow them as it chooses." Commissioner v. Sullivan, 356 U.S. 27, 28 (1958).

Such a statement jars the ear of a Christian remade by God. Who is it that administers grace? Our old 1928 Webster's had it right:

grace
1. (theology) a. The divine unmerited favor toward man; the mercy of God, as distinguished from His justice; also, any benefits His mercy imparts; divine love or pardon. "And if by grace, then is it no more of works." Rom. Vi.6.

Webster's New Int'l Dictionary of the English Language, G&C Merriam Co. 1928.

I first happened across the doctrines of tax grace in law school in 1990. My tax professor had been raised Catholic. He often intoned another truism: "The IRS has awesome powers."

Back then I was a full-bore pagan. Even so, I was familiar with the Bible. The idea of Congressional grace seemed a quaint way of saying what was unquestioned truth to modern citizens: "The government giveth and the government taketh away, blessed be the name of the government." It was sort of a sick joke that we tossed about in our class discussions. We'd imagine the IRS as the avenging angel of the State. None of us dared to really explore the implications. We had finals to prepare for.

In case you think that "grace" might have a special legal meaning, consider this definition of grace in a common legal dictionary: "a favor or indulgence as distinguished from a right."

Black's Law Dictionary, 5th Edition (West Publishing Co. 1979).

Grace, then, is administered by God, or at least by a sovereign. It is unmerited. Nobody has a right to it. Without the administration of grace, justice demands a harsher outcome.

Our federal income tax system (and, by extension, our whole system of federal laws) presupposes that whatever you have belongs to the government. Justice demands relinquishment. It is by grace (alone?) that you are allowed to keep some of it. The courts defer to Congress's awesome power. Lawmakers have taken upon themselves the former role of the Catholic Church. Indulgences are dispensed at whim.

People these days fear theocracy. What they miss is that we already live under a theocracy. The theos of our day is named demos. It claims everything. We are told to at least be grateful for the grace it has so far shown. Perhaps we should be careful, lest it be angry.

November elections approach. We are starting to hear advertisements from the government and others to exercise our "sacred" right to vote. As Rushdoony pointed out: "the source of a society's law is its god." In exercising this secular sacrament, we should seriously reflect that demos (the will of the people), deserves no worship and has no claim to being gracious. Rather, it is better to acknowledge it for what it is: a usurper.

Even so, it is a wise idea to pay your taxes. Just because a usurper is wrong doesn't mean he can't hurt you.

Compare and Contrast

U.S. Constitution, Article I, Section 9, second paragraph:

The privilege of the writ of habeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it.
(Emphasis added).
…….

Senate Bill 3930 (passed on Thursday, the House has already passed essentially the same bill:

SEC. 6. HABEAS CORPUS MATTERS.

(a) In General- Section 2241 of title 28, United States Code, is amended—

(1) by striking subsection (e) (as added by section 1005(e)(1) of Public Law 109-148 (119 Stat. 2742)) and by striking subsection (e) (as added by added by section 1405(e)(1) of Public Law 109-163 (119 Stat. 3477)); and
(2) by adding at the end the following new subsection:

`(e)(1) No court, justice, or judge shall have jurisdiction to hear or consider an application for a writ of habeas corpus filed by or on behalf of an alien detained by the United States who—

`(A) is currently in United States custody; and
`(B) has been determined by the United States to have been properly detained as an enemy combatant or is awaiting such determination.

(Emphasis added).

Yes, it is a big deal. The writ of habeas corpus is abolished for non-citizens who have been determined by the president (or his agents) to either be an enemy combatant, or who are awaiting that determination.

No, I don't think we have a rebellion or an invasion right now within our borders. But the legislation does not limit itself to outside our borders.

The U.S. Supreme Court determined a long time ago that the writ of habeas corpus cannot be suspended in areas in which the civil Federal Courts are open. Ex Parte Milligan, 71 U.S. 2, 140 (1866).

"We by no means assert that Congress can establish and apply the laws of war where no war has been declared or exists.

Where peace exists the laws of peace must prevail. What we do maintain is, that when the nation is involved in war, and some portions of the country are invaded, and all are exposed to invasion, it is within the power of Congress to determine in what states or district such great and imminent public danger exists as justifies the authorization of military tribunals for the trial of crimes and offences against the discipline or security of the army or against the public safety." Id. at 140.

So the Milligan Court recognized that military tribunals could be authorized by Congress, but only when there is an invasion within our borders and a declared war (or a rebellion, as the Court called the War Between the States). We don't have any of those within our borders now.

But, as of the end of this week, we will have the suspension of the Great Writ for aliens (including legal aliens) throughout the land. All it takes to lock such a person up is for him to have been "determined by the United States to have been properly detained as an enemy combatant or is awaiting such determination." In other words, if the President says you are awaiting determination, you can be locked up and you don't get to ask a court for review.

One other thing to note: the protections of the Constitution, including due process and habeas corpus, have consistently applied to all "persons", not just U.S. citizens, found within our borders. (The distinctions between citizens and non-citizen residents show up in some cases, like immigration, which the Constitution expressly allows for Congress to regulate.) This means that no conceptual or legal difficulty exists to prevent the law from being extended to citizens sometime in the future.

Welcome to the future. It doesn't seem so bad yet. Incrementalism works well on lobsters and sleepy people. The temperature of our country just went up another degree or two.

Hang on.