Gain... what is it?

[ShadesOfKnight]

Ok, here's the newbie question. Oh, and by the way I am not a "TP". I don't adhere to either position yet. I guess that makes me a "Tax Agnostic" for now. LOL

Let's presume that income taxes are based on gain (I am unsure at this point if that is true).

If a man works for another man for an hour and receives $8, has the worker gained anything?

I've read many posts that say yes, but those posts are based on the assumption that you have more of something than you did at one time and these posts also ignore that you have less of something else.

A gain, by definition, is an objective increase and therefore you cannot look only at the addition and not compare it with the subtraction.

Thus, if I give someone a dollar bill and I receive 10 dimes, I've gained nothing, despite the fact that I have more of something (dimes) that I didn't have before.

Proceeding from that point, while it is true that a man has $8 more than he had, can it be said that he has gained anything?

How much does one hour of time cost? Is one man's time "worth" more than another's? Is an hour of the lawyer's time somehow magically "worth" more than the farmer? Every man has 24 hours in the day... no matter how many dollars you have, you can't buy more.

So, is money exchanged for labor a gain, or is it actually an objective loss?

[jkeeb]

Gain does not include a person's labor as an offset. If it did, then there pretty much could be no "gain". A Corporation could say the profits they made were offset by the synergies of it's employee's and capital, an investor's profit at sale was offset by his worry over the risk, yadda yadda yadda.

[Nikki]

Ok, here's the newbie question. Oh, and by the way I am not a "TP". I don't adhere to either position yet. I guess that makes me a "Tax Agnostic" for now. LOL

Let's presume that income taxes are based on gain (I am unsure at this point if that is true).

If a man works for another man for an hour and receives $8, has the worker gained anything?

I've read many posts that say yes, but those posts are based on the assumption that you have more of something than you did at one time and these posts also ignore that you have less of something else.

A gain, by definition, is an objective increase and therefore you cannot look only at the addition and not compare it with the subtraction.

Thus, if I give someone a dollar bill and I receive 10 dimes, I've gained nothing, despite the fact that I have more of something (dimes) that I didn't have before.

Proceeding from that point, while it is true that a man has $8 more than he had, can it be said that he has gained anything?

How much does one hour of time cost? Is one man's time "worth" more than another's? Is an hour of the lawyer's time somehow magically "worth" more than the farmer? Every man has 24 hours in the day... no matter how many dollars you have, you can't buy more.

So, is money exchanged for labor a gain, or is it actually an objective loss?

The basic presumption is incorrect. Income taxes are not based on gain, they are based on income.

After that, there are various deductions, exclusion, adjustments, and so on -- depending on whether the taxpayer is a wage earner, a business, an estate, etc.

[Randall]

Ok, here's the newbie question. Oh, and by the way I am not a "TP". I don't adhere to either position yet. I guess that makes me a "Tax Agnostic" for now. LOL

I don't believe you.

Let's presume that income taxes are based on gain (I am unsure at this point if that is true).

It is based on income from whatever source derived (unless a specific exemption exists in the law)

If a man works for another man for an hour and receives $8, has the worker gained anything?

Yup, eight bucks.

I've read many posts that say yes, but those posts are based on the assumption that you have more of something than you did at one time and these posts also ignore that you have less of something else.

You may less time left in your life, but you gained eight bucks. You could have spent that hour napping, making love, smoking ribs on the grill; you would still be out the hour.

A gain, by definition, is an objective increase and therefore you cannot look only at the addition and not compare it with the subtraction.

Thus, if I give someone a dollar bill and I receive 10 dimes, I've gained nothing, despite the fact that I have more of something (dimes) that I didn't have before.

Proceeding from that point, while it is true that a man has $8 more than he had, can it be said that he has gained anything?

Yup, eight bucks.

How much does one hour of time cost?

Zero. If you chose to labor for gain or chose to take a nap, the cost of time is zero.

Is one man's time "worth" more than another's?
The time itself, is not worth more. What one does with that time may have more value to it.

Is an hour of the lawyer's time somehow magically "worth" more than the farmer? Every man has 24 hours in the day... no matter how many dollars you have, you can't buy more.

So, is money exchanged for labor a gain, or is it actually an objective loss?

Income derived from labor is taxable.

[ShadesOfKnight]

The basic presumption is incorrect. Income taxes are not based on gain, they are based on income.

After that, there are various deductions, exclusion, adjustments, and so on -- depending on whether the taxpayer is a wage earner, a business, an estate, etc.

By your own description, income taxes are not actually based on income... otherwise, the deductions, exclusions and adjustments would be superfluous.

Your description actually shows that the tax is based on income AND outflows... which matches mine... the addition (income in your parlance) is compared against the subtraction (deductions, exclusion, adjustments and so on in your parlance) in order to arrive at an actual taxable value. The difference is that your parlance ignores one component of the subtraction that mine does not... time.

[ShadesOfKnight]

Ok, here's the newbie question. Oh, and by the way I am not a "TP". I don't adhere to either position yet. I guess that makes me a "Tax Agnostic" for now. LOL

I don't believe you.

Your choice, of course. One of the best things about opinions; everyone is entitled to have one.

It is based on income from whatever source derived (unless a specific exemption exists in the law)

That is not wholly accurate, but that's not what I'm after here.

You may less time left in your life, but you gained eight bucks. You could have spent that hour napping, making love, smoking ribs on the grill; you would still be out the hour.

True. And? Is time truly valueless? Your post seems to imply that it is, but is that true?

The time itself, is not worth more. What one does with that time may have more value to it.

While that may be true philosophically (which is interesting all by itself), is it true legally?

Income derived from labor is taxable.

Somehow, I am disinclined to accept a grand declaration as though from god... I was rather hoping for more detail than an implied need for faith.

[Burzmali]

The internal revenue code isn't enough?

[John J. Bulten]

Let's presume that income taxes are based on gain (I am unsure at this point if that is true).

If a man works for another man for an hour and receives $8, has the worker gained anything? ....

How much does one hour of time cost? Is one man's time "worth" more than another's? Is an hour of the lawyer's time somehow magically "worth" more than the farmer? Every man has 24 hours in the day... no matter how many dollars you have, you can't buy more.

So, is money exchanged for labor a gain, or is it actually an objective loss?

Hi Shades, I'm a tax honesty advocate, I only speak for myself. I'm a moderator at losthorizons.com where we like to tackle this kind of question as well.

The statutes always used to group "income" with "gains" and "profits", and I believe Eisner v Macomber stated that this limits the meaning of income to gains and profits. Since then the word "income" has been permitted to stand alone more often, but ALL current classes of income are still regarded as accounting gains.

Your primary argument is logically sound but still has much that may be rejected by courts. If you want to argue in court that money exchanged for labor is an objective loss: First, you must ensure you rebut any testimony which could lead to the conclusion that the money was somehow taxable. A W-2 is such testimony because it claims payments were "wages", which leads to the conclusion that the transaction was 100% gain and derived 100% income. It is administratively rebutted by form 4852, but please don't use form 4852 without reading Pete Hendrickson's Cracking the Code. There are many other ways for IRS/DOJ to insert such testimony in evidence, be aware.

Now I'm of the opinion that doing this precisely with an honest judge (who's not afraid of endangering the public fisc) would triumph in itself, but to be pessimistic, let's assume the adversary argues alternatively (like JG) that even if there was no testimony that leads directly to a taxability conclusion, all accessions to wealth clearly realized over which the holder has complete dominion are income (which is a misreading of the cases Glenshaw Glass and Kowalski). So secondly, you would then need to rebut this by stating that income only includes such accessions which are within Congressional jurisdiction to tax indirectly (e.g. Banana v Fruit), and then demonstrate that your pay is not within Congressional jurisdiction to tax indirectly, by relying on decisions such as I've quoted in the thread Income and Compensation Defined.

If, however, you bring in the "lost time" argument in a context where it doesn't apply, you are toast. It certainly cannot be brought in while any unrebutted testimony remains to prove taxability directly, and that is the primary type of testimony IRS uses; the reason is that when such testimony exists, it serves to invoke statutes which effectively exclude lost time from the equation. Secondly, it cannot be brought in alone to rebut the misreading of Glenshaw and Kowalski, as it's not on point. Only with these two attacks put down can it be raised effectively to demonstrate the validity of your pay not being in indirect tax jurisdiction. Only by removing all other assumptions of gain calculation can you enter the gain calculation you posit so commonsensically.

[Nikki]

The basic presumption is incorrect. Income taxes are not based on gain, they are based on income.

After that, there are various deductions, exclusion, adjustments, and so on -- depending on whether the taxpayer is a wage earner, a business, an estate, etc.

By your own description, income taxes are not actually based on income... otherwise, the deductions, exclusions and adjustments would be superfluous.

Your description actually shows that the tax is based on income AND outflows... which matches mine... the addition (income in your parlance) is compared against the subtraction (deductions, exclusion, adjustments and so on in your parlance) in order to arrive at an actual taxable value. The difference is that your parlance ignores one component of the subtraction that mine does not... time.

Unfortunately our definitions differ on one teensy point: mine complies with the law -- yours exists only in fantasy land.

By law (whether it's right or not) a wage earner's time has no bearing on his taxes.

[ShadesOfKnight]

The internal revenue code isn't enough?

900 pages of gobbledygook is hardly helpful, especially if one genuinely wishes to understand it.

[ShadesOfKnight]

By law (whether it's right or not) a wage earner's time has no bearing on his taxes.

Wait. Does that mean that income tax is actually an indirect tax (since you can choose not to work)?

[Quixote]

Is time truly valueless? Your post seems to imply that it is, but is that true?

No, but we're all extremely lucky that its value is not taken into account in the computation of income. If all the time we acquire were included in our incomes as treasure trove, we couldn't possibly afford to pay the resulting tax.

[Quixote]

By law (whether it's right or not) a wage earner's time has no bearing on his taxes.

Wait. Does that mean that income tax is actually an indirect tax (since you can choose not to work)?

The income tax is an indirect tax.

[Nikki]

The internal revenue code isn't enough?

900 pages of gobbledygook is hardly helpful, especially if one genuinely wishes to understand it.

If you ignore the portions of the IRC related to corporate, estate, and gift taxes and to the wage taxes related to social security, it's a lot smaller and easier to understand.

Again, if you have a problem with the tax laws, go whine to congress.

[ShadesOfKnight]

Again, if you have a problem with the tax laws, go whine to congress.

Even they are at a loss to simply state the facts, it seems. Heck, they don't even necessarily read the laws they vote for (Patriot Act, and others).

Of course, that's a different issue entirely.

[ShadesOfKnight]

The Internal Revenue Code only seems like gobbledy-gook, but it is merely convoluted and complex. The information is there, it is just a matter of knowing how to find it. Of course having a copy of Tax Facts handy helps.......

Obvious question: Why is the law not simply the Tax Facts that you reference? I am inferring that they are simpler and more concise... If that is the case, why the convolutions and complexity? Why not make it simple?

[Imalawman]

The Internal Revenue Code only seems like gobbledy-gook, but it is merely convoluted and complex. The information is there, it is just a matter of knowing how to find it. Of course having a copy of Tax Facts handy helps.......

Obvious question: Why is the law not simply the Tax Facts that you reference? I am inferring that they are simpler and more concise... If that is the case, why the convolutions and complexity? Why not make it simple?

Because lawyers are smart and creative.

[jg]

Now I'm of the opinion that doing this precisely with an honest judge (who's not afraid of endangering the public fisc) would triumph in itself, but to be pessimistic, let's assume the adversary argues alternatively (like JG) that even if there was no testimony that leads directly to a taxability conclusion, all accessions to wealth clearly realized over which the holder has complete dominion are income (which is a misreading of the cases Glenshaw Glass and Kowalski). So secondly, you would then need to rebut this by stating that income only includes such accessions which are within Congressional jurisdiction to tax indirectly (e.g. Banana v Fruit), and then demonstrate that your pay is not within Congressional jurisdiction to tax indirectly, by relying on decisions such as I've quoted in the thread Income and Compensation Defined.

What Mr. Bulten consistently omits is "in the absence of a specific exemption" when discussing the Supreme Court's determination whether the receipt of a payment is or is not included in gross income under section 61 of the Internal Revenue Code (IRC). The actual quote referenced from COMMISSIONER v. KOWALSKI, 434 U.S. 77 (1977):

In the absence of a specific exemption, therefore, respondent's meal-allowance payments are income within the meaning of 61 since, like the payments involved in Glenshaw Glass Co., the payments are "undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion."

Although Mr. Bulten claims there are decisions that decided (or even support) that "your pay is not within Congressional jurisdiction to tax indirectly" it is not true.
Again, from COMMISSIONER v. KOWALSKI, 434 U.S. 77 (1977):

The starting point in the determination of the scope of "gross income" is the cardinal principle that Congress in creating the income tax intended "to use the full measure of its taxing power." <cites omitted> In applying this principle to the construction of 22 (a) of the Internal Revenue Code of 1939 this Court stated that "Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature[, but intended] to tax all gains except those specifically exempted."

Full case text is at http://supreme.justia.com/us/434/77/case.html

Although some would like to pretend it is otherwise(or that it does not mean what it says), the IRC says:

§ 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;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
<cut for brevity>

See http://www.fourmilab.ch/ustax/www/t26-A-1-B-I-61.html

And as much as it may not be fair, right, proper, politically correct or economically justifiable, the IRC also says in TITLE 26, Subtitle A, CHAPTER 1, Subchapter B, PART IX, Section 262:

(a) General rule
Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses.

See http://www.fourmilab.ch/ustax/www/t26-A-1-B-IX-262.html

So the law as applied and enforced and which has been upheld by the courts is that compensation for services (along with income from whatever source derived,except as otherwise provided) is part of gross income from which are subtracted deductions allowed; but no deduction shall be allowed for personal, living, or family expenses (except as otherwise expressly provided).

Beware those that claim you do not have an affirmative duty to file and pay income taxes.

[Demosthenes]

The Internal Revenue Code only seems like gobbledy-gook, but it is merely convoluted and complex. The information is there, it is just a matter of knowing how to find it. Of course having a copy of Tax Facts handy helps.......

Obvious question: Why is the law not simply the Tax Facts that you reference? I am inferring that they are simpler and more concise... If that is the case, why the convolutions and complexity? Why not make it simple?

We live in a complex world, and the laws are written by politicians who use the code to try to 1) control human behavior, 2) pander to lobbyists, 3) protect certain industries from failing, and so on. They want to encourage people to give to charity (deduction), purchase homes (mortgage interest deduction), encourage retirement savings (specialized accounts) and so on. That gets real complicated real fast.

The Tax Code is several thousand pages long, but for the vast majority of Americans, less than 15 pages are relevant.

Consider the tax situation of multi-national oil company, with offshore drilling, and hundreds of subsidiaries. There are research and development costs, taxation by other countries where they do business, etc..

Now compare that two a married couple with two kids, a home, a couple of retirement plans, and a savings accounts for the kids' college fund.

The Tax Code encompasses both scenarios.

[ShadesOfKnight]

Consider the tax situation of multi-national oil company, with offshore drilling, and hundreds of subsidiaries. There are research and development costs, taxation by other countries where they do business, etc..

Now compare that two a married couple with two kids, a home, a couple of retirement plans, and a savings accounts for the kids' college fund.

The Tax Code encompasses both scenarios.

I see your point, but would not a sentence, for instance:

"10% of annual income from whatever source derived is due on April 15th to the Department of the Treasury."

Be just as all-encompassing?