How Income Taxes Work

that's right with people, like weeks later it's snowing. Uh. Yeah, because we're releasing this one around text time because it's appropriate. That's right. People, the dreaded day, it is dreaded. I feel sorry for people with that birthday because it's just associated with you know, pain and suffering. Well you should know, I mean, like think about it. That's one good thing

on that day. Yeah, is their birthday? You know. I think we should all celebrate like a half birthday or a mini birthday on April fift just to kind of alleviate tax day. That's right. So we're talking about taxes, specifically income tax, which is everyone's favorite tax to pay is go out and work hard for your money and then give a significant portion of that to the government. All Right, that's text day. I'm not gonna tax bash. I'm gonna try not to tax Bash. It's kind of

tough not to. And I know you gotta pay taxes, I get it, but man, it's just government takes a bite. Well it's not that even it takes a bite that they tinkle so much of it away, you know, And oh my god, it's so maddening. The older I get, the more I'm just like, you have to bed. Yeah, when you're younger, you don't think about that stuff as much. At least I died and you go all learn like, wait a minute, pay how much in taxes? Exactly? All right,

let's get into this alright, Chuck. So um, we're talking income tax specifically, not just taxes. But um, this country has a long history of hating taxes. And it goes back to the very um point that it was founded on, which was in part breaking away from um, Great Britain England. Um, because of taxation without representation. If you're a colonist, you were taxed man all over the place. Yeah. And um.

What they found though, was when we got our independence, the US government formed and started taxing all the same stuff, and I imagine they didn't love it, but they were like, well, at least we're represented, which is kind of the issue we had before. You know, this is taxation with representation. Um. But these were just they weren't They were excise taxes, which is a tax on a specific good, right specific type of good. They were tariffs, which is a tax

on foreign imports. And they were um sales taxes basically. Yeah, twelve was the first sales tax on gold, silverware, jewelry, and watches. So that's pretty much a luxury tax really. Yeah. So right off the bat, the first tax on a personal tax on a person um is it affects the wealthy. Yeah, And it's interesting them the history of the taxes here as you look at it, there was a lot of installing attacks and then repealing it and saying no, that's not right, and then they'll put in another tax and

then they would say no, that's not right. Well, what's funny is that pattern that you're talking about. It followed because the taxation is usually imposed on the wealthy, and the wealthy figures out how to get out of it, and it goes on everybody else's shoulder and then it's repealed. Yeah, this is nothing the stuff that we see now people arguing about. It's kind of what's exactly the same back then, which is really kind of funny when you think about it.

You know, there's nothing new. So in eighteen sixty two is when we got our first national income tax UM and part of this was to support the Union Army. Congress passed laws in eighteen sixty one. In eighteen sixty two, UM in the Office of Commissioner of Internal Revenue, which we know is i RS today, was set up by the Tax Act of eighteen sixty two. Yeah, let's just

for a second, chuck, Like, let's think about this. The beloved Abe Lincoln is directly responsible for the income tax and the i R S. Yeah, I mean it happened on his watch. Sure, I guess you can't set up an income tax without a body to regulate it and to enforce it, which is basically what that did in

eighteen sixty two. Right, And we were talking about taxes being um created due to be imposed on the wealthy um between eighteen twelve after eighteen seventeen, with that when that tax, the Luxury good tax was terminated, and eighteen sixty two, there weren't any taxes like that at all. There weren't any personal taxes, and the US government funded itself from tariffs, right, So all these foreign imports coming in imports, well, the tariffs were on imports apparently mostly um.

Because this allowed companies this this basically led to the U. S economy booming because they like all of the internal stuff, all of domestically produced stuff, wasn't subject to any tariffs, so they didn't have to compete. They had cheaper prices. And these companies used this this stuff to enrich themselves, which led to the uber wealthy, which in turn led to the first income tax and anything sixty two to

text the uber wealthy. That's right. Uh. In an eighteen sixty three they started collecting this income tax for the first time, and it was a graduated tax, kind of like we see today. Um, if you earned between six hundred and ten thousand dollars a year, you paid three percent. If you made higher than that, you paid more than that percentage wise. Um, I mean that was the first

income tax. So it's always three and then five percent if you made over tempt Yeah, it's always funny to me when I hear like our founding fathers blah blah blah, like, no, you're founding fathers. Is this is exactly how they set it up. So I guess the argument is, well, not those founding fathers, just certain founding fathers I agree with, Well,

it depends on the founding fathers. Well, it's just I hate hearing the argument our founding fathers when people don't even really know exactly what our founding fathers were doing, like imposing a graduate attacks first right off the bat. You know, well, the the U I only recently realized that there was that. What we have today in the United States, the form of government we have is part of what's called the Jeffersonian Revolution, where basically the founding

fathers Monroe, Madison, Washington came up with the country. They came up with the country that's different than the one we have now. And the reason that it's different now is because Jefferson came along and said, Noah, we can do better than this, so let's change this, and that's what we have now. So which, yeah, which which founding

father are you talking about? So, like we're saying, it went back and forth, there was a flat tax in eighteen sixty seven instead of a graduate attacks and then five years after that they repealed income tax altogether, and they said, this is not right. It is unconstitutional. Um, it's got to abide by a constitutional guideline and it does not. And that was the income tax of eighteen ninety four. That was where the tariffs were. I'm sorry

I missed spoke earlier. Between eighteen seventy two and eighteen nine. That's where the U. S. Government was lived on tariffs and that allowed the economy to boom, railroads to grow, and that a class of uber wealthy to get even wealthier they were there before. But um, like this is when the Carnegies came along, the Rockefellers like started to develop this and so all these people said, hey, man, like these people should should be paying some some taxes here,

and that's where they came from. That's where the tax came from. Yeah. In that tax two percent of personal income more than four thousand dollars again, tax on the wealthy. Uh. And the Supreme Court is that's when they struck that one down as unconstitutional. So in nine Congress got around all this by making it a part of the constitution. And said, you know what, we'll create the sixteenth Amendment.

Congress will have the power to lay in collect taxes on incomes from whatever source derived without a portion I'm sorry, Yeah, apportionment among the several states without regard any census, right, which was the hangout before. Yeah, Like, it doesn't matter how populated your state is. Like, this has nothing to do with state. It's just a national tax. And originally the income taxes a tax on the uber wealthy does make a king more than four thousand dollars a year,

which is super wealthy. Um, and the uber wealthy fought it, got the Supreme Court to strike it down, and so under Taff's watch, they said, well, we can get around this by just amending the constitution. That's what they did. And apparently from this the sixteenth Amendment. Like before, Chuck, it was like, um, you were more a participant in your state, and there was the federal government, but it was the federal government and they didn't mean a whole

lot to you. When the sixteenth Amendment was passed, that changed everything because now you were a payer to the federal government. Um, and the federal government also had the states kind of by the short hairs because the states relied now on federal grants that were generated through your tax dollars. So the federal government really asserted itself as a central power, consolidated power into the federal government with the sixteenth Amendment more than anything else but or and

they never looked back. They certainly didn't know. UM. In nineteen thirteen with the Underwood Tariff Act, UM, they basically kicked off the modern system that we have in During World War Two, they started withholding taxes instead of just telling up your bill and paying at the end of the year. You have, as we all know and love. Now you have part of your paycheck withheld pay as

you earned system. That's right, and that funds the government continuously because every pay period your employer, which who withholds the your money on behalf of the government, submits it to a federal reserve bank, and the government earns interest on it and has constant income. That's right. It's like a paycheck for the Government's exactly what it is. Uh So let's let's walk people through. Uh And and I think this article does right by it like picking out

just one person. I don't want to call him Joe. I'm so tired of that, What do you want to call? While I have Cyrus written down? All right, we'll go with Cyrus. Right, the Cirrus gets a job, Cyrus gets away age, he agrees to with his employer and says, all right, this is fair, We'll take this job. And the employer says, all right, Syryus, you gotta fill out this W four and um, that's one of your tax forms and you gotta do it right when you get hired.

And it's gonna list all your withholding allowances and all your dependents and child care expenses and basically everything that you need to know, Mr employer, like how much money to hold out of my paycheck? So I fill out the W four. Now you know, now you're withholding. And now at the end of the year, me, Cyrus, I want to see if I can kind of project how I did this year. Am I gonna be paying? Am I be getting it back? So here's how you do that. So you take your gross income, the number that we

all wish we actually made. Right, Yeah, that's all the

money you have from salary, from interest, income from pensions. Yea, all the money you have coming in, that's your gross income, right, and then you go through adjustments, and adjustments are basically um uh, little little mulligans that the government gives you, says, all right, you can you can subtract this from your gross income, which alimony, let's say, sure, or if you um uh tax on your self employment, if you moved, moving expenses for your job, that's one to stuff like that,

and all these things. So adjustments, deductions, which we'll talk about, all of these things, credits, they're all basically behaviors that the government wants to encourage, so they give you, they give you the ability to subtract those amounts from your uh, your gross income. Yeah, they incentivize these things. Yeah, Like they want you to work, so you can deduct childcare expenses under some some regimes. Or they want you to go to college, so you can deduct college expenses things

like that. So that your adjusted gross income. Right when you subtract your adjustments from your gross so that's your A g I. And then you've got a couple of choices here when you go to fill out your tax forms. You can either do the standard deduction or itemize everything out. You're gonna want to choose whichever one is greater. Obviously, so you can get the biggest chunk for yourself. Um,

all sorts of itemized deductions. Like if we had a tax accounting in here, they would probably laugh if we tried to break down itemized deductions. There's a lot of them, and they get really weird. Like, for example, a good example that, um, if you're a bodybuilder, a professional body building, which I am, Uh oil body oil, I write off all my oils can be written off as a business expense. Yeah, and you know I want. I used to freelance in

the film industry. They are all sorts of cool things you can write off, like your movie tickets and your cable bill and uh stuff like that. Um, you can write off your interest on your home mortgage, charitable contributions, some medical and dental expenses, all sorts of things within the law that you can they call him right offs your deductions or you can just go with the standard

deduction again. Right, you don't have to itemize everything out No, but a lot of text people say, uh, tax professionals say, at least go through and make sure you shouldn't be itemizing because if it's even a penny more maybe not a penny, but if it's a little more. It's worth the trouble most of the time, and it is a lot of extra paperwork. Um, but you know, you save yourself some money as you're deducting from it. You're deducting

from your income. And then finally, after you have your justice gross income and you subtract all the deductions for it, that the number that you have that's your taxable income. So the more you can deduct from it, the lower your tax burden is going to be. Yeah, I can't remember which. There's a commercial going around now about one of the accounting firms that says that Americans left a billion dollars on the table for Buffalo while Wings cafe.

If you're getting your taxes done at Buffalo Well Wings, then you get a free dozen wings. That'd be awesome. Did you hear that they may have Dorito's flavored wings coming out. I can't tell you how excited I am about this. I don't get the whole derito ization of everything. You need to get on the bandwagon, dude, because there's a lot of fun to be had eating Dorito based food.

Remember we were kids and that was derritos. That was it was like the guy with a mustache would sell you this one derito And now there's like, wait, what where are you buying derrito's one at a time? From a guy? When down the commercial he was he looks for like jeans Shallotte. Oh, you're talking about the frido bandido. That's different. I'm talking about the Dorito's guy. Really know you're thinking of Mr Pringle's. But now they you know,

you go the store is just overwhelming. It's ridiculous. Yeah, but different shape flavors, and they're they're just like, let's throw everything at the let's see what sticks. Just give me a derita or cool Ranch. Cool Rance is great. I have to abide by the color ranch. They brought the original version out too, and those are pretty great to just regular nacho cheese doritos. You know, even before that there was an original version. It's like taco basically

it's orange bag. It's an orange bag. I think that's that is when I grew up on. Obviously, no, the nacho one is the red bag and then blue is cool. What is this like the nine twenties? What do you mean when they had the original like the sixties or fifties, even before your time. So you've got your taxable income, you go to the I R S tables. If you make less than a hundred thousand dollars a year, you go to the rate schedules. If you earn more than

a hundred thousand dollars a year. And like we said, it's a marginal tax rate system. Um or graduated their different tax brackets depending on how much you make. Yeah, there's seven this year and two. So what's still low? Is it still ten percent? Yep? Ten percent, fifty three percent, thirty five percent, and then for earners of four hundred thousand or over, I think single earners of four k or over, it's thirty nine point six percent of your Hey.

But so it's a marginal tax rate, meaning that um that you fall into one bracket or another. If you earn a hundred thousand dollars, um you're not gonna owe I think twenty eight thousand dollars. I think it falls into maybe they percentile you wouldn't owe twenty eight thousand dollars of your adjusted gross income or yeah, what you would owe is ten percent up to the top of the ten percent bracket of the high of the fifercent bracket.

And so on until you reach your bracket and you subtract your adjusted gross income from the top of that or from the bottom of that bracket, and then you owe percent of that. That makes more sense. It's a lot easier if if say, like you know, if you're making a hundred thousand dollars less, you just go to the text table and you're like, there it is. But it's also fairly easily calculated as well. So what do

you want to make? Well, here's the thing. You want to make as much as you possibly can, I think, But then you want to have that's what you're Into're not saying everyone has to pursue the dollar, right, But if you are pursuing the dollar and you don't want to pay more tax than you have to, UM, you you want to make a high salary and then have a lot of adjustments. UM. The problem is is that there's this thing that was introduced in the sixties nineteen

sixty nine I think, or maybe the seventies. UM was the alternative minimum tax. Sorry that came around in the eighties. The alternative minimum tax was introduced to keep high earners from just deducting absolutely everything and paying a very a low tax. Um, and it made sense of the time

because it was imposed on higher earners. The problem is is the cut off that was originally introduced, something like sixty thou or something like that at that time was a lot of money, but it was never index to inflation. So as the value of the dollar grew weaker over time through inflation, why didn't they index it to inflation. That's weird. Well, because now something like of wag earners fall subject to the minimum tax, so it's basically like

an extra tax now. And what the alternative minimum text does is say, okay, great, you went through and you figured out all your deductions. That's beautiful. What we're gonna do is take your adjusted gross income minus deductions, that nice little number that you got it too, and we're gonna add those deductions back and we're gonna come up

with your alternative adjusted alternative income figure. And then we're going to figure that how much ex tray you oh, on top of your normal ten forty and that's your full tax. You're gonna add that to the ten forty tax amount that you owe, and we're gonna come up with the actual tax you oh, including alternative minimum And apparently Basically, everybody's subject to it one way or another.

Even if you don't itemize, even if you choose the standard deduction, you probably owe something on the alternative minimum tax. So it sounds like what you're saying is that no matter what we do, and no matter how clever we try to get with our accounting, all they have to do is throw in the word another adjust right, they

add those adjustments right back them. They can just throw in another word no, no, no, we need to adjust it again and some at some point you gotta stop adjusting, right, exactly. So the key here is then if you're still if you're like, okay, I'm subject to the alternative minimum tax, I'm um, I want to earn a high salary, but

I don't want to pay too much tax. The thing that doesn't the adjustment or the deduction, I'm sorry, that doesn't get added back um to your your gross income when you're figuring the alternative minimum taxes charity charitable contributions. So the key then would be to max those out as much as possible, and then that would, I imagine, lower your tax a little bit as far as alternative minimum tax goes. Alright, it's like here's your tax, and then now do it again and pay more. That's because

they didn't adjust it to inflation. All right, I think we're here towards the end of this portion. You have your gross tax liability finally, and we should say also, I'm sorry, um that as of two thousand twelve it became finally index to inflation. But I mean for thirty years it wasn't, and it just kept hitting more and more and more people. Well it's important though, that's good. Uh. So we have your gross tax liability. Now Cyrus is Cyrus is going to subtract any credits that are still there,

and then that final number is Cyrus's net tax. So that's either what he's gonna pay or what he's gonna get back. And come April, uh, some time between January one, when he gets his W two from his employer in April, he's gonna have to figure all that out, either by himself or with the help of someone who knows what

they're doing. Um, your W two is gonna break down, uh, everything you made Basically, it's also in your final paycheck, but the W two is what you send in, so you need a separate copy and Supposedly, the UM, your employer, you're anybody who who is going to send you money about income you made or documents about income you made, UM has to give you those documents by January thirty one. That's right, okay. Uh And then here's the fun part. They take all your information and they store it on

magnetic tape machines from the nineteen fifties. Yeah, you found this, UM, this is pretty crazy easy. Well, it stood out to me when I saw magnetic tape machines. I was like, how old is this right? And apparently that's still the case because UM they don't have the funding to upgrade their systems, so they have the magnetic tape program. And uh, Obama's is trying to think UM in two thousand twelve to increase funding to correct that by like a billion

and a half dollars two point one billion. I don't know if it went through or not. So, like you found, Chuck, you stumbled upon the very reason why tax refunds take forever, because there's up to a two week period between when this the refund or the tax return is filed UM and and it ends up on the magnetic tape where it's like it doesn't even exist as far as irs is can. There's no data whatsoever because they're using magnetic tapes. Um.

All right. So oh and apparently also in this article that you sent, UM, they were saying that the the encryption for the I r US is like pretty sad as well, that's parting. Yeah, and the security breaches is all but inevitable. Yeah, if it hasn't happened, like if it doesn't happen in a daily basis already. Wow. All right. So that a lot of people complain about taxes in this country and probably worldwide. Um. So over the years have been a lot of different UH solutions proposed, different

kinds of taxes, alternatives, if you will. One very popular one, um, because it keeps coming back up at least is the flat tax. UM. I think also people like to say it flat tax. Uh. Steve Forbes and Dick Army, Um, we're big on the flat tax. And that was one of Steve Forbes's big one of the foundations of his presidential campaign was a flat tax of se ish um. Basically,

everyone pays the same tax no matter what. Um, You're complicated tax code is going to be bye bye, and you're gonna get something about the size of a postcard to fill out about ten lines your personal income, any personal allowances, your wage, your salary, and then what is your seventeen percent and nut that you owe? Makes sense?

What's the problem seventeen percent? That'd be great for everybody. Yeah, Well, critics will say that it's a favorite the wealthy and puts higher taxes on the burden on those who don't make as much money. Yeah, because if you're paying ten percent, if you're in the ten percent bracket, suddenly you're paying

seven percent more on your income. True. Under Dick armies um flat tax that he proposes, anyone making less than thirty six thousand, eight hundred pays no taxes, which is different than Forbes is right, which if if that's still part of his plan, I couldn't find if he'd adjusted it, then that that it actually is a pretty good plan if it would still satisfactorily fund the government, because that would mean that everybody, if you were like you, would pay no tax for thirty eight six right, and so

anybody above that would still be paying less because that falls in the bracket, which means that you would automatically everybody would automatically be downgraded tax wise, which is pretty good. The problem is, you know, would that fund the government? Is that the issue? Well? Yeah, I mean think about this.

So we're at historically low levels of income taxes right like UM in the sixties under JFK and lb j's watch, the tax rates were in the nine percentile, the highest TAXI was up to and it was like, people think taxes are bad now that it's not. There's been plenty of other times during the during boot mean times like the post war period saw high taxes where taxes have been up to sev for people UM, and these are the high this is the highest bracket, but there have

been many times where it's very high, very low. And apparently the situation is we UM will have like a bubble an economic boom cycle and as a result will lower taxes, and then things get tight and then extremely high taxes follow. So apparently, considering the amount of federal spending going on right now, our taxes are alarmingly low. So the idea of a seventeen percent tax across the board, we basically bankrupt the the the US, well, maybe they

should be a little smarter with how they spend their money. Well, it's a lot of people say that. Maybe we talked about that in the Dead Ceiling episode. Um. But there are some some countries that have instituted flat taxes, especially a handful of Baltic states. I mean, they've been doing it since the nineties, some of them have. It's kind hard to compare though, you know, yeah, because I mean, you know, apples to oranges, apple to a slightly different

type of apple, Smith to the red delicious. Um. But there's also a lot of people who say, well, yeah, Estonia is still around, its economy is growing, but there's also this thing called the value added tax that is really helping their revenue as well, is in addition to the flat tax. Interesting. So another alternative, the national sales taxes, been floated for a while now, and it seems to

be gaining traction or maybe I'm just reading into it. Um. Basically, this is the argument that taxing income decreases productivity, which sort of makes sense when you think about it. Like, basically, what they want to do is eliminate corporate income tax, eliminate capital gains tax, eliminate a state in gift taxes, and institute anywhere between fifteen and National Sales Tax also eliminate Social Security tax the employer part employee part, and abolished the I R S as they want to repeal

the sixteenth Amendment. Yeah, pretty much, um and under I don't know if it was Alan Keys, if it was his plan specifically or just generally. With the National Sales Tax, they would exempt all consumption up to the poverty line. So at the end of the year, if your total expenditures were less than the poverty line, then you would get all that money refunded to you that you paid

a national sales tax. That's a big deal because the National sales tax any is a consumption tax, and a consumption taxes um by nature regressive, meaning that the burden is is heavier on the poor. And the reason the burden is heavier on the poor with the consumption taxes because the poor spend more of their money on necessities

that would be taxed. These are retail items, right, so therefore more of the poor's income is tax and somebody who's wealthy like if the poor, Like if if you have a lower income person spending eighty percent of their money on necessities, food, whatever, um, that means eight percent they pay an eight taxes or they pay taxes on eighty percent of their income, Whereas if you're wealthy and you're spending twenty of your income on these necessities, you're

only spending you're only being taxed on of your income, right, So that makes it a regressive tax, which is the big the big criticism of the sales tax, the National Sales tex that and it probably wouldn't provide enough funding to fund the government once again to fund a big bloated government at least, and they say that, Uh, some people that advocate for it said, well, if we tweetd it to where it was only retail and it was also stocks and bonds included, then that might change the

arguments um um. But there is definitely an argument to be made that the current system punishes people who save money like that that don't spend, because you get tax don your money, and then let's say you want to take that money and put it in your bank, you get tax on that again on the interest you learn, all right, so it's that like you're getting taxed twice. So there's the government has set up a lot of incentive to go out and earn as much and save

as much as you can. Yeah, you know. Well, plus banks aren't exactly encouraging savings right now with the terrible interest rates they are offering. Yeah, yeah, that's true. Um, what about corporate taxes? You know much about those? I know that the income tax national income tax would get rid of corporate income tax as well as the individual right. So with corporate income taxes as it stands now, the US has a U flag guess a flat rate of thirty.

But um, very famously, a lot of companies have great accounting departments that are really good at getting around paying taxes. Companies do that. Yeah. So ge in two thousand ten made fourteen billion dollars. Okay, that's more than me, almost five and a half bill And that's more than you and me combined. Almost five and a half billion were made in the US, and um, they paid zero dollars in taxes in the US and in fact applied for a three point two billion dollar tax credit. Okay, okay, um.

Apple paid zero taxes to any government between two thousand nine and two thousand and twelve despite making thirty billion dollars. But their iPhones are so cute, right, And then um, in two thou also Warren Buffett very famously pointed out that he paid UM six point nine million dollars in personal income taxes, but where his assets not incorporated in Berkshire Hathaway, he would have paid um one point six

billion dollars and extra billion dollars in income taxes. So he points us out to say, like, the corporate tax system is broken. You don't like anybody can get around it. So we need to fix this as well, not do away with it. You need to close the loopholes that are allowing this. But then that brings up the big argument, Well, it's going to keep America from being competitive because we're gonna pay higher taxes. It's going to drive jobs overseas, and companies are gonna shut down here in the US.

Apparently that's not ever been proven that that's all this kind of hot air. Yeah, um, they they Some people contend that high tax rates on the rich, um, don't hurt the economy and don't disincentivize people to work hard. Um, like you said, in the fifties and sixties, it was, and the economy and the stock market were booming back then. And I'm not arguing for any of it. I think it's all just broken and and I don't know if there is a solution because corporations and wealthy are the

very people that have the ability to find the loopholes. Yeah, that's where people go to H and R Block and just still out their taxes in bam. Yeah, it's sad like that's that's we don't have an accounting department. You and I know, like you know, we hopefully get as many deductions as we want and then we get slapped with the alternative minimum tax and they get added right back in. I don't do you have a Swiss bank account. I'm not talking about that, you have a bank in

the Cayman Islands. Let's change the subject. But yeah, that's I mean, just the unfairness of it is is um reason enough to change the tax structure of the tax code. Well that's why a flat tax initially makes a little sense, because it's just everyone pays the same. But people will still find their way around that. Well, healthy people will still find their way around it. It seems like somehow the way that you find your your way around it

is it's just again, it's through loopholes. It's through and whether it's a personal deduction or if you hold your money overseas, you don't owe tax on it. If you do away with loopholes and instituted a flat tax of sev then for corporations as well, then that would I mean, if it could, if it could fund the government, if it didn't have to cut social service is and all this other stuff, then I'm all for it. All right, we have you found an interesting story from about fourteen

years ago where some businesses decided to stop paying taxes. Yeah, and we'll talk about it right now, right, no, right off this message break, Okay, all right, So you found this story which I thought was pretty interesting, where some small businesses in the early two thousand's thought they had found a loophole um that basically said that they are not subject to pay taxes as a small business owner. Right that not only personal income, right, but the business both. Okay.

So basically there's this thing called the eight sixty one arguments that legally you don't really have to pay income tax. Yes, okay, that's not true though, Uh well it was up for interpretation. I think had these people um sued the government and continued to pay taxes, this movement would have had a lot more teeth but instead a lot of people, just a lot of tax resistors, just out of protests stop

paying taxes. There's a trend in the late nineties and up to two thousand, two thousand three or four where people were very loudly in public, holding press conferences saying I'm a business owner and I'm not paying income taxes any longer, and I'm not going to withhold my employees taxes on behalf of the federal government. I don't have to. That's a service that businesses provide the federal government. It's not a mandate, and I think it's illegal that they're

paying taxes. So we're not doing it, and we're not filing taxes either as a business. They head backup from a former I R. S employee, right that said, you're right, they can't come after you. Yeah. So apparently in the code there's um there's a a part called eight sixty one where it says that taxes are generated by non

American business activities. So the eight sixty one position is that if you work for an American company and you're an American, like any income you make it's domestic, which is anything that you or I do, or anything most people do um is not subject to taxation, and these

people tried it. They tested it, but they didn't really test it in the courts, and most of them got dragged to jail and are have just gotten out of prison or are still serving prison terms, but a lot of them aren't being forced to pay back taxes, which is weird. Well, apparently the I r S is woefully underfunded in terms of how much they can pursue these people. That's why you could be a tax cheat and get away with it, right if you're if your number isn't called,

but you know, you take that risk. That's why they were Um. They apparently these people misinterpreted the i r S is inability to prosecute them with the IRIS is umbility legal ability to go after them, and they took it as I r S capitulating to their argument and instead really it was like, um, we were kind of busy right now, but we'll come get you in two thousand five. What was your name again? And they did, thank you sir. Yeah, So a lot of people went

to jail. Um and six one is kind of dead and Wesley Snipe's famously invoked argument, interesting, wonder if Willie did uh not that I saw. You know, there's a big push now that the um, you know, the NFL National Football League is tax exempt, and there's a lot of stink being you know, because I don't think a lot of people knew this until sort of recently, and of course now the internet. He gets on social media and people are like what they're They're not a nonprofit?

So um yeah, socialition helps things quite a bit, doesn't it. Yeah, their petitions going around, Uh, remove the NFL from that text? Why would they be tax exempt? Uh, it's complicated, it's so stupid. It's like you, Joe Public, you're paying the alternatimentum text, But this enormous economic engine over here is is exempt? Why not? Yeah? And not the individual teams and owners like Arthur Blankett, the Falcons and the Falcons organization has to pay taxes, but the NFL as a

as the larger body does not. But um yeah, it's kind of messed up. They should probably pay taxes. So we could sit here all day alternately giving facts and railing on um, yeah, the income tax. But I think we we got it. Yeah, and I'm sure we'll hear from all sides on this one. Bring it on I look forward to it. If you want to learn more about the income tax, you can type income tax into the search part how stuff works dot com. And uh, since I said search part how stuff first dot com,

it means the time for listener mail. I'm gonna call this. We may have saved the life. Hey guys, my name is Zach Freeland. I'm a graphic design student at Grand Valley State University, Go lakers Um. This is about its concussion. He I went to sit down his bed one night in his dorm and smacked the back of my head. My roommates bunk heard a bit, but I went to class and forgot all about it. About five hours later, in a drawing class, I began to get all the

symptoms I usually got with a migraine. The next day I had a bit of a headache, and then the next day as well. So that Wednesday I started to suspect I had a concussion and planning to go to the hospital the next day. But that night I put on the podcast and listen to the one on concussions, and he said it was alarming enough to where I went to the e R immediately and didn't wait till

the next day. And at the e R the doctor told me I had an aneurysm or brain cancer, and I was it was odd to predecide relief to find out it was only an aneurysm. Um, I talked to the doctors. Well, it's better than brain cancer. I guess. Uh. I talked to the doctors. They said I should be fine to finish my time at school, which made it possible for me to get further treatment at home. Went into surgery. They off my aneurism with platinum coils. I

guess that's what they do. And the doctor said if I had not have come in, I might not have lived a whole lot longer. Uh. The aneurism had already grown from the first hospital visit to this second. So guys, I want to say thank you for letting you know that. Uh you make this podcast. And because of the concussion one hadn't scared the crap into me, I might not

be here today. That is pretty awesome. And hey, if this ends up in the air, give a shout out to the Detroit City Football Club minor league soccer team most passionate fans in the nation. No joke, So uh go Detroit City Football Club. Yeah, let's good shout up. That's Zach Freeland. Thanks Zach. If you're recouping well, sir, this is a while ago. Yeah, sorry it took so long to get on the air. Take care of Zach. Thank you for listening to us and letting us save

your life. If we saved your life, you know me and Chuck always want to hear about those. You can tweet to us at s y s K podcast. You can join us on Facebook dot com slash Stuff you Should Know, and you can send us an email to Stuff Podcasts at Discovery dot com and has always joined us at our home on the web, Stuff you Should Know dot com. For more on this and thousands of other topics, Is it how Stuff Works dot com