There was a recent post on lesswrong, which also got highlighted on AC10, that struck my interest. It claimed that he had been avoiding taxes for 20 years through "one simple trick:" filing, but not actually paying them. The idea is that the IRS is so small and incompetent that they basically won't do anything against this sort of passive resistance.
Is this too good to be true? I'm not any sort of "effective altruist," I just don't want to pay taxes. And as it happens, I have a lot of capital gains income this year. According to the rules, I'm supposed to write the IRS a big check by Jan 15 for "estimated taxes." I can afford it, but it would make my life better to keep that money for myself. Can I just... not...? This feels like a real Matrix, red pill moment-
"You're telling me that I can dodge taxes?" "No. I'm telling you that when the time comes- you won't have to."
Then again... I really, really don't want to go to prison. even just getting my passport suspended would be a major hassle. And the guy who wrote that post seems like a real hippy... no bank account and no salary income??? how does he live?
Perhaps it would be better to set up a shady small business and claim all sorts of vague tax deductions. Thoughts on this?
btw: long time lurker, first time poster. I'm asking here because you seem like people who are smart, outside-the-box, and not simps for the government.
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I think I'll take a pass on discussing the morality of it. I'd question the practicality though. Let's think here.
So it seems the primary mechanisms of enforcement against most people are through other institutions - they tell W2 employers to knock it off on bad withholding filings, and they do, they tell banks and investment institutions to hand over owed money, and they will. They know about all your bank accounts because the banks report to the IRS too. I am willing to believe that the IRS's most-feared punitive measures are actually pretty rare to come into contact with as the LW OP describes, but what is the plan for dealing with such institutional enforcement? You can choose to not actually write a check to the IRS when they come knocking, but your payroll processor and bank won't.
So then plans for refusing to pay taxes are mostly about living a lifestyle that avoids all such institutions. The low-end one is a pretty obvious option - take a job that pays cash under the table, seek living arrangement that accept cash, never use a bank. Certainly possible to do, but that's pretty low-end living, you'd have to be really determined to do that.
Maybe there's a Bitcoin variety of this? If you can take a job that pays in Bitcoin and doesn't pay attention to taxes, it might be possible to make pretty good money like that. Maybe you could convert that directly to cash by various means, buy prepaid cards and such, and consume luxury goods at a normal rate. Not sure about living space though, I don't think you can buy with crypto or any landlords would accept it, but maybe a roommate will, or would accept converted cash? Or maybe in a super-techy space like SV you could infact rent or buy with crypto. Though if you buy, you'll owe property taxes, which I'm not sure if we're also objecting to here. So maybe this is a practical way to avoid paying income taxes entirely while not living a minimum-wage lifestyle?
But then, the crypto world is not exactly a bastion of honest dealing and fiscal responsibility. What are the odds your crypto employer will pay the correct amount on time every time? How about the people trading crypto for physical goods? The failure rate for bank-like institutions working with crypto is not great either. I'm not even saying the scam and fraud rate is super-high, but if you're relying on it for your primary financial dealings, just one serious mishap could be a huge deal, even if it only happens once every few years. And where's the recourse on any of that? Think the police or courts will give a crap? I doubt it. Hey, organizations that are built around avoiding all taxes and regulation are rather less honest than the "legit" world, who would have guessed? If they're willing to screw over the Feds for more cash, why wouldn't they screw you over too - you're much easier and less dangerous to screw than the Federal Government. Maybe living and working in the normal regulated world isn't so bad after all, even if the Federal Government is not exactly great. Also, it seems kinda lame to be like, I hate the government so much that I refuse to pay any taxes ever, but then go crying to them for help when some third-party scams you.
Along the lines of there being other risks and dangers than the Government, if you live the all-cash or all-crypto no-taxes lifestyle, and you are anything but dirt poor, then you will probably have substantial cash/crypto lying around somewhere. This makes you an attractive robbery target. If you have any social life at all, people will figure this out eventually. You will be targeted. I've known people this has happened to, despite not being as obvious as guy who pays cash for everything because he wants to pay no taxes ever. Organized multi-person burglary schemes can very much happen to you if word gets around that you have 5-figures of cash lying around. Think the cops are gonna help? Unlikely. If you go crying to them that you got ripped off for $50k cash, they're probably going to be a lot more interested in why you had that much cash around than busting whoever did it. Also falls under the theme of, how you gonna refuse to pay taxes because you hate the government so much, then cry to them for help when somebody else screws you over.
I guess the independent community life might be an option. Can be called a "commune" or a "compound" depending on your politics. It can be a viable way to pay little to no taxes without living a completely shitty life. But it's definitely a very different lifestyle. If you dig that, well more power to you I guess, but I don't think it's worth going to that much trouble just for the specific reason of avoiding paying taxes.
So yeah, I don't have a strong moral objection to it, but show me a way to live a no-tax life that's not completely shitty and doesn't expose me to much more likely dangers than whatever the Federal Government is doing, and maybe I'd be into it. If it exists.
The way I understood it, the whole strategy was based around the IRS just being kind of a paper tiger. There were surprisingly few IRS agents, and they are mostly focused on big corporations and extremely wealthy people- it's just not worth their time to go after a regular shmuck who owes less than 100k. EG, Donald Trump seems to have gotten away with a lot of... questionable tax returns over the years, and he's not exactly poor or low-profile.
A whole lot of our life in a first-world society really just relies on cultural norms and the honor system. Like, if everyone decides to just start littering all over the place, the cops aren't going to stop that.
But it's been pointed out to me that the author of that strategy was kind of a hippy who avoids regular income, and also that the IRS has hired more agents lately and stepped up its game in automation. So it's possible that it worked for him in the past, but not for us going forward.
This strategy seems pretty dependent on never becoming somebody who the IRS might eventually target.
That is, if your income grows over time, you have a real chance of becoming a big enough fish that they'll find it worthwhile to target you. And if they can target you for years or decades of back taxes, that's a pretty heavy hand they can bring slamming down.
Tax liens are not fun to deal with.
Only up to 10 years, according to the guy who wrote the post. And it's a wash if you have to pay back taxes with penalties, since you also get the time value of the money.
If I someday become a billionaire, then I'll be happy to pay back my middle-class taxes from 10 years ago.
Have you ever personally gotten a tax lien, or known someone that did?
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