Stuff You Should Know - How Income Taxes Work

Episode Date: April 3, 2014

They are among the more reviled concepts of modern life, and yet they are as inevitable as death. Join Josh and Chuck as they look into the history and the basis of income taxes in the U.S. in this episode. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Just a Skyline drive on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. Listen to Frosted Tips with Lance Bass on the iHeart Radio app, Apple Podcast, or wherever you listen to podcasts. Welcome to Stuff You Should Know from HouseFForks.com. Hey and welcome to the podcast, I'm Josh Clark and Charles W. Chuck Bryant and Jerry Rowland are here with me, so it's Stuff You Should Know. That's right. Welcome.

That was nice. Yeah. That was friendly. Still coming. Ooh, German friendly. Bienvenue. French friendly. Is it French?

I believe so. Okay. How's it going? It's going fine. It's still snowing. That's right. With people like, weeks later it's snowing. Right.

Yeah, because we're releasing this one around tax time because it's appropriate. That's right. April 15th people. Yep. The dreaded day. The most dreaded. I feel sorry for people with that birthday because it's just associated with pain and suffering.

Well, you should know. I mean, think about it. That's one good thing on that day. Yeah. It's their birthday. Yeah. I think we should all celebrate like a half birthday or a mini birthday on April 15th 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. Right. That's tax day. I'm not going to tax bash. I'm going to try not to tax bash.

It's kind of tough not to. I know you got to 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. I know. You know? Yeah.

Oh my God. It's so maddening. The older I get, the more I'm just like, you have to be kidding me. Yeah. When you're younger, you don't think about that stuff as much. You're excited. You get a little older and you're like, wait a minute, I pay how much in taxes? Exactly.

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

Yeah. And what they found though was when we got our independence, the US government formed it 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. Right. This is taxation with representation. But they were excised taxes, which is a tax on a specific good, specific type of good.

They were tariffs, which is a tax on foreign imports. And they were sales taxes, basically. Yeah. So 1912 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 affects the wealthy. Yeah.

And it's interesting the history of the taxes here. As you look at it, there was a lot of installing a tax 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 is 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 was exactly the same back then, which is really kind of funny when you think about it. Yeah. You know, there's nothing new. So in 1862 was when we got our first national income tax. And part of this was to support the Union Army, Congress passed laws in 1861 and 1862 in the office of commissioner of internal revenue, which we know is IRS today was set up by the tax act of 1862.

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 IRS. 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 1862.

Right. And we were talking about taxes being created to be imposed on the wealthy between 1812 or 1817 with that when that tax, the luxury good tax was terminated. And 1862, there weren't any taxes like that at all. There weren't any personal taxes. And the U.S. government funded itself from tariffs, right? So all these foreign goods coming in, imports. Exports do.

Well, the tariffs weren't imports, apparently, mostly because this allowed companies, this basically led to the U.S. economy booming because all of the internal stuff, all the 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 stuff to enrich themselves, which led to the uber wealthy, which in turn led to the first income tax in 1862 to tax the uber wealthy. That's right.

And in 1863, they started collecting this income tax for the first time and it was a graduated tax, kind of like we see today. If you earn between $600 and $10,000 a year, you paid 3%. If you made higher than that, you paid more than that percentage-wise. I mean, that was the first income tax. So it's always 3% and then 5% if you made over 10,000. Yeah, it's always funny to me when I hear like, our founding fathers, blah, blah, blah, like, no, your founding fathers, 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. 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 graduated tax first right off the bat. Right. Well, I only recently realized 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 a 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, no, we can do better than this. So let's change this. And that's what we have now. So it's kind of easy, yeah, which founding father are you talking about? So like we're saying, it went back and forth, there was a flat tax in 1867, instead of a

graduated tax, and then five years after that, they repealed income tax altogether. Yeah. And they said, this is not right. It is unconstitutional. It's got to abide by a constitutional guideline and it does not. And that was the income tax of 1894. That was where the tariffs were. I'm sorry, I misspoke earlier.

Between 1872 and 1894, that's where the U.S. government lived on tariffs. And that allowed the economy to boom, railroads to grow, and a class of Uber wealthy to get even wealthier. They were there before, but this is when the Carnegie's came along and the Rockefellers started to develop out of this. And so all these people said, hey, man, these people should be paying some taxes here. And that's where they came from. That's where the 1894 tax came from.

Yeah, and that taxed 2% of personal income, more than $4,000, again, tax on the wealthy. And the Supreme Court, that's when they struck that one down as unconstitutional. So in 1913, Congress got around all this by making it a part of the Constitution and said, you know what? We'll create the 16th Amendment. We'll have the power to lay and collect taxes on incomes from whatever source derived without a portion, I'm sorry, yeah, apportionment among the several states without regard to any census.

Right. Which was the hangout before. Yeah. It doesn't matter how populated your state is. This is nothing to do with state. It's just a national tax. Right. And originally, the 1894 income tax was a tax on the Uber wealthy.

Those making more than $4,000 a year, which is super wealthy. 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 16th Amendment, like before Chuck, it was like, you are 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 16th Amendment was passed, that changed everything because now you were a payer to the federal government. 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. Yeah. So the federal government really asserted itself as a central power, consolidated power into the federal government with the 16th Amendment more than anything else before.

And they never looked back. They certainly didn't, no. In 1913, with the Underwood Tariff Act, they basically kicked off the modern system that we have. And during World War II, they started withholding taxes instead of just tallying 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. Yeah, pay as you earn system.

That's right. And that funds the government continuously because every pay period, your employer, who withholds 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 the paycheck for the government. That's exactly what it is. So let's walk people through, and I think this article does right by it, like picking

out just one person. Joe. I don't want to call him Joe. I'm so tired of that. What do you want to call him? Well, I have Cyrus written down. All right. We'll go with Cyrus.

All right. So Cyrus gets a job. Cyrus gets a wage he agrees to with his employer and says, all right, this is fair. We'll take this job. And the employer says, all right, Cyrus, you've got to fill out this W-4. And that's one of your tax forms, and you've got to do it right when you get hired, and it's going to list all your withholding allowances and all your dependents and childcare expenses and basically everything that you need to know, Mr. Employer, like how much money to

hold out of my paycheck. Right. So I fill out the W-4. 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 going to be paying?

Am I going to 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. All the money you have from salary, from interest income, from pensions. All the money you have coming in, that's your gross income, right? And then you go through adjustments.

And adjustments are basically little mulligans that the government gives you. It says, all right, you can subtract this from your gross income, which lowers your gross income. Pay alimony, let's say. Sure. And then you tax on your self-employment if you move, moving expenses for your job. That's one too. 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 the ability to subtract those amounts from your gross income. Yeah. They incentivize these things. Yeah. So you can deduct childcare expenses under some regimes, or they want you to go to college.

So you can deduct college expenses, things like that. Right. So that's your adjusted gross income. Right. When you subtract your adjustments from your gross. So that's your AGI. And then you 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 going to want to choose whichever one is greater, obviously. Right. So you can get the biggest chunk for yourself. All sorts of itemized deductions, like if we had a tax accountant 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 if you're a bodybuilder, a professional bodybuilder. Which I am. Oil. Body oil. I write off all my oils. Can be written off as a business expense. Yeah, and you know, when I used to freelance in the film industry, there are all sorts of cool things.

You can write off like your movie tickets and your cable bill and stuff like that. 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 them write 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 tax professionals say, at least go through and make sure you shouldn't

be itemizing. Yeah, for sure. 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. 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 adjusted gross income and you subtract all the deductions

for it, that 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. Oh, for Buffalo Wild Wings Cafe. If you're getting your taxes done at Buffalo Wild Wings, then you get a free dozen wings. That'd be awesome. Did you hear that they may have Doritos flavored wings coming out?

Really? I can't tell you how excited I am about this. I don't get the whole Dorito-ization of everything. You need to get on the bandwagon, dude, because there's a lot of fun to be had eating Dorito-based foods. Remember when we were kids and there was Doritos? Yeah, it was it. It was like the guy with the mustache would sell you this one Dorito.

And now there's like, wait, what, where were you buying Doritos one at a time from a guy with the mustache? The guy on the commercial, he was, he looks sort of like Gene Shallot. Oh, you're talking about the Frito Bandito. That's different. That's Fritos. No, I'm talking about the Doritos guy. Really?

I'm pretty sure. No, you're thinking of Mr. Pringles. But now they, you know, you go to the store, it's just overwhelming. It's ridiculous. Yeah, but I think that's kind of the point, like, they're just like, let's throw everything at the wall and see what sticks. Just give me a Dorito or Cool Ranch. Cool Ranch is great.

I have to abide by the Cool Ranch. They brought the original version out too, and those are pretty great too. Just regular nacho cheese Doritos. No, 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, yeah, this is the one I grew up on, obviously. No, the nacho one is the red bag, and then blue is cool. What is this, like the 1920s?

What do you mean? When they had the original taco? No, no, no, like the 60s or 50s, 60s, yeah. Even before your time. So you've got your taxable income. You go to the IRS tables if you make less than $100,000 a year. You go to the rate schedules if you earn more than $100,000 a year, and like we said, it's a marginal tax rate system, or graduated, there are different tax brackets depending

on how much you make. Yeah, there's seven this year in 2013. So what's the low? Is it still 10%? Yep, 10%, 15%, 25%, 28%, 33%, 35%, and then for earners of 400,000 or over, I think single earners of 400k or over, it's 39.6% of your pay. But so it's a marginal tax rate, meaning that you fall into one bracket or another, but if you earn $100,000, you're not going to owe, I think, $28,000.

I think it falls into maybe the 28th percentile. You wouldn't owe $28,000 of your adjusted gross income. Or yeah, what you would owe is 10% up to the top of the 10% bracket, 15% of the high of the 15% 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 like 28% of that. Okay, that makes more sense. It's a lot easier if you're making $100,000 or less, you just go to the tax table and

you're like, there it is, but it's also fairly easily calculated as well. So what do you want to make, $99,999? Well, here's the thing. You want to make as much as you possibly can, I think, but then you want to have... If that's what you're into, by the way, we'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, you want to make a high salary and then have a lot of adjustments. The problem is that there is this thing that was introduced in the 60s, 1969, I think,

or maybe the 70s, was the alternative minimum tax. Sorry, that came around in the 80s, 1982. The alternative minimum tax was introduced to keep high earners from just deducting absolutely everything and paying a very low tax. And it made sense at the time because it was imposed on high earners. The problem is, is the cutoff that was originally introduced, something like $60,000 or something like that, at that time was a lot of money, but it was never indexed 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 95% of wage earners fall subject to the minimum tax. So it's basically like an extra tax now. And what the alternative minimum tax does is say, okay, great, you went through and you figured out all your deductions. That's beautiful. So what we're going to do is take your adjusted gross income minus deductions, that nice little

number that you got it to, and we're going to add those deductions back. And we're going to come up with your alternative, adjusted alternative income figure. And then we're going to figure that how much extra you owe on top of your normal 1040. And that's your full tax. You're going to add that to the 1040 tax amount that you owe, and we're going to come up with the actual tax you owe, 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 in. They can just throw in another word. No, no, no. You've got to adjust it again. At some point, you've got to 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 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 to your gross income when you're figuring the alternative minimum tax is 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. All right. Isn't that crazy? That is crazy. It's like, here's your tax and then now do it again and pay more. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough or you're at the end of the road.

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Yeah. All right. I think we're here toward the end of this portion. You have your gross tax liability finally. And we should say also, I'm sorry, that as of 2012, it became finally indexed to inflation. But I mean, for 30 years it wasn't and it just kept hitting more and more and more people. Well, that's important though. That's good.

Yeah. So we have your gross tax liability now. 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 going to pay or what he's going to get back. And come April 15th, sometime between January 31st when he gets his W2 from his employer. And April 15th, he's going to have to figure all that out either by himself or with the help of someone who knows what they're doing.

Your W2 is going to break down everything you made basically. It's also in your final paycheck, but the W2 is what you send in. Right. So you need a separate copy. And supposedly your employer, anybody who is going to send you money about income you made or documents about income you made has to give you those documents by January 31st. That's right. Okay.

And then here's the fun part. They take all your information and they store it on magnetic tape machines from the 1950s. Yeah. You found this. This is pretty crazy. 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 they don't have the funding to upgrade their systems. So they have the magnetic tape program and Obama's has tried I think in 2012 to increase funding to correct that by like a billion and a half dollars, 2.1 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. Yeah. It was up to a two week period between when the tax return is filed and it ends up on

the magnetic tape where it's like it doesn't even exist as far as the IRS is concerned. Yeah. There's no data whatsoever. Because they're using magnetic tapes. All right. So. Oh, and apparently also in this article that you sent, they were saying that the encryption for the IRS is like pretty sad as well.

That's heartening. Yeah. And the security breach is all but inevitable if it doesn't happen on a daily basis already. Wow. All right. So a lot of people complain about taxes in this country and probably worldwide. So over the years have been a lot of different solutions proposed, different kinds of taxes, alternatives if you will.

One very popular one because it keeps coming back up at least is the flat tax. I think also people like to say it. Flat tax. Yeah. Steve Forbes and Dick Armey were 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 17% ish. Basically everyone pays the same tax no matter what your complicated tax code is going to

be bye-bye and you're going to get something about the size of a postcard to fill out. Right. About 10 lines, your personal income, any personal allowances, your wage, your salary and then what is your 17% nut that you owe. Right. Make sense. What's the problem? 17% that'd be great for everybody.

Yeah. Well, critics will say that it's a favor's the wealthy and puts higher taxes on the burden on those who don't make as much money. Yeah, because if you're paying 10%, if you're in the 10% bracket, suddenly you're paying 7% more on your income. True. Under Dick Armey's flat tax that he proposes, anyone making less than 36,800 pays no taxes, which is different than Forbes's.

Right. Which if that's still part of his plan, I couldn't find if he'd adjusted it. Right. Then that 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 38,6, right? Yeah. 36,8.

36,8. Yeah. And so anybody above that would still be paying less because that falls in the 25% bracket, which means that you would automatically, everybody would automatically be downgraded tax wise. Yeah. Which is pretty good. And the problem is, would that fund the government?

Right. Is that the issue? Well, yeah. I mean, think about this. So we're at historically low levels of income taxes, right? Like in the 60s under JFK and LBJ's watch, the tax rates were in the 90th percentile. The highest tax you could pay was up to 90%. I thought that was wrong.

Your income? No. Like people think taxes are bad now. That is not. There's been plenty of other times during the, during booming times, like the post war period saw high taxes, where taxes have been up to 70% for people. I mean, this is the highest bracket, but there have been many times where it's very high, very low.

And apparently the situation is we will have like a bubble, an economic boom cycle. And as a result, we'll 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 17% tax across the board, it basically bankrupt the US. Well maybe they should be a little smarter with how they spend their money. Well, that's a lot of people say that.

Yeah, maybe we talked about that in the debt ceiling episode. But there are some countries that have instituted flat taxes, especially a handful of Baltic states. Does it work? I mean, they've been doing it since the 90s. Some of them have. It's kind of hard to compare though, you know. Yeah.

Because I mean, you know, apples to oranges. Apple to a slightly different type of apple. Granny Smith to a red delicious. But there's also a lot of people who say, well, yeah, Estonia is still around. Yeah. Estonia is growing, but there's also this thing called the value added tax that is really helping their revenue as well, right, is in addition to the flat tax. Yeah.

Interesting. So another alternative, the national sales tax has been floated for a while now and it seems to be gaining traction or maybe I'm just reading into it. 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 estate and gift taxes and institute anywhere between 15 and 30 percent national sales tax.

Also eliminate social security tax, the employer part, employee part. And abolish the IRS. And abolish the IRS. They want to repeal the 16th amendment. Yeah. Pretty much. And under, I don't know if it was Alan Keyes, 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 is a consumption tax. And a consumption tax is by nature regressive, meaning that the burden is heavier on the poor. The reason the burden is heavier on the poor with the consumption tax is 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 taxed than somebody who's wealthy. Like if you have a lower income person spending 80% of their money on necessities, food, whatever, that means 80%, they pay an 80% taxes or they pay taxes on 80% of their income, whereas if you're wealthy and you're spending 20% of your income on these necessities, you're only spending, you're only being taxed on 20% of your income. So that makes it a regressive tax, which is the big criticism of the sales tax, the national sales tax, 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 some people that advocate for it said, well, if we tweaked it to where it was only retail and it was also stocks and bonds included, then that might change the argument some. But there is definitely an argument to be made that the current system punishes people who save money that don't spend because you get taxed on your money and then let's say you want to take that money and put it in your bank, you get taxed on that again on

the interest you earn. So it's like you're getting taxed twice. So the government hasn't 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're offering.

Yeah. That's true. 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 U.S. has a, I guess, a flat rate

of 35 percent. But 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 2010 made $14 billion. Okay. That's more than me.

Almost five and a half billion. That's more than you and me combined. Almost five and a half billion were made in the U.S. And they paid $0 in taxes in the U.S. Wow. And in fact, applied for a $3.2 billion tax credit. Okay. Okay.

Apple paid zero taxes to any government between 2009 and 2012 despite making $30 billion. Yeah. And their phones are so cute. Right. And then in 2010 also, Warren Buffett very famously pointed out that he paid $6.9 million in personal income taxes. But where his assets not incorporated in Berkshire Hathaway, he would have paid $1.6 billion. Yeah.

An extra billion dollars in income taxes. So he points this 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. Right. Do away with it. We need to close the loopholes that are allowing this. Yeah.

But then that brings up the big argument. Well, it's going to keep America from being competitive because we're going to pay higher taxes. It's going to drive jobs overseas and companies are going to shut down here in the U.S. Yeah. Apparently that's not ever been proven that that's all this kind of hot air. Yeah. Some people contend that high tax rates on the rich don't hurt the economy and don't

disincentivize people to work hard. Like you said, in the 50s and 60s, it was 90 percent 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 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 for people go to H&R Block and just fill out their taxes and bam. Yeah.

It's sad. We don't have an accounting department, you and I. No. 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 have. Do you have a Swiss bank account? I'm not talking about that.

Do you have a bank in the Cayman Islands? Let's change the subject. But yeah, just the unfairness of it is reason enough to change the tax structure, 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, wealthy people will still find their way around it, it seems like, somehow. The way that you find your way around it is just, again, it's through loopholes 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 17 percent, then for corporations as well, then that would, I mean, if it could fund the government, if it didn't have to cut social services and all this other stuff, then I'm all for it. All right. We have, you found an interesting story from about 14 years ago where some businesses decided to stop paying taxes. Yeah.

And we'll talk about it right now, right? No. Right after this message break. Oh, okay. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough or you're at the end of the road. Ah, okay.

I see what you're doing. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. This I promise you. Oh, God. Seriously, I swear. And you won't have to send an SOS because I'll be there for you.

Oh man. And so my husband, Michael. Um, hey, that's me. Yep. We know that Michael and a different hot sexy teen crush boy band are each week to guide you through life step by step, not another one, kids, relationships, life in general can get messy. You may be thinking, this is the story of my life.

Just stop now. If so, tell everybody, everybody about my new podcast and make sure to listen so we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the iHeart Radio app, Apple podcast, or wherever you listen to podcasts. Hey guys, it's Cheeky's from Cheeky's and Chill podcast, and I want to tell you about a really exciting episode. We're going to be talking to Nancy Rodriguez from Netflix's Love is Blind Season 3.

Looking back at your experience, were there any red flags that you think you missed? What I saw as a weakness of his, I wanted to embrace. The way I thought of it was whatever love I have from you is extra for me. Like I already love myself enough. Do I need you to validate me as a partner? Yes. Is it required for me to feel good about myself? No.

Listen to Cheeky's and Chill on the iHeart Radio app, Apple podcast, or wherever you get your podcasts. All right, so you found this story, which I thought was pretty interesting, where some small businesses in the early 2000s thought they had found a loophole that basically said that they are not subject to pay taxes as a small business owner. Right that not only them. Not personal income, right? But the business.

No, both. Oh, okay. So basically there's this thing called the 861 argument. Is this the rumor that legally you don't really have to pay income tax? Yes. Okay. That's not true though. Well, it was up for interpretation.

I think had these people 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 protest stopped paying taxes. There's a trend in the late 90s and up to 2000, 2003 or 2004 where people were very loudly and 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. Yeah. 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. Yeah, they had backup from a former IRS employee, right, that said, you're right, they can't come after you. Yeah.

And in the code there's a part called 861 where it says that taxes are generated by non-American business activities. Right. So the 861 position is that if you work for an American company and you're an American, like any income you make that's domestic, which is anything that you or I do or anything most people do, 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 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 IRS is woefully underfunded in terms of how much they can pursue these people. Right. You could be a tax cheat and get away with it if your number isn't called, but you take that risk. That's why apparently these people misinterpreted the IRS's inability to prosecute them with

the IRS's ability to go after them. And they took it as the IRS capitulating to their argument. And instead really it was like, we're kind of busy right now, but we'll come get you in 2005. What was your name again? And they did. Thank you, sir. Yeah.

So a lot of people went to jail and 861 is kind of dead. And Wesley Snipes famously invoked argument. Oh, did he? Yeah. Interesting. I wonder if Willie did. Not that I saw. You know, there's a big push now that the NFL National Football League is tax exempt.

So messed up. 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 gets on social media and people are like, what? They're not a nonprofit. So yeah, social media helps change things quite a bit, doesn't it? Yeah. They're petitions going around to remove the NFL from that tax exempt.

Why would they be tax exempt? It's complicated. It's so stupid. It's like you, Joe, public, you're paying the alternative minimum tax. But this enormous economic engine over here is, is exempt. Why not? Yeah. And not the individual teams and owners like Arthur Blank of the Falcons and the Falcons

organization has to pay taxes. That's heartening. But the NFL as a, as the larger body does not get you. 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 reeling 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. Yeah. 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 bar at howstuffworks.com. And since I said search bar at howstuffworks.com, it means it's time for listener mail.

I'm going to call this, we may have saved a 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 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. Uh, about five hours later in a drawing class, I began to get all the symptoms I usually got, uh, 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 plan 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 ER immediately and didn't wait till the next day. And at the ER, the doctor told me I had an aneurysm or brain cancer and I was, uh, it was odd to pre-desive relief to find out it was only an aneurysm.

Um, I talked to the doctors and they said, it was only an aneurysm, 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, uh, which made it, uh, possible for me to get further treatment at home, went into surgery, they stuffed my aneurysm 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 aneurysm had already grown from the first hospital visit to the second. So guys, I wanted to say thank you for, uh, letting you know that, uh, you make this podcast

and because of the concussion one, it hadn't scared the crap out of 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, that's a good shout out. That's uh, Zach Freeland.

Thanks Zach. Hope you're recouping well sir, this is a while ago. Yeah. Sorry it took so long to get on the air. Take care Zach, thank you for listening to us and letting us save your life. Uh, if we saved your life, you know me and Chuck always want to hear about those. You can tweet to us at syskpodcast. You can join us on facebook.com slash stuff you should know and you can send us an email

to stuffpodcast at discovery.com and as always join us at our home on the web, stuffyoushouldknow.com. For more on this and thousands of other topics, visit howstuffworks.com. I'm Munga Shatikular and it turns out astrology is way more widespread than any of us want to believe. You can find it in major league baseball, international banks, K-pop groups, even the White House. But just when I thought I had a handle on this subject, something completely unbelievable happened to me and my whole view on astrology changed.

Whether you're a skeptic or a believer, give me a few minutes because I think your ideas are about to change too. Listen to Skyline Drive on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. Hey guys, it's Chikis from Chikis and Chill Podcast and I want to tell you about a really exciting episode. We're going to be talking to Nancy Rodriguez from Netflix's Love is Blind Season 3. Looking back at your experience, were there any red flags that you think you missed?

What I saw as a weakness of his, I wanted to embrace. The way I thought of it was whatever love I have from you is extra for me. Like I already love myself enough. Do I need you to validate me as a partner? Yes. Is it required for me to feel good about myself? No. Listen to Chikis and Chill on the iHeart Radio app, Apple Podcast, or wherever you get your

podcasts.