There’s a scene in Doc Hollywood that shows Michael Fox, a girl, and a pig walking together. I looked for that scene, but couldn’t find it, so I’m using the picture above instead.
I haven’t seen the movie in a few years, but if I recall correctly the country doctor that Fox assists is sometimes paid in chickens, pigs, or other farm produce. This is considered by the IRS to be income in kind. Tom Daschle’s use of the car and driver is also considered to income in kind, and hence reportable income. Okay, now you’re thinking that doesn’t apply to me. It may well apply to you though, but you don’t realize it, and because the amounts that you and I receive are so small we don’t count it, and we get away with it.
Between September 2005 and July 2007 I commuted from Spotsylvania, VA to Washington, DC on the Virginia Railway Express (VRE). The VRE had a policy that if the train was late by 30 minutes or more the riders would receive a free farecard, maximum value of a little over $8.00. Now you hand out 600 of these to a train full of people, and you’re talking a loss of $4,800. Each person, however, because they received a benefit that in effect increased their income by $8.00, received a payment in kind. Now this isn’t a heck of a lot of money, but if you’re as late as the VRE was as consistently as it was, the losses add up, and so does the income in kind that goes unreported.
$250, $500, or even $1,000 in VRE tickets might well go unreported. Most people would say, “Well I never received any cash, so how is that income?” It’s income because the law defines it that way. The problem is that income in kind increases your tax liability even though you don’t have any increase in your cash on hand. In order to pay the extra liability you either have to take the tax money out of your cash on hand, or you have to turn the payment, the pig, or car and driver, or the VRE ticket into cash.
So does any of this justify Daschle not paying his taxes? Not exactly, it may explain why he didn’t, because the tax code is so arcane, but Daschle was a senator and served a long time. He voted on the tax code every time it came up for revision, so he should have known what was in the damn thing. What it really goes to, however, is the argument that the tax code is so complex, and so arcane that it should be revised, and replaced with a simple flat tax.
IBM stopped making punch cards long ago, but the ideal would be to have a card that had name, income, and percent of tax. A simple little program would calculate the amount. Think of the lawyers and accountants who would have to find decent, useful employment.