Friday, May 29, 2009


Two years after the collapse of the Soviet Union I went to live in the new republic of Kazakhstan as the resident adviser on housing and land reform. My primary partner in the new government was the first deputy minister of Housing and Territorial Development, a very bright, imaginative, chain-smoking Kazakh committed to rapid change. He probably gave me more good advice than I gave him, and one piece of it is worth repeating now.

As I tried to get up to speed on existing laws and regulations I asked my counterpart scores of questions. Less than a month into my job he put a halt to my legal questions. “Wallace,” he said, holding his hand up in the halt signal, “forget the law.”

Here was one of the few very honest men in a general sea of corruption telling me to forget the law—the very thing I had been sent to help reform. He smiled and leaned back and looked at me with amusement in those dark brown Kazakh eyes. Should he do this to me or not, he might have been thinking. He decided he should.

He leaned forward and said, “Wallace, we have laws and regulations about everything. You will never know all of them. What you need to know is that you are always in violation.” He settled back in his amused smile and let out a long, sustained stream of Marlborough smoke.

I had started working in the Soviet Union in 1989 and I recognized the moral of the story: when the rules and regulations are too many and too complex and too contradictory for anyone to understand, everyone is a criminal subject to fine or arrest at any moment.

Flash forward. Anyone in America who has to fill out a long form income tax return, and every business owner knows the truth of what my Kazakh client told me. No matter how hard you try, no matter whether you use a CPA or a TurboTax computer program, you are going to have to guess at some answers. Since even IRS help agents often give contradictory answers, it’s not surprising that many honest Americans find out that they have violated the tax law or regulations.

Those laws and regulations are written on some 50,000 pages and have to be reported on over 480 separate tax forms.

Is anyone surprised that almost one in five Americans admit to cheating? Anyone surprised that billions of dollars of small business income changes hands unreported because reporting costs time and money and you are still likely to be accused of cheating. Reporting is burdensome and may be riskier than not reporting.

A 2006 IRS study found that for the year 2001 alone $290 billion in taxes went unpaid, and that did not include taxes on illegal labor and criminal activity. The IRS says the overwhelming majority were middle class individuals—not greedy corporations or their executives. Waiters and waitresses, says the IRS, cheat on 84% of their income. The IRS estimates 57 percent of self-employed income of trades people and small businesses goes unreported.

This year an administration whose slogans include “hope and change” and “yes we can,” have a new slew of tax proposals (not to mention that the man it chose to oversee the IRS conveniently didn’t report tens of thousands of dollars of his own income until nominated and exposed).

Add to the tax mess the fact that the Obama administration is going one up on the Bush administration in adding costly new regulations on almost every kind of income making activity. Under Bush the 2008 Federal Register grew 10% to 79,435 pages. More than 4,000 new federal regulations will be finalized this year.

Back to Kazakhstan. In the January 2000 issue of its in-flight magazine the national airline warned passengers going to Korea not to try to bribe traffic police. The reason? “In some countries corruption is considered illegal.” My Kazakhstani friends who have immigrated to America have all been impressed and pleased that they do not have to bribe government officials, and that public servants are honest and helpful. But as one immigrant remarked when struggling with income tax paperwork, “It was easier back home because you didn’t have to do all this. You always knew who to pay and how much.”

I do not think we are in danger of rampant corruption among public servants, but with hundreds of new tax rules and business regulations, government is rapidly acquiring the uniquely dangerous power to force every citizen to live with his or her neck under the guillotine.


  1. Good one. I hope we don't get our heads chopped off. But that's why we hire accountants -- so they can sort out the laws and keep us in line. That said, I'll never forget reading some years ago about how one of the bigwigs in the EPA found out one day that his own septic tank violated his agency's regulations and was furious! I'm not sure if his solution to the problem was to change the tank or change the regulations...

  2. Having trouble figuring out what solution, if any, you are suggesting. As you have often said, with all our flaws we are still one of the most sought after countries in the world that people want to come into. And, with our new President, once again, one of the most respected. Art PS: Can't figure out you profile request (other than Anonymous)

  3. For solutions to the tax problem, see my piece on income taxes. Many solutions exist to reducing the power government accumulates through every multiplying laws and regulations. The first step is an administration committed to reducing,not expanding its power and to making people less rather than more dependent on government.

    On the respect issue, we should be careful not to confuse acceptance and comfort with respect. North Korea and Hamas and Iran may be more comfortable with our new administration, but certainly have shown less rather than more respect.

    If respect means being responsive and helping, then we have yet to win respect. The Europeans turned down Obama on his request for help in Afghanistan. China is looking to replace the dollar as world currency. North Korea has become less cooperative. Iran continues its nuclear program. Sudan continues with genocide against its black citizens despite Obama's pleas. So we have to ask some concrete evidence of respect. What would you suggest?