Category Archives: Tax System

Poker Players Are People Too. Get Government Out Of Our Way!

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

In 1986, a professional poker player named Billy Baxter fought the law, and the law didn’t win. Baxter v. United States was a landmark decision that forever changed the lives of American professional poker players from that day forward.

Prior to this, Baxter, like all poker professionals, had been taxed on his poker winnings as if what he had done was simple luck, such as winning the lottery—a whopping 70% based on the tax code at that time. However, Baxter argued that poker is a game of skill—he was not just stumbling aimlessly into good fortune the way people who play actual games of chance like roulette, craps, and slots occasionally do.

As such, he deemed he should be taxed under the “Personal Service Income” code at the time, similar to other skilled trades, which had a maximum rate of only 50%. Billy felt the government owed him 20¢ back for every dollar he had been taxed on, and when the arguments were all over, the Ninth Circuit Court of Appeals agreed with him.

Professional Poker Player Billy Baxter
Professional Poker Player Billy Baxter

Please allow me to explain how poker is different from other methods of gambling.

A true professional poker player is someone who consistently wins, and there are thousands of them. If it were a game of chance, the winnings would be divided up randomly amongst all parties playing. One person might win more than the other in a short span, but over time, unlike actual games of chance, poker has shown that people can consistently win by employing effective strategies.

A Nevada judge who sided with Billy was quoted as saying to one of his differing-opinion counterparts, “I find the government’s argument to be ludicrous. I just wish you had some money and could sit down with Mr. Baxter and play some poker.” His point being that the dissenters who thought Baxter was just lucky shouldn’t be afraid to play against him with their own money to prove it—there were of course, no takers.

Another important point in his favor is that depending on the variant of poker being played, a high percentage of poker hands are won without any player’s cards being shown. This is due to all other players folding as a result of the actions of the hand winner who may or may not have been bluffing. It cannot be the luck of the cards, when the cards often don’t factor in.

In an amazing feat of skill, poker pro Annette Obrestad famously won a tournament online without ever looking at her own cards, simply by employing behavioral analysis of her opponents and the mathematics of odds and probabilities. To argue that this was luck would require a gross misunderstanding of the word luck.

Professional Poker Player Annette Obrestad
Professional Poker Player Annette Obrestad

So why is poker and gambling in general treated differently in the eyes of the law?

Well, the historical issue I suspect, is that gambling of any kind is considered a sin in the eyes of many religions. Older repressed generations conditioned people to believe such activities are bad, and like any old dogma, it can take generations before logic wins out over ignorance.

Poker is simply math, game theory, and psychology; fields that are well-respected on their own. But those who don’t play poker simply don’t know that.

Thanks to the movie Rounders, (a phenomenal cast and script; I highly recommend it) and to the Cinderella-story win of Chris Moneymaker at the 2003 World Series of Poker’s (WSOP) Main Event, where a simple $40 entry fee into a lower-level qualifying tournament was parlayed into a $2.5 million dollar payday, poker has started to permeate the mainstream as more people see the allure of this mentally challenging game. The fact that it can also be a decent source of revenue if done right doesn’t hurt either.

Gone are the days of thinking poker players are degenerate gamblers—these folks are often brilliant minds, like M.I.T. grads, Mensa members, or both in the case of award-winning actor James Woods, who often plays in the WSOP Main Event, along with many of his other acting peers like Ray Romano and Jason Alexander.

With Baxter’s 1986 court case win coupled with the evolution of knowledge of poker, you would think poker players were free from government intrusion, but you’d be dead wrong. This brings me to the point of this blog.

On April 15th, 2011, the U.S. government decided to intervene into the law-abiding actions of poker players throughout America. In United States v. Scheinberg, the case that brought about poker’s “Black Friday.” The government shut down three major online poker sites, Poker Stars, Full Tilt, and Absolute Poker. Full Tilt Poker, as it turns out, was engaged in nefarious activity, which I won’t go into here, but here’s a link. The other two sites however are still quite legitimate, albeit outside the U.S.

Actor James Woods
Actor James Woods

The issue with this was quite simple. Thousands of people were making a living playing poker on these sites. They weren’t competing with us normal folks for jobs, they already had one. On Black Friday, the government not only infringed on the American people’s right to pursue happiness, but they actually rendered thousands of professional poker players effectively unemployed.

Barack Obama has stated he intended to create jobs during his presidency, so I’ll never understand why he allowed his justice department to put so many out of work.

A recent Rasmussen Poll shows that only 40% of Americans oppose the government allowing and regulating online gambling, and for poker players like me, it is encouraging the majority favor and/or are open to it. But I hope that more limited-government minds will start to get behind the idea of getting government out of the way of those of us who used to like to play online.

Some conspiracy theorists think the government is simply concerned about its ability to collect tax revenues from these players. While this may also be true, logic dictates I shouldn’t engage in such theories without empirical evidence to support them.

There is hope however; on April 30th, 2013, Station Casinos went live with UltimatePoker.com, albeit, only for residents of Nevada.

I believe there is a reasonable libertarian case to be made for a federal gaming commission to exist; protecting our rights to property by ensuring these games are on the up and up, even if the anarchist wing of libertarianism hates me for saying it. But as long as we continue criminalizing online poker, these sites will go outside the U.S., and a good source of income and tax revenue will be lost.

Even if the tax collection issue is real, legalizing it could simply be a matter of requiring online poker sites to submit W-2’s at the end of the year for all winners, or better yet, get rid of income tax in favor of a consumption tax as the Libertarian Party promotes, and stop worrying about it altogether.

Poker players are intelligent and respectable competitors in a sport of the mind, and it’s time to let us play without government intrusion. Whether it’s a game of skill or a game of chance, one thing’s for sure, it’s none of the government’s concern whether I fritter my hard-earned money away on poker when they wouldn’t care if I did so playing golf or on a $40,000 plate from a Democratic fundraiser.

So I implore those of you who don’t play to not be part of the ignorant group of folks who want to take our rights to compete from us based on old biases, but instead, stand with me and repeat the libertarian code, “Mr. politician, mind your own damn business.”

Would you mind electrocuting this person real quick? Why People Support Overtaxation.

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

In July of 1961, Yale University psychiatrist Stanley Milgram began an experiment that ended with shocking results—literally! It is now simply known as the Milgram Experiment—his most famous work.

Stanley Milgram
Stanley Milgram

Milgram was troubled with the excuses provided by Nazis in the wake of World War II for the atrocities they had committed. Obviously, they engaged in overly heinous acts toward their fellow man, so horrid in nature it makes one wonder how Hitler got his followers to do them. Yet their responses to the question of why were often the same; they were just following orders.

Milgram was skeptical that people would do something at the direction of an authority figure that they would not in good conscience do on their own. He devised an experiment whereby he would instruct participants to shock other participants they would never meet who were located behind a wall. The shocker was real but was unaware that the shockee was an actor. This actor would fain pain by screaming in agony, and the intent was to see if the shocker would continue to shock the shockee solely because an authority figure told them to, regardless of how dangerous or painful it seemed to be for the person on the other side.

The video below shows what happened. If you’ve never heard of this experiment before, check it out. It is certainly a fascinating study into the human psyche with very surprising results. His experiment showed people were willing to do horrific things to one another if an authority figure told them it was OK to do so, confirming the idea that many Nazis were indeed telling the truth about their motives.

As I think about this experiment, I can’t help but draw what I believe is a very exact parallel to modern-day tax policies.

There were potentially a number of reasons Obama and many Democrats scored victories in the last election, but there can be no doubt that class envy was one of the common motivating factors. The “tax the rich” mantra was a winning campaign strategy, but let’s think about it deeper.

Bill Gates
Bill Gates

Imagine I put a random democrat-voter currently receiving or requesting government assistance in front of Bill Gates or Warren Buffett and asked them to perform one simple task: look Bill or Warren in the eye and explain fairly and logically why you think they owe you something. I suspect most of them would be speechless and embarrassed, I know I would. But then again, I have a conscience and I am a libertarian.

Some may be brazen enough to look Gates and Buffett in the eye and argue that they’re simply too rich and have no right to all that money, but most would know there’s no rational argument to present and would simply accept that any effort to make such an argument would show that they were the ones being greedy by demanding what someone else had worked for, Bill and Warren are merely wanting to control what they’ve earned after all.

I specify “control” versus “keep” because they often donate a lot of their earnings to charities. But, when they give their money away, they choose instead of government choosing for them, who gets what they worked so hard for, and risked so much to obtain.

However, if voters can hide behind the wall of government just like Milgram’s participants hid behind a wall, and an authority figure like a politician tells them it’s OK to harm the wealthiest among us, the Milgram Experiment mentality takes over and people who wouldn’t have the gumption to demand the earnings of someone else in person all of a sudden wave the “tax the rich” banner like it’s part of their religion. If Obama says it’s OK, it must be, right?

What’s the solution? I don’t rightly know. But the first step in fixing a problem is understanding it. I don’t know that too many people have applied Milgram’s findings to politics, but there is no doubt in my mind that this an “apples to apples” comparison. The answer to how we get people to begin to grasp the concept that they are cowardly asking government to do something they would likely never have the hubris to ask for themselves is elusive, and likely always will be.

Job Emigration – Place Blame Where It Belongs

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

This past election, Barrack Obama and the DNC-loyals were attacking Mitt Romney and other business people for shipping jobs overseas. Like most patriotic Americans, it upsets me to see jobs leave the United States as well. But was this really a fair criticism of business owners?

No FartingAs a former entrepreneur myself, let me give you an analogy. This criticism is akin to farting while sitting next to me, then getting upset when I leave because you’ve made the room smell like three-month-old milk and despair.

If we were a statist nation like former Russia, China, Cuba, etc., businesses would exist to serve the state; something many on the left seem to wish were the case here—you know, the people who supported millionaire capitalist Michael Moore by attending his movies bashing capitalism yet fail to see the hypocrisy in that?

The reason I believe this idea is so ridiculous, is because despite my requests, not one of these people can name a statist nation whose people don’t live in absolute squalor. Note that Russia’s GDP has nearly quadrupled in the last 12 years, and they’re budding ideas on capitalism are still being ironed out. So I’ll be happy to consider statism a practical system of governance for maintaining quality of life and basic human rights when a successful example arises.

In our capitalist system however, businesses are the product of a risk an entrepreneur takes to offer a good or service to the public to make a living for themselves, as opposed to working at the behest of someone else. We all know that the greater the risk, the greater possibility for reward. This carrot on a stick is what makes entrepreneurs take such a risk.

Carrot On A StickSo to explain my flatulence analogy; America has the third highest corporate tax rate  on the planet. We also have one of the most intrusive regulatory networks as well, thanks to NHTSA, OSHA, the EPA, and other federal and local legislations and regulators. Add labor unions to that, which infect businesses like a cancer feeding off the host until the Hostess dies. All these roadblocks make America a very expensive place to do business. So how is it fair to blame people who leave America when we make it such an inhospitable place to do business?

Let’s ignore all the ideology for a moment and think about this skeptically and empathetically. What are some of the issues of doing business outside the United States?:

  • There are regulatory issues of your home country and the one you’re doing business in, requiring you to hire a plethora of compliance lawyers and staff just to make sure what you are doing is even legal.
  • Language barriers exist for nations that do not have English as their primary language.
  • Shipping, tariffs, and customs expenses increase.
  • Massive expenses in building a new facility and moving operations from a U.S. based plant to a foreign one.
  • Travel expenses increase for those headquartered in the United States that have to often visit overseas facilities.
  • Loss in quality assurances due to lack of direct oversight.

These are but a few issues I can think of off the top of my head; certainly there are many more. So if all these issues exist, why even do it? Because doing it is still more profitable than doing business here in the United States. Stop and think about that for a minute—let it fester in any liberty-minded bones you have in your body. If you’re like me, it should offend you to the core.

Because we are one of the richest nations in the world, American workers are not going to work for the pennies a day that some third world nations consider a reasonable salary, so if we intend to compete in the world market, you’d like to think our legislators would make every effort to overcome our higher wage demands by keeping corporate taxes and regulations as unobtrusive as possible so we can be competitive. Greater expenses make it more expensive to the consumer. Yet, during the election, the people like Mitt Romney were vilified as heartless rich bastards for attempting to rectify this.

I propose we start calling out those who want to bash the rich, playing the hero while doing it. This pure ignorance of economics, history, and logic is offensive. Our economy depends on people with money investing in American products and workers. But why would they when we treat them like dirt, tax them to hell and back, and regulate them like a dog on a choker chain dying to run ahead of its master?

Dog Pulling ON LeashIf you’ve ever been in the middle of a productive task and had someone interrupt to “help” you, only to slow you down and make matters worse, then you should inherently understand what government does to entrepreneurship every single day.

Unless we vote for liberty minded candidates, entrepreneurs will observe the basic physics principle of taking the path of least resistance. We have no one to blame but ourselves for electing and re-electing those who are content to push them away to pass “feel-good” legislation that is a product of jealousy as opposed to evidence based hypotheses. When emotion trumps logic, we all lose.

 

What Tax System Would You Support?

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Taxes should be a fee for services rendered, not a penalty for success.

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

With the hullabaloo about the fiscal cliff and April 15th on its way, it’s time again to think about taxes. I know you would rather slide down a fire pole covered in razor blades and battery acid than think about Uncle Sam’s yearly dues, but we can be the instruments of change. If liberty minded people can inject a little logic and reason into the somewhat socialist-minded which currently dominate our media, Senate, White House, and any number of voting blocks, change can happen.Uncle Sam

So with that in mind, let’s talk first about what taxes are for. The government is an extension of the people here in the United States. Everything our government does should be a service that you and I have elected them to do at our behest. We pay these folks for services rendered through taxes levied.

In the private sector, when we hire someone to do a job, they name their price, and we pay it. However, let me provide an example of what they don’t say:

How much do you make? Oh, you make $200,000 a year? Well in that case, I’m going to charge you $10,000. I know I only charged your neighbor $5,000, but he only makes $100,000 a year. I’m sure you understand.

I know that exchange sounded ridiculous because it is. But imagine the next person you hire to perform a service for you asking how much you make before giving their estimate. If you tell me that your response would be remotely different from, “none of your damn business” I’m going to call you a liar. Yet this is exactly how our tax system works, and we tolerate it year after year.

We the people must demand a complete overhaul to our tax system based on consumption, not income. Income taxes, property taxes, estate taxes, and capital gains taxes should be constitutionally abolished via an amendment, and all taxes should be attained by only two methods. A fee for services, such as when we buy license plates, or a consumption tax on commerce. Since the government provides infrastructure and protection so that we can conduct such commerce; that’s a more fair method.

The reasons this makes far more logical sense are numerous, so I’ll do my best to enumerate a few:

First, an income tax is a penalty for success, whereas a consumption tax is a fee for services rendered. In America, the land of opportunity, we shouldn’t be penalizing people for being successful, we should be encouraging it.

The Fair Tax is probably the most comprehensive proposal along these lines, but I haven’t read it all completely and am not necessarily endorsing it; however, it certainly seems better than the monstrosity we have now.fairtax[1]

Those who feel it would raise taxes on the poor may not be aware that they proposed a prebate to cover the taxes that would be applied to the basic needs of every American, so that in effect, your first $3,500 in taxes for instance (A made up number for purposes of this debate) would be paid for you up front. If you decide to spend more, those taxes are your responsibility.

I think we’ve all seen examples of wasteful spending from those who shouldn’t be doing so. Have you seen someone who has $2,000 wheels and a $5,000 stereo in a $500 car, yet never seems to have a money for the things that matter. I had one such example ask me for $5 at a convenience store.Random Hoopty

Second, those with money would still pay a higher tax rate because they buy more goods and conduct more commerce. It would effectively be a progressive system as it is currently; except now, there wouldn’t be write-offs and loopholes to take advantage of. Businesses would pay taxes on the products they buy, as well as consumers. Everyone benefiting from government services, is now contributing their equitable share, without anyone getting taxed twice.

Third, The IRS is massively reduced as a result, no more stress of getting your taxes done before tax day and what you might owe, and no more worrying about when and how you have to pay taxes.

For instance, if a family member helps you financially by giving you money, you won’t have to worry about reporting that. If someone is gifted or wins an expensive item like a car or a home makeover, they no longer have to sell that car or home just to pay the income taxes on it. Sadly, these beneficiaries of goodwill and fortune often end up losing all they have won or been given because of the income taxes owed. I’d like to think that reasonable people find this appalling.

Plue, there are many instances were you are expected to know what and when to pay that many are either ignorant of, or purposefully don’t report, in order to cheat.

Fourth, Imagine getting all of your paycheck instead of the 1/2 – 2/3 you get now, and then you decide what you’ll pay in taxes by how much you spend on goods and services out of that paycheck. If it was a bad week, you only buy the essentials, and thus you pay no tax, presuming we wouldn’t levy food and water.

The last point I’d like to make, which could be the most important of all—no more freeloaders. We all know that there are citizens and non-citizens who often work under the table or are involved in criminal enterprise and thus pay no income taxes. All of a sudden, the people gaming the system and not putting their two cents in (literally), will be compelled to pay their share for the services the government provides them too.

Sadly Republicans and Democrats alike seem to dismiss such a system. Libertarianism is catching on in the United States though, and this was part of their platform. Sharing this story and information about the Fair Tax on Twitter, Facebook, et al., will hopefully help to get a consumption and fee based tax system to take hold in the marketplace of ideas; furthering the national discussion. This should not be a partisan issue since the rate and prebates can be set at whatever number the current legislature decides.

However, it is a radical change; thus, a tough row to hoe. But if we passed the radical overhaul to our healthcare system, known as the Affordable Care Act (Obamacare), we can certainly achieve change as logical as a consumption tax if clear thinking Americans make some noise.