CNBC News Transcripts April 12, 2004 Monday
SHOW: Special Report with Maria Bartiromo (7:00 PM ET) - CNBC
HEADLINE: Joseph Banister and Congressman Ron Paul discuss the issue of Americans' legal right not to have to pay income taxes
ANCHORS: MARIA BARTIROMO
MARIA BARTIROMO, host:
Welcome back to SPECIAL REPORT.
As 130 million Americans dot the I's, cross the T's and staple the W2s on to their income tax returns, an increasingly vocal minority are doing none of the above using an argument known as the 861 position, these non-taxpayers, as they refer to themselves, are not paying an increasing share of the $300 billion that the IRS claims tax cheats cost the US government every year. This tax honesty movement includes some curious members, including our next guest, a former IRS special agent, Joseph Banister joining us today from San Jose. Also joining us, a true conservative congressman from Texas who favors total elimination of income taxes, and has said that income tax violates the US Constitution: Congressman Ron Paul of Texas.
Gentlemen, nice to have you with us. Thanks for joining us.
Mr. JOSEPH R. BANISTER (CPA, Former IRS Special Agent): Thank...
Representative RON PAUL (Republican, Texas): Thank you.
Mr. BANISTER: Thank you, Maria.
BARTIROMO: John, let me begin with you. You used to-you used to work for the IRS. What makes you say that most Americans don't have to pay income taxes?
Mr. BANISTER: Well, the shear solidness of the evidence. I did about two years of investigation part-time while I was a special agent for the IRS and really couldn't help but conclude that the evidence showed that most Americans weren't required to pay it, at least not according to the laws passed by Congress.
BARTIROMO: Well, what is the evidence?
Mr. BANISTER: The evidence fills up dozens of binders and file drawers in my own home but, of course, there's much more evidence than that. Evidence about a liability statutes, what form is actually required by Americans to file. When you actually look at the statutes and regulations rather than just the IRS pamphlets, you learn that the income tax doesn't have quite the application that the IRS would lead the American people to believe.
BARTIROMO: Co-Congressman, you agree. You've written in the past that income taxes violate the 16th Amendment. Explain that idea.
Rep. PAUL: Well, I'm more concerned about the way the 16th Amendment was passed and I don't think it was technically correct and I think Mr. Banister is correct and technically we shouldn't have to pay the income tax. It's just that I've chosen a different tactic. I think that we should change it in a more deliberate fashion and that's why I'm a legislator. But, you know, we have the tax problem and it's going to be with us for a long time. But this is a consequence of the spending problem. So that's why I spend as much time on trying to cut the spending so there's no incentive to collect these taxes. That's our-that's our biggest problem. But the way the tax system is run, it's run roughshod over the people. We don't have due process of law. We're guilty until proven innocent. It's just-it's just a horrible system. And we have to do something. Even if we can't get to the point where I like where there's a lot less spending, we at least have to collect revenues in a much better manner than the income tax.
BARTIROMO: So do you sympathize with the estimated one million Americans who don't pay taxes based on principle?
Rep. PAUL: Oh, yeah, I sympathize them-with them because I know what they're up against. Some of them do it out of desperation. Some of them do it as part-time just to survive, to feed their families. And economically they serve the country well because they-they have more income, they spend more money. But that means you're defying the law and that's a challenge, and you have to depend on the courts and I just haven't chosen to do it that way. I'd like to legalize what they're doing.
BARTIROMO: Well, you're certainly not going to have much success as far as cutting spending over the next couple of years-Right?--with this administration.
Rep. PAUL: Unfortunately, you're-you're correct. I mean, we're back in to the 1960s guns and butter. And there's not an entitlement that this Congress and this administration doesn't like. And there's not a foreign adventure that we-that they seem to not to dislike. So we're-we're embarked on un-endless spending, which means that's why right now you hear stories about adding more funds to the IRS, being more ruthless in collection, blaming on it the taxpayers: 'If they'd only pay their fair share, we could afford this government.' But when you're running a $700 billion deficit, believe me, a little tinkering with the tax code isn't going to satisfy them.
BARTIROMO: Yeah. Let me read you what it the IRS had on its Web site just a couple weeks ago, get you to respond to this. It-it said "The IRS is committed to identifying taxpayers who attempt to avoid their tax obligations by taking fr-frivolous positions, such as the Section 861 position. The service will take vigorous enforcement action against these taxpayers and against promoters and return preparers who assist taxpayers in taking these frivolous positions." That was a quote sh-of March 22nd, 2004. Joe, would you describe the IRS's approach to you as vigorous?
Mr. BANISTER: Most certainly. The thing is that in my own manuals back when I was a special agent, the IRS-they compared tax avoidance to tax evasion. And tax avoidance, even according to the courts, is a legal method and something that people have a legal right and duty to engage in. And what the IRS is trying to do is blur the line between tax avoidance and tax evasion and now they've come up with this term called abusive tax avoidance. So basically Americans are going to be targeted for harassment if they're engaging in a legal-in legal conduct and making it difficult for the IRS by not bearing their financial souls to the agency.
BARTIROMO: It seems pretty aggressive. Why-why do you think you've been able to get away with not paying or filing your income taxes for so long?
Mr. BANISTER: Well, first of all, I've not gotten away with anything. I'm not hiding from anyone. I'm simply asking the IRS to show me the laws that apparently require me to do these things and they are suspiciously reticent to answer questions from me and, of course, there are millions of other people, many other organizations, who have attempted to get answers. In fact, the Congress may be aware that we were trying to have a hearing whereby Department of Justice and IRS officials would appear and answer questions and they pulled out at the last minute. And so they act very suspiciously when asked to simply sit down at the table with the American people and discuss what their obligations are.
Mr. BANISTER: Rather than pulling up a chair, they pull out a club.
BARTIROMO: Yeah. That's really interesting, Joe. And-and, Congressman, we also should add that The New York Times reported just today that for the 11,000 largest corporations, that the chance of an audit has fallen by almost 50 percent in the last decade. The decline for individuals is even similar to that.
Rep. PAUL: Yeah, I think that's going to change. They're going to try to reverse that, and that's why they've gotten more funds and more agents and they guarantee there will be more audits. But there's no way that they can mon-monitor the whole system. The system in many ways is based on trust and confidence that the American people are doing the right thing and spending the money correctly. But now there's a growing number of Americans that are sick and tired of it all. They don't believe that the entitlement system is going to work for everybody and they don't believe in a lot of this foreign spending. So they're getting disgusted with it. And I think more people are trying to opt out.
So ultimately we have to face up to the fact that our government is too big and the spending is out of control, and the tax authorities are becoming out of control as well because they're determined to collect the revenues. And the Congress is silent on this now. A few years ago, they were up-in an uproar. They were going to tame the IRS and for about six months that happened. But right now, the Congress, they're desperate. They're spending the money and they want to cover some of these deficits and that's why they are not fighting the increased role. The IRS now is going to become more ruthless in the next year or two.
BARTIROMO: All right, gentlemen. Good to talk to you. This-this situation no doubt goes on and we will look forward to having you back to continue discussing it.
Rep. PAUL: Thank you.
Mr. BANISTER: Thank you, Maria.
BARTIROMO: My thanks to Congressman Ron Paul of Texas and Joseph Banister who joined us today from San Jose.
We'll be right back with more SPECIAL REPORT in just a minute.