William is an economics professor at a small university in Pennsylvania. He specializes in taxation, but has been having trouble getting published. Unfortunately, the theoretical knowledge of the impacts of taxes was of little use in practice. He made a few critical mistakes on his taxes forms and got in some legal trouble.
William’s friend, Paul, is another professor at the university. He mostly teaches law, but also teaches a course in Austrian economics. Due to Paul’s background in law, William decided to bring him along for the hearing.
This decision turns out to be costly for William. Paul sees a chance to strike a blow against the government. Instead of simply explaining how William made a mistake and getting him off with nothing but an obligation to pay his back taxes, Paul gives a lecture on the anarcho-capitalist’s view of taxation. He starts off with a rather dry explanation of dead-weight loss and perverse incentives, but his passion escalates as he characterizes taxation as a form of theft whose existence persists only because of the state’s monopoly on force. He finally reaches a fiery crescendo and calls William a warrior for freedom for standing up to the state.
A second friend of William, Steven, is an eccentric econometrician. He has a theory that if stock prices follow a random walk, then they can only be predicted by a random number generator. After running thousands of regressions, he found a set of numbers that had a statistically significant correlation with market returns for the past 6 months. Steven puts all of his money in the stock market, expecting to strike it rich using the random numbers.
The media starts to take an interest in the case. The IRS sees a chance to make an example of a tax evader and ideological enemy, Paul sees a chance to preach his Austrian views to a larger audience. William, the only one with anything really at stake in the trial is caught in the cross fire.
When William brings this problem up with Paul, Paul responds “in for a penny, in for a pound, there is no turning back now.” William initially rejects this as a sunk cost fallacy, but when his new found fame has resulted in academic journals taking interest in him, he changes his mind and decides to embrace Paul’s attempt to protest against taxation. While in prison, William writes “Civil Disobedience in the 21st century.” This publication and his high profile trial turn him into a libertarian folk hero.
Meanwhile, Steven’s investments have not worked out and he lost his house. He has been living in William’s apartment and is taking care of it while William is in Prison.
The IRS realizes that William has been receiving a lot of popular support and don’t like the public continuing to hear Paul’s anti-state speeches. They realize that if they finish the trial, they are more likely to create a martyr than set an example for would be tax evaders. They offer to let William go if he agrees to pay his back taxes. William accepts, much to Paul’s dismay.
As the season closes, Paul is upset that he could not strike a fatal blow to big government, Steven is still living at William’s place, and William is dreading the prospect of paying his debts to the government. Paul proposes a solution that would respond to all three problems; Steven should try to marry William. They could attempt apply Steven’s capital losses to William’s tax bill and hence solve their financial problems, and Paul could continue in his crusade against a government that will not allow two consenting adults to get married.
September 13, 2009