Taxation

“In every community, those who feel the burdens of taxation are naturally prone to relieve themselves from it if they can. One class struggles to throw the burden off its shoulders. If they succeed, of course, it must fall upon others. They also, in turn, labour to get rid of it and finally the load falls upon those who will not, or cannot, make a successful effort for relief….. This is in general a one-sided struggle, in which the rich only engage and …. in which the poor always go to the wall.“ (Attorney James C. Carter in an 1895 address to the U.S. Supreme Court)

“Taxes are distinctly disagreeable burdens, and so there is a constant striving to place them on the backs of others.” (Louis Eisenstein)

“Whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.” (Jesus Christ in Matthew 13:12 New International Version, ©2010)

“ … modern taxation or tax-making in its most characteristic aspects is a group contest in which powerful interests vigorously endeavour to rid themselves of present or proposed tax burdens. It is, first of all, a hard game in which he who trusts wholly to economics, reason, and justice, will in the end retire beaten and disillusioned. Class politics is the essence of taxation” (Dr. T.S. Adams)

“Nothing has contributed more to retarding the emergence of a democratic context in places like Venezuela, Nigeria, Saudi Arabia, and Iran than the curse of oil. As long as the monarchs and dictators who run these oil states can get rich by drilling their natural resources — as opposed to drilling the natural talents and energy of their people — they can stay in office forever . . . . They never have to tax their people, so the relationship between ruler and ruled is highly distorted. Without taxation, there is no representation.“ (Thomas L. Friedman)

“The genius of our ruling class is that it has kept a majority of the people from ever questioning the inequity of a system where most people drudge along, paying heavy taxes for which they get nothing in return.” (Gore Vidal)

“The tendency of taxation is to create a class of persons who do not labor, to take from those who do labor the produce of that labor, and to give it to those who do not labor.” (William Cobbett)

Exercise
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1. What is the difference between tax-advantaged and tax-disadvantaged income?
2. How many types of income do you personally have? 1? 2? 3? Do you have capital gains, dividends, royalties or only earned income (from your job/trade)?
3. Do you know that not all tax filers are tax payers?
4. Do you know that a wealthy tax filer has a higher probability of achieving zero tax liability than the average middle class Joe or Jane?
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Can you think of anything more boring to the average middle class folk than tax law and policy? We may rant about it for hours on end – the unfairness of it, the huge shadow it casts over our lives and earnings and so on. But how much do we really know about its intricacies? Very little.

There is the world as the average middle class folk (MCF) sees it – one in which you pay taxes as long as your income exceeds a threshold (if your income falls below that threshold, you are probably not in the middle class anyway), in which every incremental unit of currency earned (for example Dollar, Euro or Pound Sterling) results in lower net income. So that (using the U.S. as a an example) when your pretax income increases from $50,000 to $75,000, your net (after tax) income goes from $41,500 to $60,100 and an increase to $100,000 pre-tax amounts to a net income of $78,300. If only the world was that simple and straight forward!

There is another world in which some other folks in the same country (under the same tax code) would earn $1,000,000,000 and pay only $150,000,000 in taxes (instead of the $350,000,000 that a middle class Jane would have been saddled with under similar circumstances) – probably because they structured that income as a capital gain. Is it fair? I’ll leave you to answer whether it is (some aspiring billionaires will definitely think it’s fine). Is the law likely to change? Very unlikely.

The video above captures some of the imbalances of the bizarre tax regimes in place all over the world these days (this example is from the US but if you dig around, there is something similar going on in your backyard, wherever you may live in the world).

One big problem with the tax system is that everyday MCFs have no idea how much they are being taken advantage of – many don’t know that a loophole that allows a tax deduction (or credit) of $1 Million is as good as the government going out and spending the same $1 Million. They are never told that in whatever form or manner, when it comes to taxes, a buck (tax subsidy) is a buck (tax credit) is a buck (tax deduction).

What is even more unfortunate is that when most of these folks get to hear of spending, it is about how much is spent on the poor or disadvantaged – they may learn for example that the government has spent $10 Billion on welfare programs and also be told of those (maybe less than 10%) who are gaming the system and being paid for not working. What they are not told is that the government has concurrently spent $800 Billion on the ultra wealthy and largest corporations and that at least 90% of those can be argued to be gaming the system in destructive ways compared to the less than 10% of the poor on welfare who game the system.

When the poor (<10% of the total) game the system, it is a crime and the punishment is that benefits are cut for all the poor; when the wealthy and powerful (>90%) game the system, they get rewarded with more avenues to game the system.

Part of the problem is that the rich (through their ownership of the various media platforms – TV, Cable, Newspapers) find ways to magnify the shortcomings of the welfare system for the poor, plus the government actually gets to write out cheques for these programs. Conversely, when the rich folks and powerful corporations game the system, those stories are either buried or get a passing mention – plus, most of the gaming happens through the tax code, so that it is almost invisible, because the government is not writing out cheques. Rather, rich and powerful interests (large corporations for example) are writing reduced (or no) cheques to the government.

Why is that an issue? Because government expenses ALWAYS have to be paid – if the rich and powerful will not pay their fair share, MCFs have to take up the slack (the poor get a break in that they are usually not asked to pay more, their benefits and services just get reduced). Furthermore, as long as the rich refuse to pay their fair share, at some point, the government is forced to cut benefits and services (technically for everyone but in practice for the middle class, the poor may get some bones thrown their way by offsetting grants – usually not enough to pay for the lost benefit/service) – the rich like it when the government cuts benefits and services because they can afford (for less than what they would pay as tax) to buy better services privately (be it education, recreation or health care) but the middle class is ALWAYS left holding the bag.

When these cuts crystallize, the middle class is usually forced to actually downgrade quality of life by making either/or choices – should they pay for private swimming lessons now that the public (subsidized) facilities are closed or stop piano lessons for Junior? Now that the public library is closed, should they buy books for little Jane or should she go without books so she can attend ballet classes? Should they pay for after school tutoring so their kids are not saddled with sub par academic education or should they go without out-of-town vacations and stick with stay-cations?

You have probably heard all this before and by now just shrug your shoulders in helplessness – well, no more. You can and should do something about it!

We cannot expose all the loopholes in the tax system on this single page – we could be bringing out one per day for the next 20 years and fail to exhaust the list in all the various countries of the world. So, we will do better than that – we will provide a platform for MCFs to take advantage of these loopholes for the benefit of the middle class. Here’s why:

In the ongoing war against the middle class, there is no neutral ground, you are either perpetrating harm on your opponents, or you are a victim. For too long, MCFs have been the victims because there was a lack of choice. Now, there is a choice for those MCFs who choose to use the system to their advantage.
It is going to be difficult to change the rules (the other side has a much stronger hand) – it is easier to take advantage of the rules.
By taking advantage of the rules, you actually accelerate the pace of rule changes (to a fairer system). How? If larger and larger numbers begin to take advantage of a particular loophole, the government is forced to close the loophole. That is a faster method of shutting down a tax loophole than advocating in the media or writing editorials in newspapers.
When MCFs take advantage of these loopholes, they have an opportunity to use the benefits so derived to advance the cause of the middle class by instituting a fair compensation system (where no executive is paid more than say, 7 – 10 times what the lowest paid worker in the enterprise earns for example), refraining from saddling the business with debt and instead keeping workers on the job (who would have otherwise been laid off in a leveraged buyout) , providing opportunities and platforms for middle class workers to share in the wealth created (instead of 1 – 5 executives hoarding incentive pay amounting to hundreds of millions of dollars, for example)

There are some truths to the tax system that MCFs need to imbibe. Working people understand they have to pay taxes (not that they have a choice – the taxes are usually taken at source), rich folks don’t think they have to pay (when they pay, it is grudgingly). This is what they (rich folks) teach their children – that taxes are for others (from lower classes) to pay. Even when they (the rich) pay taxes, they figure out other ways to get back almost as much indirectly from the government through rule changes, tax breaks, subsidies, grants, deferments and other schemes not available to everyone else.

If MCFs continue to steer their children to focus on jobs (and tax-disadvantaged earned income by default) without a concurrent focus on wealth building and other (tax-advantaged) income types, we condemn our children to a life of servitude at the tables of the rich. The rich have more than enough, pay proportionately less in taxes, and have a lot more left over to invest, hence their increasing share of wealth ownership. The middle class earn less than enough, pay proportionately more in taxes and have nothing left to invest hence their decreasing share of wealth ownership. The window is fast closing for the middle class to arrest the descent into poverty that a focus on jobs (as the end instead of a means to an end) will inevitably ensure – to safeguard your family’s quality of life, you need to act now!

MCFs need to teach their children at the least that even though taxes have to be paid, there is another world where you can throw off that burden onto the backs of others by learning to do what the rich do – they also need to make the necessary investment now towards building personal equity for themselves and their children as a means of preserving for their children, a decent quality of life and not leaving them to the whims of the rapacious rich and powerful folks out there.

At MCWS, we are committed to providing up-to-date education, information and access to the advantages of the ‘other’ world of tax that is currently invisible to the average MCF. To get the best advantages of the tax system as a middle class folk, join the MCWB Club today, especially while the deep discount coupons are still in effect. Also invite your friends and family members using the Tell A Friend tool below.