Thursday, March 23, 2017

The Rush to Avoid Taxes

We now have less than 30 days to finish up our federal tax forms and get them to the IRS and state capitols. As I noted recently in this blog, "taxes are dues for living in a civilized society". So why do we all seek every advantage to reduce those taxes? We want deductions for our home (interest on mortgage, property taxes, etc.), for our charitable contributions, for state and local taxes paid, the list goes on.

There is an entire industry focused on how not to pay taxes - accountants, tax lawyers, tax preparation firms, all promising big savings if you know where to look and how to manage your affairs to minimize the dues we supposedly pay for a civilized community. Can we deduct our travel expenses for volunteer work, how about the tax credit for our solar installation, or the new energy efficiency changes made to the home?

Of course these are relatively small deductions that save many in the middle class a few hundred, or maybe even a couple thousand dollars in taxes per year. How can we actually minimize our overall tax rate we have to pay? Simple - by managing our funds so that more of our income arrives through capital gains than real work. Not surprisingly capital gains are almost entirely in the hands of the wealthiest. The wealthiest 1% make more than a third of their income from capital gains. The  New York Times reported that "estimates show that nearly 70 percent of all capital gains benefits go to the top 1 percent." 

While the plutocrats and their neighbors cash in at lower income tax rates than middle class citizens with larger deductions and the lower capital gains rate, it seems like nearly everyone is hooked on the notion that paying taxes is something you must avoid. And if you are wealthy enough, you can afford the services of the aforementioned tax consultants to help you do so.


Of course the corporate world, also run by the wealthiest among us, takes tax avoidance to a whole new level, whether it's from hiding income in offshore tax havens, or having their hired lobbyists create a specific tax loophole for them, in exchange of course for a nice little contribution to the legislators that are willing to fill their pockets. Oh yes, again let's not forget how they use their accumulations to take advantage of that low capital gains tax rate.


While I'll admit I don't own a PhD. in economics, looking at changes in the tax rates since World War II shows a striking parallel shift in income inequality. Every time we make yet another reduction in the taxes for the wealthiest, we increase the inequality. The trickle down "voodoo economics" plan boosted by Ronald Reagan never really trickled down. Surprise!!!


Mr. Trump's recent budget proposal accomplishes this not simply by cutting rates directly, which he is certainly aiming to do, but as a recent analysis, reported by the New York Times last week  of the TrumpCare proposal indicates, that $1 Trillion in tax cuts embedded in it will over a decade will find their way into the pockets of the richest Americans.

The House Republican Tax plan as reviewed by the Center for Budget and Policy Priorities shows visually how the tax code may be further loaded to the wealthiest.




So the reduction in progressive taxation that gained steam with Ronald Reagan's "Voodoo Economics" continues.  Or does it actually get worse? If one looks at the holes collectively engineered into the social safety net by the Trump budget proposal,  we can see more and more people falling through it. But in Speaker Ryan's world, "it's their choice". 

If we are to live in a civilized society, that doesn't let our brothers and sisters fall through our porous safety net, we need to all consider paying taxes as our dues. Making that system fairer, i.e., more progressive, is essential to that end. The security of each of us is entangled with the security of all of us. 

One planet, one human family, one common future.

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