Is The Tax System A Scam?

by **Markos101** » Mon 22 Aug 2005, 08:32:13

The taxation system has been designed with Marxian rules in mind; that is tax the rich, to give to the poor, because if the rich were not forced to, they would not do so. However of course, if the poor didn't exist, the rich wouldn't be able to maintain their riches, and so the rich have to maintain the working poor.

Typically the economy consists of low-paid 'working class' workers, who do not earn much per year, and are taxed the lowest percentage of their worker income. They may obtain 'benefits' from the government, which are funded by taxation and other funding sources covered in 'Is banking a scam?' post, which can cover health services and housing benefits. Under the employee tax system, the employee pays tax before he or she receives their money in their bank account; thus they cannot make that money work for them through investments because they have already paid the tax. In the UK this is called 'PAYE' - 'pay as you earn'.

Then there are 'middle class' workers, usually professionals with qualified technical skills such as programmers, teachers, accountants, engineers, doctors. These workers work hard and earn higher incomes. Under the Marxian tax scheme, these workers pay substantially more tax on the higher part of their income, e.g. 40% on anything over £30,000. They also pay their tax immediately.

Then we come to the rich. The rich typically make money from working and middle class workers, the people who are taxed immediately before they receive their income. The rich typically hire workers through their limited companies, and pay the workers a fraction of the wealth they have created in return for their efforts, on an ongoing basis. Limited companies do not pay tax first, they pay tax sometimes up to 20 months after the beginning of the tax year. Therefore, shareholders (owners) of companies can make their before tax money work for them. In addition, corporation tax is substantially less than employee income tax. For employee income tax, it is 40% on anything above £35,000. For corporation tax - that is a tax on profits from which shareholders may extract - in the UK is 30% on anything above £1.5 million. That is a phenominal difference.

Most importantly however, companies do not pay tax at all on their expenses, whereas employees expenses have already been taxed via income tax (called 'business expenses'). Shareholders can therefore increase their wealth steadily over time, without paying tax, provided that their expenses are in the pursuit of profit under tax revenue service rules. When they do extract cash, they do so in the form of dividends, which are subject to substantially lower tax than employee income tax.

Also, if a middle class or working class worker buys shares in companies, if they make over £7,000 return in the UK, they are taxed using Capital Gains Tax (CGT) at 40%. For a corporate entity however, that can be owned by a 'rich' person, they do not pay CGT, rather any profits made from sales of their assets which are 'owned' by the corporate entity are taxed as profits, i.e. with much less harsh corporation tax laws.

Therefore, the rich can use multiple people to make their money for them, and get taxed substantially less. In addition, because they 'own' their assets through offshore companies, they can often avoid many taxes charged in their own resident countries. Because employees are taxed first through a Pay As You Earn scheme, it is impossible for the working and middle class to do this.

Then we come to 'inheritance tax'. In the UK, inheritance tax is at 40% of all 'personal' wealth above a total £250,000. The working and middle class only own 'personal' wealth - that is, assets under their own name - whereas the rich own their wealth under 'corporations' - i.e. not under their own name. Full tax relief is given on all wealth stored in corporate entities. Therefore, whilst the worker pays tax first and buys assets after tax, and gets the most tax if making any gains, the worker pays additional tax on already compoundedly taxed wealth after they die, which they then cannot hand down to their families.

The owner buys assets before tax, and at the end of their lives, gets full tax relief (zero tax) on all their wealth stored in corporate entities. Therefore they can have their houses stored in corporate entities, their cars, bikes, etc, and not pay an ounce of inheritance tax at the end of their lives.

Therefore, the middle class fund the working class. The middle class base their income only on their own work, instead of hiring others to do their work for them and taking a margin on their earnings, extracting through tax advantaged dividends. The system therefore breaks the backs of the middle classes, often whom have the highest personal debts due to mortgage payments, based upon money that didn't previously exist and has been created out of nothing by the banking system.

The rich, feeling guilty about their wealth, will often applaud helping the poor, but do not wish to use their own money to help. Rather, they hold public offices and force the middle class to fund the poor through paying tax first, whilst hypocritically putting their own wealth in tax-free, offshore corporate entities. The rich enjoy the benefits of public services, however despite obtaining the highest income, do not pay for them.

All this, despite the fact that corporate entities are merely two pieces of paper in an office, rather than a big building with a multinational logo. However, if entrepreneurs and business owners were not given such tax advantages, arguably, they wouldn't take the risks of starting up companies.

Finally, we come to borrowing habits, or should I say, 'money creating' habits. Owners create money to make more money - i.e. they borrow, and spend the money on intelligently considered risks on assets such as rental houses or companies. The worker however typically borrows to buy liabilities, i.e. those that drain their financial resources, e.g. their own house, typically borrowing as much as possible. In all cases, this money has interest charged upon it by the banking system, which creates money out of nothing.

The system is very similar in the US, as it is based upon the British anglo-saxon system.

In sum:

(1) Workers, who it is typically accepted have the lower quality lives, have lower incomes based only upon their own work, and yet pay the highest proportion of their income in tax. They also pay the tax first and therefore cannot invest their money before tax, paying tax on their gains after already paying tax on their income (income tax). If they do make money in investments, they pay the highest tax, CGT, on their investment income. Workers always pay tax on expenses, as their income is taxed before they can spend it. The worker then pays additional tax on their total net worth upon death, which is given to the 'state'. This wealth is based upon higher proportional tax on both income and expenses, accrued compoundedly over life. In addition, the worker is 2 professional mistakes away from financial ruin all the way through life. They also 'create money' and spend it on things which then take more money away from them.

(2) Owners, who it is typically accepted have the higher quality lives but the higher risk (arguable nowadays, the captain is the last to go down with his ship), have the highest income based upon the work of others, and yet pay the lowest proportion of their income in tax. They also pay the tax last and therefore can invest their money before tax, paying tax on their gains after making those before-tax gains. If they do make money in investments, which usually consist of private placements in their own limited companies (corporate entities), they pay the lowest tax on gains in their wealth, i.e. on their investment income. Owners pay no tax at all on their expenses if made in pursuit of raising their own wealth. If they spend on expenses not to make a profit (i.e. personal/sentimental) then they pay the lowest tax through dividend. After all of these advatages, they pay no 'inheritance tax' at all, because all of their wealth is not 'owned' under their own name. This happens because the 'corporation' is not a 'person' and therefore cannot 'die'. Owners will only face total financial ruin if all of their assets fail simultaneously. Normally, they are only likely to be subject to partial financial ruin after making a mistake. They 'create money' and spend it on things that make them more money.

Those two differences; the different mind-set of the owner and the worker, define the whole concept of the current system.

So, is the tax system a scam?

by **deconstructionist** » Mon 22 Aug 2005, 11:23:25

the amount of input that the average citizen has in determining what his or her tax dollars go towards spending makes the system a total scam.

http://www.peacetaxfund.org/

by **adi** » Mon 22 Aug 2005, 11:39:03

The British tax system is very, very wrong. There has been some mumblings about a flat tax in recent weeks as Greece are considering it. I'm not a big fan of taxation full stop but a flat tax would at least be a fairer way of taxing income.

by **jdmartin** » Mon 22 Aug 2005, 12:49:23

I have come to the conclusion that, in the US, I would like to see a very simple, flat tax percentage, with a poverty threshold, and that's it. Because over the years, as I have earned more money (don't read that as being rich), I have witnessed how the tax system screws me.

For example, everyone gets a standard deduction. However, if you can itemize, you can get that number up higher. The most common item on itemization is mortgage interest. I have a reasonable mortgage, because 1. I like to try and live within my means, and 2. There's no way I can afford a McMansion. When you add up my interest, state income tax, and a few other things, my itemization still comes in under the level. However, if you can afford a million dollar mortgage, you get to deduct all that interest. How convenient.

That is only one example. What I feel like should be done, to help uncorrupt the system, is as follows:

1. Set a flat tax rate (say 10%).
2. Set a poverty threshold (say $30,000).
3. No deductions, period. All income is subject to 10%.
4. Everyone gets to exempt the first $30,000 of income. You pay 10% on every dollar of income beyond that level. So if you earn 40k, you pay taxes on 10k, or $1,000 (in this example). If you earn 60k, you pay taxes on 30k, or $3,000.

This is the only reasonable way that we (the non-rich) can even get some reasonable assurance of the ultra-wealthy paying their fair share. A graduated tax level is definitely fairer, and would be preferable, but has too many opportunities for working the system. The current system is a total sham, designed to screw everyone at the bottom.

by **JoeW** » Mon 22 Aug 2005, 13:04:44

$this->bbcode_second_pass_quote('jdmartin', '
')1. Set a flat tax rate (say 10%).
2. Set a poverty threshold (say $30,000).
3. No deductions, period. All income is subject to 10%.
4. Everyone gets to exempt the first $30,000 of income. You pay 10% on every dollar of income beyond that level. So if you earn 40k, you pay taxes on 10k, or $1,000 (in this example). If you earn 60k, you pay taxes on 30k, or $3,000.

by **arretium** » Mon 22 Aug 2005, 13:45:35

$this->bbcode_second_pass_quote('JoeW', '')$this->bbcode_second_pass_quote('jdmartin', '
')1. Set a flat tax rate (say 10%).
2. Set a poverty threshold (say $30,000).
3. No deductions, period. All income is subject to 10%.
4. Everyone gets to exempt the first $30,000 of income. You pay 10% on every dollar of income beyond that level. So if you earn 40k, you pay taxes on 10k, or $1,000 (in this example). If you earn 60k, you pay taxes on 30k, or $3,000.

by **GoIllini** » Mon 22 Aug 2005, 14:50:38

Yes; it's true that we have a progressive tax system, but I've never heard the term Marxian used to describe it (I'm also interested in hearing how our tax system is compatible with Marxism.)

One thing that most people fail to mention is that federal corporate tax in the U.S. is around 35%- or the highest tax bracket anyone can be in. Tack on another 15% for aggregate capital gains and dividends, and "rich investors" are paying around 45% of the earnings they "own" to the gov't.

But that's besides the point. The bottom line is that having corporations, rather than "small businesses", is an essentially democratic institution that lets everybody get in on an investment. "Small" businesses take a lot of capital to set up for just one person, and the folks who can afford to quit their job and put up hundreds of thousands of dollars to make things work tend to be much richer than most of us. Owners who make money from small businesses wind up paying their tax rate on them.

Hence, the people that wind up getting helped the most by this system are fiscally prudent members of the middle class- the kind of behavior we should be encouraging in the class we want to be building up anyways.

So here's how income tax breaks down:

-People who work, make money from CDs and savings, and own businesses pay based on our progressive tax structure.

-People who own bonds (except for tax-exempt municipal bonds that wind up paying lower interest) pay in the same way as above.

-People who own stock have their corporations first pay 35% in corporate tax- the highest tax bracket- and then pay progressively up to 15% on dividends and appreciation as capital gains tax. (About 45%)

-People who invest in commodities pay 60% capital gains tax and 40% income tax. (This may be the way to go, but commodities are a zero sum game.)

So my suggestion would be to lower the corporate income tax and eliminate or reduce the capital gains "discount" in the higher tax brackets. I really see no reason why some rich kid who sits at home all day and lives off his dividends should be rewarded with a lower tax than a middle class teacher or factory worker who works her butt off to try and make ends meet.

$this->bbcode_second_pass_quote('', 'G')reat point JW, but remember:

GOV still taxes:
Utilities
Exports/Imports
Licensing Fees (Airports/National Parks)
Gas Tax
and the big two:
corporate taxes; and
Social Security + medicaid

I think you're right that taxes would probably need to be slightly higher to cover the deficit.

I'd prefer a system like this:
Up to 30K - no tax.
30K - 100K - 12.5%
100K - 300K - 25%
300K + = 30%

WITH NO EXCEPTIONS, ALL income tax, no matter what the source.

by **Markos101** » Mon 22 Aug 2005, 16:42:19

GoIllini,

(i) 'Corporation tax' is on profits, and profits can be reduced significantly simply via clever accounting methods.
(ii) Corporate shares may be owned by offshore companies, in one of the 50 tax havens in this world.

Both reduce tax significantly. It appears though that your CG laws are rather more harsh than ours in the UK, which to be honest surprises me.

Mark

by **GoIllini** » Mon 22 Aug 2005, 17:07:18

$this->bbcode_second_pass_quote('Markos101', 'G')oIllini,

(i) 'Corporation tax' is on profits, and profits can be reduced significantly simply via clever accounting methods.
(ii) Corporate shares may be owned by offshore companies, in one of the 50 tax havens in this world.

Both reduce tax significantly. It appears though that your CG laws are rather more harsh than ours in the UK, which to be honest surprises me.

Mark

by **Tyler_JC** » Mon 22 Aug 2005, 17:24:26

AMT in the United States is a scam.

You can thank the Liberal media in the 70's for that.

The tax system is full of subsidies.

Take those subsidies away and we have a million repeats of the Savings and Loans collapse in the 80's.

Every single change to the tax code has an effect on the economy. Subsidize work vehicles? POOF, we have SUVs.

Change that subsidy so that only "real" work vehicles can be used as a tax deduction? BOOM, the Hummer is a useful tax deduction for lawyers.

Subsidize mortgages? Debt explosion for the middle class.

Change the rules about depreciation for office equipment? BUYING SPREE!!

Change the rules again? No more buying spree.

The list goes on and on. The tax system is full of these crazy tax rules. A flat tax is a FAR better way of supporting the government. 25% flat tax on all income over the median income of the previous year. That would cause an immediate depression given the level of subsidies, but after that we would have a better tax system.

by **Cool Hand Linc** » Mon 22 Aug 2005, 17:52:57

$this->bbcode_second_pass_quote('', '(')1) Workers,...........pay the highest proportion of their income in tax.

by **I_Like_Plants** » Mon 22 Aug 2005, 18:14:24

The working class, wage-workers, pay the MOST taxes! A typical wage-worker pays 25% to 33% in taxes! If they get lucky somehow and are able to buy a house, they get some write-offs, most are not that lucky and rent all their lives. A small biz owner may pay NO taxes, the gov't knows that a lot of small biz's will hire some wage-workers and the gov't gets to soak them. I think the rich actually are making a net profit from the tax system.

by **Tyler_JC** » Mon 22 Aug 2005, 18:16:51

Top 10% earn 50% of the income and pay 70% of the income taxes.

Bottom 50% pay 3% of the income taxes.

It's payroll taxes that kill ya. No deductions for those and they are horribly regressive. End the cap and lower the rate, bingo, fair tax rate again.

by **I_Like_Plants** » Mon 22 Aug 2005, 18:20:33

The min. wage workers, and wage-workers in general are taxed like crazy. They're sitting ducks and the gov't sure plucks 'em. When I made $5 an hour, over 25% of my income went for taxes, it's rediculous.

And the "rich" are not only not paying taxes, there aren't that many of them - I feel that at least 75% of the US are wage-workers, our middle class is disappearing, we're becoming a pyramid with a big wide base of wage-workers being sucked dry, and a few rich who not only don't pay taxes, they know how to get paid various ways by the gov't and have a net gain.

by **Tyler_JC** » Mon 22 Aug 2005, 18:26:42

Alternative Minimum Tax prevents the income-rich from not paying any taxes.

The rich folks who don't pay taxes have all of their money in tax-free bonds. They earn a X% return on their wealth and use that tax-free income to do whatever they want.

The truely rich own nothing but control everything.

There's no way to tax those people without closing the charitable trust loop hole and creating a wealth tax.

I personally wouldn't mind doing that.

Also, we HAVE to change the payroll tax system. The cap on taxable earnings is regressive and should be eliminated. Also, the tax rate on SS and medicare should be lowered in order to prevent a major soaking of the upper middle class.

by **GoIllini** » Mon 22 Aug 2005, 19:46:02

$this->bbcode_second_pass_quote('Tyler_JC', 'A')lternative Minimum Tax prevents the income-rich from not paying any taxes.

The rich folks who don't pay taxes have all of their money in tax-free bonds. They earn a X% return on their wealth and use that tax-free income to do whatever they want.

The truely rich own nothing but control everything.

There's no way to tax those people without closing the charitable trust loop hole and creating a wealth tax.

I personally wouldn't mind doing that.

Also, we HAVE to change the payroll tax system. The cap on taxable earnings is regressive and should be eliminated. Also, the tax rate on SS and medicare should be lowered in order to prevent a major soaking of the upper middle class.

by **jdmartin** » Tue 23 Aug 2005, 02:15:35

$this->bbcode_second_pass_quote('JoeW', '')$this->bbcode_second_pass_quote('jdmartin', '
')1. Set a flat tax rate (say 10%).
2. Set a poverty threshold (say $30,000).
3. No deductions, period. All income is subject to 10%.
4. Everyone gets to exempt the first $30,000 of income. You pay 10% on every dollar of income beyond that level. So if you earn 40k, you pay taxes on 10k, or $1,000 (in this example). If you earn 60k, you pay taxes on 30k, or $3,000.

by **Tyler_JC** » Tue 23 Aug 2005, 02:30:08

You would have to cut federal spending.

The department of education? Slashed.

Department of transportation? Slashed (or at least moved to mass transit).

Plus. The income tax is not the only source of revenue.

Corporate taxes, tariffs, fees, gas taxes, sin taxes, issuing bonds...

There are other ways of raising revenue that don't involve income taxes.

Heck, we funded the entire budget without income taxes before 1913, we could probably do it again.

by **MacG** » Tue 23 Aug 2005, 03:09:06

Definitely not a scam. More like armed robbery...

Website · by **Yavicleus** » Tue 23 Aug 2005, 13:29:07

I think that people should be taxed only on what they spend and not on what they earn. i.e. replace the income tax with a sales tax. Things like groceries (but not restaurant food) could be exempt from this tax. Our current tax system just encourages people to spend their cash on useless junk that feeds the system instead of conserving their wealth to help themselves, their families, or their decendents in times of scarcity.