In my blog of December 9, 2010, I pointed out how our capitalist society suffers from dramatic up and down cycles that rob the middle class of their wealth and earnings. I suggested 10 points that would very much moderate these cycles and bring about a far better capitalist society.
This is the 9th of that series.
Point # 9 The Politicians Distorted View of “No New Taxes”
The US government is currently embroiled in a highly publicized effort to avoid default on their debt by raising their debt ceiling. It is quite an emotional debate with Republicans and Tea Party members adamantly opposed to higher taxes and bringing the debate to the crisis point in their ideological beliefs. Their mantra is NO NEW TAXES.
It seems an appropriate time for us to discuss point 9 of our 10 points as set out in our Blog of December 9, 2010 – How to “Make Capitalism Work”.
What People Don’t Realize About Tax Havens
When corporations use tax havens to reduce their taxes, it dramatically affects all of us. The cost to citizens of regular countries is far greater than most citizens realize.
1. The loss of tax revenue that legitimately should be paid to your government, which is a very large amount of money and would go a long way to eliminate annual deficits.
2. The completely unproductive money spent by these corporations to maintain their fictitious existence in tax havens, is money that would otherwise be spent in our economies.
3. The enormous sums of money kept away from our borders which has not been taxed and will never be taxed unless it is repatriated home. If it does come home, there will be large taxes so corporations spend this money elsewhere, it does zero for our economy and it will never come back to our economy.
Tax Havens v Terrorists
Tax havens are respected. Terrorists are not. It is inconceivable to me that we allow persons and companies to make profits within our borders, and yet use supposedly legal means to avoid paying their share of income tax on those profits. This is an ENORMOUS and immoral drain on our society, yet it is politely respected.
Yet terrorists who kill or threaten a few people are hunted down with ferocity. If someone is boldly robbing our society day after day, and hurting millions of people, they are terrorists also.
Let me explain in some detail how the system works. Sorry for being wordy, but the reader should understand the bare essentials of what is occurring around us.
Understanding How the Income Tax System is Supposed to Work
In Western societies, we have created something called a “corporation”. It goes by different names in different places, but whatever the entity is called, it essentially works the same way. It may be called Limited, Ltd, Societe, Incorporated, Inc, or dozens of other names, but they all identify the same thing. It exists in one form or another in every country.
What Is a Corporation?
There is this real entity that exists only on paper, created because society has deemed it essential to the way modern society works. It is created under a law that says it is to be regarded as any other citizen of a country, and treated in many ways similar to a flesh and blood citizen. It hires people, it builds buildings, it trades with others, it ships goods, and so on.
Because it is this legally created figment of our imagination, it has some interesting attributes.
Firstly, as long as the real people guiding the company act legally and properly, there is very little they can be accused of, and they have relative immunity for their actions. They generally can’t be sued because of anything the company does. They can’t lose their personal assets. It is the ‘corporation” that is liable, not the management of the corporation.
Low Income Tax Rate
The second special attribute of companies, is that they have a rate of Income tax that is substantially lower (until they get very profitable) than the average citizen.
In addition, when the average citizen makes a salary, he/she pays tax on the amount. A corporation however, in order to encourage them to do business, gets many and varied deductions, and only pays tax on the amount of its income after taking off all of these deductions.
The net effect, is that corporations pay much lower rates of tax.
The Preferred Way of Doing Business
Because of the limited liability to their employees, officers, management and directors, and secondly because they have many advantages under the income tax acts, companies are, by far, the preferred way of doing business.
Next blog – How Governments Collect their Tax Revenue and what corporations mean to the government.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment.
