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Forgetting History: Value Creation & Tax Burdens

Posted By Barry Ritholtz On January 30, 2013 @ 7:30 am In Taxes and Policy,Wealth Management | Comments Disabled

 

“Taxes are the price we pay for a civilized society.”

-Oliver Wendall Holmes, Jr. Associate Justice of US Supreme Court (1902-1932)

 

Following last week’s Phil Mickelson [1] discussion, I received lots of emails and comments from financial advisers, accountants and lawyers. A recurring theme was an ongoing, almost resigned surprise amongst the professional set that people are still unaware of the many legal ways that exist to reduce the taxes you pay.

Some went as far as to suggest that the bitching and moaning is an act — political theater that is a remnant left over from when top rates approached 90%. The truth is, a wealthy or even moderately well off American has the lowest Federal Tax burden in half a century.

Charles Smith breaks takes a crack at breaking it down by Socioeconomic class:

America’s Four Socioeconomic Classes
1. Parasitic financial Aristocracy (creates no value, skims national surplus)
2. High value creation (employed, heavily taxed)
3. Low value creation (employed/informal economy, lightly taxed)
4. No value creation (unemployed, dependent)

-Of Two Minds [2]

Even that is a bit of an exaggeration: I would guess I am in #2, well compensated for (hopefully) high value creations. (I also live in a high tax state). But if I am objective, I have to disagree with him not to the theoretical but actual heavily taxed part.

Why? It is very simple to process to set up an LLC corporation, max out your 401k, do all of the perfectly legal things you can do. All the while directing your accountant to stay on the correct side of the bright line of what is legal and what is not, and reduce your taxes the maximum amount. I always send a document directing them “Not to Push the Envelope” and to “Stay within well established legalities.” I don’t have a Romney-like 13% effective Federal Tax rate, but it ain’t anywhere near a Mickelson 63% burden either.

If you want to make the argument that there are benefits from lower tax rates, economies do better, job creation is higher — then gather your data and make your case.

But the people making the claim that we are oppressed by the yoke of burdensome Federal Taxes at all time highs — then I am compelled to point out that those people are without evidence to support that view. Indeed, the overwhelming weight of evidence supports the exact opposite — that Federal taxes are extremely low. (And, we have the deficit to prove it).

The bottom line: Try to derive some of your income from work you do that as part of a small owner-operated business. Get a decent accountant. And for crying out loud, do some tax planning.

 

 

[3]

Source: Factcheck.org [4]
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Note: This posts adds the new category: “Wealth Management”


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/01/forgetting-history-value-creation-tax-burdens/

URLs in this post:

[1] Phil Mickelson: http://www.ritholtz.com/blog/2013/01/who-the-hell-is-phil-mickelsons-financial-advisor/

[2] Of Two Minds: http://www.oftwominds.com/blogjan13/4-classes01-13.html

[3] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/01/Tax_Rates_All.png

[4] Factcheck.org: http://www.factcheck.org/2012/07/tax-facts-lowest-rates-in-30-years/

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