Wealthy People Do This To Avoid Paying Taxes

Wealthy Avoid Paying Taxes

Although tax season is over, the equality of taxes continue to pose a concern. And the problem of what to and what not to pay for will again sprout as a subject for national discussion.

And it doesn’t help that the leak from the Panama Papers has brought up an alarming concern. That is, on how the rich shelter themselves from paying taxes.

This is surely going to be an issue as we approach the Presidential election.

America’s tax framework rests on the concept that the more money you make, the more tax you are required to pay.

So as a result, the majority of the population are convinced that wealthier individuals should pay more taxes.

Naturally so because they have a higher source of income. But still, in an IRS report, the framework we strongly believe in is far from actuality.

The tax rate precipice

If we take a closer look on American taxation, we’ll find that up to a certain point, taxes are not directly relative to income. Here is what reported figures show:

·                        The upper 50% earners remit taxes of about 14.33% based on their income.

·                        When the income increases, the taxes also increase to about 22.83%.

·                        22.83% is the peak for those who are at the top 1%

·                        The people whose income is more than that of the 1% pay lower taxes as they go higher in income.

How does this work? Here’s what the figures continue to show:

·                        The top 0.1% of earners remit taxes to about 21.67% of their income.

·                        The top 0.01 remit about 19.53%

·                        The top 0.001% (whose income are at an adjusted average of $62 million), remit only about 17.6%

·                        Those whose income are at $85,000 per annum remit 17.6% as well.

How did this happen?

Tax deductions benefit the rich

What’s actually happening is that there are tax deductions awarded to the rich. This lowers what they owe in taxes. They get to acquire big properties and then subtract huge interests off of mortgages. Plus, they can also subtract mortgage interests off of their secondary properties as well.

Although to be impartial, they are bound by a cancellation of interest deductions in mortgage. This confines tax benefits, but does not completely cancel them.

The rich also get to subtract interests for loans on other properties such as yachts.  They can also subtract any losses they make from gambling, depending on how much they win. And in addition, they can also claim tax adjustments depending on the sum of charitable deductions they claim.

Social Security taxes

Currently, the ceiling for social security fees is at $118,500. This means that those with an income of $118,500 pay the same social security fee as those whose income are above them.

So even if a certain individual makes a million in a year, he/she still pays the fees similar to someone who makes $118,500. (Anyone there who can come up with a plan to address this?)

A capital gains goldmine

With all that’s been discussed, the main reason why such an inequality exists in taxes is capital gains. For some reason, capital gains are treated differently by the IRS based on the type of income.

Those who earn the majority of their revenue from investments remit an average of 24% for taxes.  But those who earn the majority of their income through hard work remits to up to 39.6%.

Loopholes for the wealthy

There are also a number of loopholes that exist for the wealthy. Have you ever head of the loophole for payroll taxes? This occurs when self-employed individuals use corporations to avoid paying higher taxes.

They do so by declaring that their income is part of the profits earned by the corporation. This then saves them from paying social security fees and Medicare taxes on their own earnings.

An additional loophole exists within private equity funding. Usually, managers of these funds receive a percentage compensation based on the revenue gathered from the fund.

This compensation is categorized as a carried interest. Unfortunately for us, carried interests are not taxes as an income, but as capital gains. This means lower tax rates for these individuals.

As depicted in the Panama Papers, other rich individuals also utilize offshore accounts to avoid taxes. The Tax Justice Network conducted a study on this concern.

Their findings report that around $21 trillion are in offshore accounts. They are housed in tax sanctuaries such as that of the Cayman Islands.

A number of people also avoid estate taxes by way of trust funds. These trust funds move assets without requiring the need to pay taxes.

So here’s the reality. Once you get to be really wealthy, you have access to resources that give you the ability to lower taxes. It’s a sharp incline up the tax mountain, but once you reach the height of it, a big payout awaits.

So what taxes do the rich really pay?

For a person who makes $10million or more a year, the likely percentage that he earns from salary is only 15%. And the earnings he makes from capital gains usually account for 50% of his total income.

While they are at income tax bracket of 39.6%, that’s only applicable to their salaries. And on the other hand, their capital gains are only taxed at 23 .8%, much lower than that of the income tax.

So this leads us to the conclusion that greater taxes for the rich is a fallacy, especially for the really rich. The 23.8% tax that the wealthy are required to pay for their earnings is just about equal to the taxes remitted by the middle class.

The wealthier you are, the lower your taxes are, not because of how much money you make, but because of how you earn it.

The brackets in income tax is how the government pretends that it’s requiring the rich to pay higher taxes more than anyone. But in reality, it’s the exact opposite.

Our bribed politicians placed those tax rates as a way of creating a favorable impression. Such that the general public would think that the rich is paying their fair share. But in truth, we are paying more than they do.

The majority of where the rich get their income gets tax reductions. This ambiguity is intended to create a huge economic bubble. For what reason? To fuel casinos. And this very system has done exquisitely well for the last thirty years.

As a result, the income gap between the classes is rapidly growing. And after all, those in the middle class can’t afford risking their hard earned money in gambling hubs such as that of Wall Street.

These tax reductions for the wealthy have been produced on pretense. People thought that as stocks rise, job markets would expand. Because the rich would then have the ability to expand their operations, factories, etc. Unfortunately, that didn’t occur.

What occurred instead was they gained more money to spend. More money on sports teams and more money on stocks. They raise the price of teams and charge more money for stadiums and tickets. And instead of expanding factories inside the country, they outsource their operations overseas.

This gives them the ability to reduce their operational costs. The more they receive, the more they hunger… leading to the ruin of what we once knew as a great nation.

The tax deductions that the rich are enjoying do not build roads. They do not expand factories or create new ones. They hardly created new jobs. There’s no trickle-down effect.

Everything is just on paper. It all just results to increased inflation in stocks. But nothing ever really goes back for the benefit of a company’s capital equipment. Nor does it benefit a company’s R&D.

What happens instead is the money just gets ploughed back to other stocks. This creates the world’s biggest casino—one where only the richest can afford to play the cards.

Sure, we were able to witness a number of commendable developments after tax reductions were put in place for the rich.

However, that is only because the government has also amplified its expenditure and its debt.

It’s remarkable how big your party can get when you’ve bought it all on credit. So as it turns out, we’re creating bubble after bubble. And this is not on tax reductions, but on the biggest debt increase the world has ever seen.

Now some of you may feel that I’m just stating these things out of jealousy. Or maybe some of you think I’m just saying this to increase taxes for the rich because they are appalling.

But so far, I haven’t said anything about increasing the taxes for the rich so that they are taxed beyond that of the middle class.

What I have been saying is: why are the given access to lower taxes? What benefits have we received or felt as a result of these tax breaks?

For the last three decades of this system, most of us never felt any relief that is a direct result of these things. It’s time to eliminate welfare enjoyed by these affluent people.

The result of the actions of these investors do not lead to any improvement.

There are no improvements in job markets and there are no new factories or places where people can earn money. So it is only fitting that their capital gains be taxed at a percentage similar to that of income tax.

Anyway, no trickle-down effects are happening at the moment. And if we look closer, we’ll see that no one is really investing, they’re just playing their cards, one stock after the other.

They don’t buy shares or become shareholders of a company to help it improve and succeed. No. They buy shares and then leave as soon as they see an avenue for profit.

And while they are owners of the company, they demand the company to utilize its financial vigor to bring up massive loans.

The loans are then used to shower these shareholders with impressive dividends. They demand the company to purchase its own stock, reducing the number of ways of distributing dividends.

As they generate a false demand for company stocks, they increase the price of their own shares.

And if all of this is insufficient, sometimes, these investors find ways to purchase controlling stocks. This way, they won’t hurt the price of their own shares once they dump all of them at once.

They leave companies in debt, while they exit enjoying the money they make out of their scheme. And as they leave, they proceed to buy stocks from other companies, and repeat the process again.

The income they make from all of this is mostly passive. And yet, they get tax breaks every ten years, encouraging their exploitation of the market.

These tax breaks are instead leading to increases in taxes, making everyone else pay for higher taxes. (Or else, the country will plummet deeply into debt).

The wealthy who benefit from these luxurious tax reductions do nothing with the money they save from their taxes.

They just end up playing endlessly in casinos where they are members. And to make sure these casinos are fully functioning, the

Fed steps in to play the lead.

It assures club members that it will continue to produce a huge number of new chips that they can add to gamblers’ accounts. (Because that’s what Fed money is—a valued chip because everyone is willing to agree that it has value and can be used for proper trade).

The Fed then walks across the aisles, stacking up new piles of chips before the members. But the Fed won’t give you any. (Unless there’s a reader here who’s part of the super-rich, and is reading this article under masochistic influences).

The theoretical actions of the super-rich are utterly rubbish to the economy in general. In fact, it represents a parasite. After receiving large tax reductions, they end up damaging the economy.

They do this by moving all the money they have earned in order to generate a huge economic bubble. And once that pops, it will hurt virtually everyone.

And on top of the huge tax reductions they receive, they are also entitled to a number of tax credits and other kinds of deductions.

And most of the time, such deductions are only available to those who belong on the One-Percent Club.

If you look at it closely, those who belong to the top 10% of the income ladder pay lesser taxes than the top 20%. And those who belong to the upper level of that top 10% (the One-Percent Club), pay even lower taxes.

So the higher you go up the money pyramid, the lower your share is in fair taxes. The splendor of this lies in the ability of the scheme to deceive the unknowing public.

The rich appear to have covered a reasonable share in taxes on account of that 39.6% rate. But in reality, that is how they mask the reality of their income, a way to avoid reporting their true earnings.

They even get to hire people who whine on their stead about how biased it is to make the rich pay even more taxes. These are those who are underpaid, living in financial denial as they trust that they can be part of the dream one day.

They believe that they can too one day—when the generosity of the wealthy does fall down the table. And they get to feast on the leftovers and have their shot at being rich too.

Well, don’t be fooled by the tax-scurrying wealthy and don’t let their lap cats fool you either.


Martin - Head of Real Estate and Finance at RateTake
Martin is Head of Real Estate and Finance division at RateTake. He creates content that helps people understand and make the right decisions for their financial future.

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Martin is Head of Real Estate and Finance division at RateTake. He creates content that helps people understand and make the right decisions for their financial future.