When the income tax was first introduced in the early 20th
century, it was a flat rate on high-income taxpayers. As
the Government needed more money, the rate increased and
the tax base broadened to include more and more people. If
this were the end of the story, I would not be writing this
blog and would not spend my time helping people lower their
taxes.
The Government soon learned that taxes were an excellent
way to stimulate the economy. It started using the Internal
Revenue Code to effect not only economic policy, but also
social and energy policy. The primary tools it used (and
continues to use) were tax deductions, exemptions and
credits aimed at encouraging certain investment behavior
among the American people.
For example, to encourage home ownership, a provision was
enacted whereby homeowners could deduct interest and
property taxes. To encourage charitable giving, a provision
was enacted to allow a deduction for gifts to qualified
charities. These are deductions that the average American
now sees as their right and if they were taken away, people
would scream. In fact, it is these very deductions that
have prevented Congress from enacting a Flat Tax. And I
would bet that my friend who is worried about us
"evicerating the revenues of the U.S. government" would be
very unhappy if we did not claim their home mortgage
interest, real estate taxes and charitable deductions on
their tax return. In fact, they would probably fire us and
rightfully so.
But are all tax deductions as justified as these? In fact,
I would argue that the business and investment deductions
and credits are even more justified. Why? Because they help
create jobs and housing by getting more money put back into
business and real estate.
I was talking to a good friend of mine just the other day.
He was telling me that he puts all of his money back into
business and into real estate so he doesn't have to pay so
much in tax. Here is at least one person who is doing
EXACTLY WHAT CONGRESS WANTS HIM TO DO and by so doing is
helping to build the U.S. economy.
To be sure, I am all for eliminating loopholes that affect
a very small part of the economy and sometimes only help a
single company (yes, these are still passed on a regular
basis). And if Congress wants to change the laws and
eliminate some deductions and credits, that is entirely
their right. However, I have never met a single person who
VOLUNTARILY pays the government more than is required.
As Judge Learned Hand of the Second Circuit Court of
Appeals once said, ""Anyone may arrange his affairs so that
his taxes shall be as low as possible; he is not bound to
choose that pattern which best pays the treasury. There is
not even a patriotic duty to increase one's taxes. Over and
over again the Courts have said that there is nothing
sinister in so arranging affairs as to keep taxes as low as
possible. Everyone does it, rich and poor alike and all do
right, for nobody owes any public duty to pay more than the
law demands."
Warmest regards,
Tom
----------------------------------------------------
Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on such strategies, Tom is an adjunct professor in
the Masters of Tax program at Arizona State University. For
more information, please visit
http://www.provisionwealth.com
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