Suppose, If You Were Rich Enough, You Could Run through Stop Signs

Just suppose for a moment. Sometimes it clears the mind to suppose what might happen if reality prevailed.

The I-do-my-part-and-you-do-yours aspect of stop-signs would entirely evaporate and road safety would become chaotic. America would be like Italy, where I have driven (and motorcycled) over the past 30 years and realized that Italians feel traffic laws are merely suggestive. Driver-chaos reigns charmingly in that wonderful country, but it comes at personal risk.

And so it is, with American income-tax laws. Some of us stop at stop-signs, others whip on through

Most Americans (defined as those who struggle to pay the mortgage on a single home) have no more choice on paying their taxes than stopping at stop-signs, as their employers automatically deduct them. It’s the law.

Others (mostly the top ten percent), only slow down ever so slightly as they choose from a cornucopia of possibilities. Those include deferred income, tax loss carry-forwards and offshore accounts, as well as any weirdly conceived fiction a highly paid accountant can dream up. Always, one might note, in the company of another highly paid tax lawyer.

The rest of us are made to feel like jerks

It was not always that way. Young folks may shrug a shoulder, but they shrug at their financial peril. My business career covered the 50s, 60s and 70s—not exactly ancient times, although well before many of you were born.

In those days America had a rapidly growing and wealthy class of millionaires, created in the heady days of post-WWII industrial supremacy. Many of them were my clients and they lived well. Most important of all, they paid their income taxes and were willing to do so without much complaint. The U.S. economy had made them rich and if 91% was the top income bracket, it seemed a small cost for benefits received.

But millions are not billions. They had lovely homes, a Cadillac or Lincoln in the garage and maybe a summer place. But not six homes in five countries, another in New York and a spare in California, almost never a yacht and certainly no private plane. Their kids might show horses and a country-club membership was looked on as normal. Not a bad life, but hardly excessive.

Let me explain that 91% bracket because it’s largely misunderstood

The IRS never took 91% of a wealthy person’s income. Who would stand for that? The 91 percent bracket of 1950 only applied to earnings over $200,000 (or about $2 million in today’s dollars). Fewer than 10,000 households had enough income to fall into the top bracket, according to an article in The Wall Street Journal.

But the rich paid their taxes, the nation paid its bills and prosperity reigned

The United States actually manufactured stuff in those days. If you bought a car, a toaster, TV or sofa for the living room, it was probably made in America. Those who made it quite likely belonged to unions, supported a family with a single income, possibly owned a modest home and may have kept a boat in the driveway to take the kids fishing on weekends. My father was a member of that middle class and he paid for my college education, no student loans required.

Eisenhower built the interstate highway system, McDonalds opened their first burger joint in Glenview, Illinois, the first graduates of the GI Bill founded companies and the nation was on a roll. America’s Marshall Plan rebuilt a devastated Europe.

And suddenly the rich got greedy—who knows why?

They found willing co-conspirators in the American Congress with their hands out, ready to make good things happen for a bribe or a favor under the table. Congress passed laws that made it legal for the wealthy to ‘contribute’ to campaign funds and anything conveniently ‘left over’ from those funds belonged to the candidate. Voted-out or retired legislators pocketed the money and found creamy jobs on the boards of companies for whom they had voted in equally creamy laws.

Government was on the take and remains so today. Why else would a Senator or Representative spend millions to get a job that pays thousands?

But that was not enough, they wanted more

The problem with legalized fraud and corruption is that it builds a thirst for more and tax-havens were next on the list, along with moving American corporate headquarters to tax-favorable countries. The Supreme Court agreed and the inside joke was that America had the best government money could buy.

‘Take your baby to the movies, if you can’t make love at home’ was an oldie but goodie song from the roaring twenties and corporations ‘took their companies to tax shelters, when they couldn’t avoid taxes at home.’ Burger King in Canada, Budweiser in Belgium and Amazon in Luxembourg for all its European sales, the list is more than a hundred companies long.

Not to be left behind, private wealth fled to the British Virgin Islands, Luxembourg, the Cayman Islands, Bermuda, the Netherlands, and Switzerland, where (in all but Switzerland) dingy back-alley offices legally counted the money far from tax authorities. The Swiss have been in that business for centuries and their back-alleys are pristine.

And then came the legal strategy of tax avoidance

Congress tailor-made this house of mirrors for their own and their ‘contributors’ use to avoid paying taxes at all or at least lower their taxes owed. In fact, these days millions of individuals and businesses use some form of tax avoidance to cut down how much they owe to the Internal Revenue Service (IRS) legally and legitimately. Used in this context, tax avoidance is also referred to as a tax shelter.

How cool is that? An umbrella for everyone substantially richer than you and me, no matter how hard it rains.

Ah yes, there’s the homeless, the sheltered and, ultimately, the tax sheltered. The last is a perfectly legal way to avoid sleeping under a bridge or in a doorway.

And so, Jeff Bezos must be congratulated for moving to Miami

The world’s third-richest person, worth roughly $161 billion according to Forbes, will thereby avoid Washington State’s hefty taxes by moving to Miami, saving him additional billions over the long term. Right off the bat, The Washington Post newspaper owner will avoid Washington State’s new 7% tax on investment profits, which less mobile and slightly more loyal residents began paying this year.

And why?

Because he is Jeff, and occupies a preferred seat at the table where you and I are allowed no reservation. A shame perhaps, but it’s the law because your and my representatives in Congress made it so.

Apparently, there is no law against our American government writing and passing laws that feather their own nests. Quite possibly, there should be…