Tax Management

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Lessons From History
Taxes are as old as recorded history. They are mentioned in ancient Sumer around 3,000 B.C. Tithing, the practice of pledging ten percent of one's wealth, was commonly practice among ancient peoples and still is used today by some religious groups in the United States. Rome collapsed when taxation reached fifty-two percent and when taxes imposed on the colonies reached twenty-three percent, that was considered excessive enough to start a revolution with Britain. It is interesting that prior to 1862, the federal government was supported by revenue from import duties and proceeds from the sale of public lands. It was only in 1862 that the Bureau of Internal Revenue, income and other internal revenue taxes were all established in order to finance the Union in its war against the South. After the Civil War the activities of the Internal Revenue Service (IRS) declined dramatically only to emerge again in full force after the passage of the Sixteenth Amendment in 1913. The Sixteenth Amendment, authorizing our present income tax, effectively canceled Article I Section 9 Paragraph 4 of our original Constitution. The drafters of the United States Constitution knew full well what they were doing when they expressly forbade taxation on an individual's income. "The power to tax is the power to destroy." is a quotation that rings as true today as it did in the 18th century. PROGRESSIVE OR GRADUATED TAX

The progressive tax embodies the idea that people with higher incomes should bear relatively more of the country's tax burden. In fact, I recall reading that it is a long-standing principle that a person should be taxed on his ability to pay. Apparently the writer believed this statement fell into the category of facts beyond dispute such as babies should be loved and redwoods saved. Upon reading the statement I remember thinking it had been around about as long as Marx and Lenin. Perhaps a less disputable fact in America might be the concept of private property and freedom. Being required to give half of the fruits of your labor to government so that it in turn might distribute it to others less productive, energetic, willing to take risks, lucky, fortunate or less anything, is an effective means of communizing a society. Folks in 2009 shrink in horror from the word socialism whereas communism—a word which represents an ideal society—is never mentioned. Perhaps because in recent history it was tested and now poses no threat. The progressive tax punishes human effort. High bracket tax payers do strange and often non-productive things (like digging dry holes) in an effort to reduce their tax bite. Although attorneys and accountants and fast talking promoters may benefit, the government ends up collecting fewer dollars and society suffers because of the misallocation of capital. Our gross national product is less, thanks to tax distortions. Many Americans feel pressured to make their investment decisions on the basis of complex tax calculations rather than on the economic merits of the particular situation. We are faced with the ludicrous situation where our tax law dictates how our economy operates. WHO OWNS WHAT?

Politicians are frequently quoted as bemoaning the fact that any reduction in taxes will cost the government, the government will lose. The implication is, of course, that the government owns or at least has a right to everything it can rationalize. The IRS graciously allows certain deductions as we have seen, but only if taxpayers can show that they fit into one of the loopholes written into the tax code that the lowest and middle class taxpayers seldom read. The principle being not that the money is yours and may we have some please, but rather that your earnings belong to the government and the burden is on you to prove what you are entitled to keep. Where and when did this thinking originate?

In 1928 government at all levels...
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