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Posts Tagged ‘income tax’

bionic mosquito: When Private Property Isn’t

Posted by M. C. on July 28, 2021

Yet, even at this extreme, try not paying property tax on the property, or income tax on the privately earned income, etc.  The property isn’t purely private in the sense of the owner have complete control over use and disposition.

At the other extreme…libertarians and Austrian economists will use the phrase “crony capitalism.” Instead, it has been “earned” via government connection.

http://bionicmosquito.blogspot.com/2021/07/when-private-property-isnt.html

Posted by bionic mosquito

My comment, at the Mises site:

[From the author of the piece]: “This does not mean that someone cannot be prevented from accessing certain venues or activities when their rightful owners set preventive sanitary rules….”

BM: Libertarians must really get past this kind of thinking. Does anyone believe that airlines, social media companies, mainstream media companies, any large company of any type is a private company in any meaningful sense? How quickly and suddenly they bow to government dictates no matter how draconian, and what punishment will befall them if they don’t. Willingly or through coercion, they do the state’s bidding.

The piece was about forced vaccinations.

There is much about private property that isn’t private.  At one extreme – consider it the closest to a libertarian ideal: we have property, acquired via voluntary transaction; either produced from other materials, acquired in trade, developed in code, etc.  Yet, even at this extreme, try not paying property tax on the property, or income tax on the privately earned income, etc.  The property isn’t purely private in the sense of the owner have complete control over use and disposition.

At the other extreme…libertarians and Austrian economists will use the phrase “crony capitalism.”  If this phrase is to mean anything, it has to indicate that the private property (necessary for a system of capitalism) has not been earned or acquired in a manner that fits the above definition of private property: acquired via voluntary transaction.  Instead, it has been “earned” via government connection.

Examples of this abound: perhaps the most obvious is banking, especially money center banks.  Others include military contractors, pharmaceutical companies, airlines, tech and social media companies, mainstream media, etc.  It could also include any company or industry that petitions the state for something (as opposed to petitioning the state to not do something or to stop doing something).

These crony capitalist companies do the state’s bidding.  They lobby for funds, lobby for regulations, and in exchange, they pay the piper by dancing to his tune.  They realize the consequences of just saying no.  Why do such a thing, when saying yes pays so well?  Can the property that results from such an arrangement be described as “private”?

There is a large area in between, of course.  The most unfortunate, and taken from the last sixteen months: any church or small business that did not enforce or abide by state mandates faced the potential of being crushed, and its pastor or owner faced prison.  One cannot call this property “private,” though through no transgression of the owner.

But the entities that hold property via crony-capitalism can in no way be considered holders of private property.  They are extensions of the state, really not much different than the military, department of (in)justice, the various spy agencies, etc.

Conclusion

Libertarians really need not make the caveat, as was done in the statement I cited at the opening of this post.  Instead, the proper caveat should be that much of what is considered private property isn’t. 

Until this is fully embraced and understood, well…we are like the dupe, falling for the con of the shell game.  Complain about government encroachment and defend the so-called private entities that are just as much a means of that encroachment as any government employee.  Yes, such libertarians may be following the right shell, but there is a second one virtually equally as dangerous to liberty.

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I Could Pay Off My $50k Student Loan in a Few Years—if Government Stopped Taking My Money – Foundation for Economic Education

Posted by M. C. on February 19, 2021

Because of the increased taxation in the US economy, the average American now works approximately 4 months out of the year to pay all of their taxes. That means 4 months out of the year I work for the federal government instead of working to pay off my student loans.

The definition of slavery.

https://fee.org/articles/i-could-pay-off-my-50k-student-loan-in-a-few-years-if-government-stopped-taking-my-money/

Holly  Jean Soto
Holly Jean Soto

Twelve-thousand dollars.

That’s how much the government will take out of my income this tax season. As a college graduate, I would have used this money to start tackling my over $50,000 of student debt.

But instead of using this money to pay off two of my student loans this year, the government gets to keep this tidy sum of my hard-earned money.

This is the sad truth for many college graduates, like myself, working full-time jobs and still finding it hard to manage basic daily needs like rent, food, gas, car insurance, health insurance, and the like. Many of us are left feeling like Rachel Green from Friends when we get our paychecks, saying: “who’s FICA? And why is he getting all my money?”

For student loan borrowers, an average of $12,000 a year saved would be transformative.

But instead, we are facing a true debt crisis for borrowers across all demographics and age groups making student debt the second highest consumer debt category in the US behind mortgage debt, according to Forbes. Total student loan debt amounted to $1.56 trillion last year alone.

Research also shows that “college graduates aged 35 and under with student loans now are spending nearly one-fifth (18 percent) of their current salaries on student loan payments and that 60 percent now expect to be paying off student loans into their 40s,” according to Citizens Bank.

As college debt becomes larger, it’s no wonder that more and more politicians are advocating student loan forgiveness programs.

But this tax season, I’m not asking for student loan forgiveness or a special government program to bail me out. I’m just asking to keep more of my hard-earned money.

I urge fellow student loan borrowers to imagine a world where you can keep all of your income and decide how to best spend your money. I would venture to guess that the majority of student borrowers would use this money to pay off their loans as fast as they can. Why? Because borrowers have an incentive to get out of debt.

Being debt free would be transformative for me! I would finally be able to move to my dream state, buy a house that I could design from scratch, help my parents pay off their mortgage, save for my future kids, donate more to my church, and accomplish the list of things I’ve written down for when I am debt free.

You see, when borrowers become debt free, their financial power changes drastically. They are more inclined to make major financial purchases like the ones I’ve shared.

Our rational self-interest to get out of debt frees up our ability to make major financial purchases which promote economic activity, benefiting the economy as a whole.

Adam Smith, the father of modern economics, discusses this idea of rational self-interest in his book, The Wealth of Nations, where he explains that the best economic benefit for all can be accomplished when individuals act on their self-interest.

Most of the economic activity we see around us is the result of self-interested behavior. The realtor selling my dream house acts on her own self-interest to build a salary to perhaps go on vacation. The workers cutting tile to fit in my new bathroom act on their own self-interest to build up savings and put a roof over their heads, the construction workers putting the house together act on their own self-interest to buy food for their families, and so on.

The beauty of rational self-interest is that it takes many self-interested people to work on one house, but as we all act on our self-interest, we inevitably serve one another and even more—produce economic activity that serves one another.

While using your income taxes to pay off your debt may be a rational and commendable spending decision, government’s spending decisions are oftentimes inefficient and ineffective.

Government’s track record of spending your taxpayer dollars is, well, horrid. GoBankingRates reports taxpayer dollars being used for things like studying monkey drool, examining how the world’s religions might react if humans make contact with aliens, having computers binge-watch hundreds of hours of television, proving that frat brothers like to party, putting fish on treadmills, and so much more. Governments’ poor spending habits have gotten so out of control that it’s put our nation in over $27 trillion dollars of debt.

So why do governments spending habits vary dramatically from individual spending habits?

Because incentives change when money comes out of your own pocket, versus the pockets of others. My favorite economics professor put it this way—“progress, efficiency and effectiveness don’t begin with someone else’s money.”

If we understand that individuals know better how to spend their own money than the government and that our spending decisions will help promote economic activity, why have we come to accept income taxes as normal?

Because of the increased taxation in the US economy, the average American now works approximately 4 months out of the year to pay all of their taxes. That means 4 months out of the year I work for the federal government instead of working to pay off my student loans.

If more college graduates were allowed to keep the dollars they earn, they would ultimately have the liberty to spend their money how they want —and get out of debt a whole lot faster.

But we need to keep more of our income to do this.

As we file our taxes this year, I encourage you to look at the amount of your money the government is claiming and ask yourself these two questions: what would you have done with this money? And does the government actually spend this money better than you can?

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Who Pays Income Taxes: Tax Year 2018 – Foundation – National Taxpayers Union

Posted by M. C. on January 1, 2021

https://www.ntu.org/foundation/detail/who-pays-income-taxes-tax-year-2018

by Demian Brady

Introduction

Many left-leaning politicians have argued that the tax system is rigged to benefit those at the top and that the wealthy are not paying their “fair share” of taxes. These claims overlook the starkly progressive nature of America’s income tax code. The code has become increasingly progressive over the past several decades, and despite much political rhetoric to the contrary, the 2017 Tax Cuts and Jobs Act (TCJA) made it even more progressive by shifting a greater share of the income tax burden to the top earners.

New data from the Internal Revenue Service (IRS) for the first tax year under the TCJA confirms that even as the tax reform law reduced top marginal tax rates, the top income earners shouldered a larger share of the income tax burden, far exceeding their adjusted gross income share. Lower income earners are largely spared from income taxes and actually paid a smaller share under the TCJA’s reforms.

New Data Highlights Progressivity of the Income Tax Code under the TCJA

Each fall the IRS’s Statistics of Income division publishes data showing the share of taxes paid by taxpayers across ranges of Adjusted Gross Income (AGI). The most recent release covers Tax Year 2018 (filed in 2019).[1] This is the first year of reported data under the changes in the TCJA which lowered tax rates, nearly doubled the standard deduction, and expanded the child tax credit.

The new data shows that the top 1 percent of earners (with incomes over $540,009) paid over 40 percent of all income taxes. Despite the tax rate reductions associated with TCJA, this figure is up slightly from the previous tax year’s 38.5 percent share. In fact, NTUF has compiled historical IRS data tracking the distribution of the federal income tax burden back to 1980 and this is the highest share recorded over that period, topping 2007’s 39.8 percent income tax share for the top 1 percent. The amount of taxes paid in this percentile is nearly twice as much their adjusted gross income (AGI) share.

The top 10 percent of earners bore responsibility for over 71 percent of all income taxes paid and the top 25 percent paid 87 percent of all income taxes. Both of those figures represent an increased tax share compared to 2017. The top fifty percent of filers earned 88 percent of all income and were responsible for 97 percent of all income taxes paid in 2018.

The other half of earners (with incomes less than $43,614) took home 11.6 percent of total nation-wide income (a slight increase from 11.3 percent in 2017) and owed 2.9 percent of all income taxes in 2018, compared to 3.1 percent in 2017.

As NTUF reported earlier this year, the number of filers with no income tax liability increased from 2017 to 2018 to 34.7 percent.[2] The number of nontaxable returns is often related to the economy: as employment decreases and income falls, the number of filers facing no income taxes tends to increase, and vice versa. While 2018 saw a strong economy that would ordinarily increase the number of individuals with income tax burdens, the TCJA removed additional people from income tax rolls by increasing the standard deduction and expanding refundable credits.

Historical Comparison

As noted above, NTUF has compiled historical IRS data tracking the distribution of the federal income tax burden back to 1980. In that year, the income tax share of the top one percent of filers was 19 percent – less than half of what it is now (40 percent). This is despite the fact that the top marginal income tax rate was 70 percent in 1980 and has since fallen to 37 percent in 2018.[3]

On the other side of the income spectrum, the bottom 50 percent’s income tax burden has been significantly reduced over the past forty years. In 1980, it stood at 7 percent. That dropped to a low of 2.4 percent in 2010 during the recession. As the economy gradually improved after the recession, the tax share of this income group gradually increased to 3.1 percent in 2017. Although the economy remained strong in 2018, this group’s tax share fell from the previous year. This can be attributable in part to the lower rates and higher standard deduction enacted in the TCJA along with its additional provisions designed to ease burdens low-income earners such as  the increased child tax credit.

The trends are clear: the code has become increasingly progressive, and when people are allowed to keep more of their own money, they prosper, move up the economic ladder, and pay a bigger part of the income tax bill for those who aren’t.

Tax Cuts and Tax Fairness

Democratic party leaders have taken rhetorical shots against tax reform bill since it was introduced back in 2017. During the debate, Speaker of the House Nancy Pelosi (D-CA) went so far as to call the TCJA the “worst bill in the history of the United States Congress.”[4] Senate Minority Leader Chuck Schumer (D-NY) also disparaged the bill as a “product that no one can be proud of and everyone should be ashamed of.”[5]

Progressives continue to assail the TCJA in the years since its passage. A few days before the election, the Center for American Progress, a  self-described “progressive” policy institute, called the tax system “unfair” and said the results of the TCJA were a “hugely regressive tax cut.”[6]

This ignores that most taxpayers paid less thanks to the TCJA.

See the rest here

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Taxation and Forced Labor | Mises Wire

Posted by M. C. on November 28, 2020

The way the example applies to income taxes is obvious. When the government taxes your income, it is taking away the product of hours of your labor. Just as I would be appropriating your labor if I forced you to work several hours for me without paying you anything, the government by taxing your income is seizing hours of your labor.

Moore considers an interesting objection to his argument. If you don’t want to pay income tax, couldn’t you avoid this by working less or for lower pay, so that your income fell below the minimum income for taxation? But why does the government have the right to put you in this unenviable position? Moore considers, in elaborate detail, a number of variations of the case, in each instance concluding that the government acts improperly. These I’ll leave to interested readers to examine for themselves.

https://mises.org/wire/taxation-and-forced-labor

David Gordon

When the government taxes you, it is taking away your money without your consent, and this is theft. This argument is well known, but there is another, though related, problem with taxes on income that you earn. By taking away part of the money you earn, the government is forcing you to work for it. Robert Nozick advanced this argument in Anarchy, State, and Utopia, and what I’d like to discuss in this week’s column is a defense of Nozick’s argument by Adam D. Moore that was published this year in the Southern Journal of Philosophy. It’s especially timely to discuss Moore’s article now, because Moore uses a famous argument by the philosopher Judith Jarvis Thomson, who passed away last Saturday.

Thomson asks us to consider this case: “Violinist: You wake up in the morning and find yourself back to back in bed with an unconscious violinist. A famous unconscious violinist. He has been found to have a fatal kidney ailment, and the Society of Music Lovers has canvassed all the available medical records and found that you alone have the right blood type to help. They have therefore kidnapped you, and last night the violinist’s circulatory system was plugged into yours, so that your kidneys can be used to extract poisons from his blood as well as your own.” The violinist will die unless you remain hooked up to him for nine months. Do you have the right to detach yourself? Thomson thinks it is obvious that you do. You didn’t consent to the arrangement, and your body isn’t at the disposal of others, even if they need it in order to survive. (Thomson uses her example to defend the permissibility of certain cases of abortion, but that isn’t relevant here.)

Moore varies the example in order to make it more relevant to his own argument. “Where in the original case Thomson has you hooked up for nine months, I will suppose that you are hooked up each day for several hours. Each day, the Society of Music Lovers kidnaps you and attaches the violinist. In five years, the violinist’s kidneys will be healed, and no further kidnappings will need to occur.” Moore says you would still be justified in detaching yourself, because the Society is using your body without your consent. He goes on to present a case of his own in which someone on an island has to work extra hours to support someone else unable to work. Here again Moore says you aren’t morally required to do so. It might be a nice thing to aid the person unable to work, but someone can’t be compelled to do this.

The way the example applies to income taxes is obvious. When the government taxes your income, it is taking away the product of hours of your labor. Just as I would be appropriating your labor if I forced you to work several hours for me without paying you anything, the government by taxing your income is seizing hours of your labor.

Moore considers an interesting objection to his argument. If you don’t want to pay income tax, couldn’t you avoid this by working less or for lower pay, so that your income fell below the minimum income for taxation? But why does the government have the right to put you in this unenviable position? Moore considers, in elaborate detail, a number of variations of the case, in each instance concluding that the government acts improperly. These I’ll leave to interested readers to examine for themselves.

But isn’t Moore’s argument open to another objection? The government isn’t just taking away your hours of labor. It also provides you with benefits. Of course, most government programs are detrimental or at best useless, but never mind that. Moore responds by using another point that Nozick raised. People can’t confer benefits on you without your consent and then demand that you pay for them. “Nozick writes, ‘One cannot, whatever one’s purposes, just act so as to give people benefits and then demand (or seize) payment. Nor can a group of persons do this. If you may not charge and collect for benefits you bestow without prior agreement, you certainly may not do so for benefits whose bestowal costs you nothing, and most certainly people need not repay you for costless-to-provide benefits which yet others provided them.’”

Most readers will already know how to answer the objection that the taxes aren’t imposed by a dictator but are the outcome of a democratic election. You can’t be forced to labor for others, even if your partial slavery is the result of a majority vote.

The rejoinder that I am drawn to at this point is one word: democracy! In democratic societies we vote about how to share the benefits and burdens of social interaction. Everyone gets a vote, and the will of the majority decides the appropriate share of benefits and burdens. The idea is to join together two factors, accruing benefits and democracy, that will justify taxation and redistribution. But, imagine our original Violinist case and add in a small village where the principles of democracy and majority rule have been in place for centuries. After a brief campaign to get out the vote and save the violinist, the village votes unanimously–1 (your vote) to hook you up and begin your daily sessions with the violinist. I warrant that this would be immoral independent of the vote and the benefits.

Moore with great ingenuity responds to a number of other objections, and I’ll mention just one more:

Taxes are justified because citizens agree to them as part of a social bargain. In return for the benefits that society bestows on the fortunate—and by using the goods and services offered by society—these individuals are indebted and agree to this contract…[but] no one has actually signed this social contract. Minimally, for a contract to generate moral and legal norms it must take place in conditions that are fair and where the parties to the contract have enough information. For example, withholding crucial information (the “car” you are about to buy is a shell with no internal parts) or threatening someone (pointing a gun at someone to ensure they sign the contract) would invalidate whatever moral norms that might typically arise in a proposed contract. How would any of this work related to a social contract? Moreover, there may be individuals who simply “don’t use the facilities” so-to-speak. Not only have they not agreed to pay any taxes, but they also do not consume any societal benefits.

We are greatly indebted to Moore for his fine analysis. But we don’t owe him any money for the benefit he has conferred on us, because we have signed no agreement to pay him. Author:

Contact David Gordon

David Gordon is Senior Fellow at the Mises Institute and editor of the Mises Review.

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Guess who ends up paying those taxes meant only for the rich…

Posted by M. C. on August 26, 2020

So in today’s money, remember how everyone making $76,000 or less was entirely exempt from income taxes? Now income taxes kicked in at just $7,000. Those same people owed $15,870 to Uncle Sam.

What happened with the income tax is what always happens with taxes…

They start off only targeting the rich. But inevitably, rates go up, and everyone pays.

The Alternative Minimum Tax is another great example. The AMT originally targeted 155 people who were making over what today would be $1.1 million per year, but weren’t paying any federal income taxes because of loopholes and deductions.

But the tax was never adjusted for inflation.

Guess who ends up paying those taxes meant only for the rich…

By Joe Jarvis

Imagine starting a small business, working for yourself, or building a company from scratch in the USA in 1875.

With no corporate taxes, and no income taxes, you kept the full rewards of your risk and labor.

It’s not surprising that in about 100 years the United States went from non-existent, to having the largest economy in the world.

Unparalleled economic freedom helped create the industrial revolution which spurred legendary economic growth from 1870 through the turn of the century.

For most of the 19th century, the main source of tax revenue for the federal government was tariffs—taxes on imported goods.

 

But in 1913, everything changed.

Around the world, communist and socialist philosophies were spreading. Marx was a hero. The Bolsheviks would come to power in Russia in just a few years. And America was caught up in the same craze.

There were all these rich people in America now, and the politicians wanted them to pay their fair share.

Tariffs disproportionately affected the poor, and enriched the wealthy owners of American businesses, protected from foreign competition.

The public was clamoring for a change.

In 1913, the 16th Amendment was added to Constitution, which allowed Congress to replace tariffs with an income tax as the main source of US federal revenue.

The first income tax code was just four pages long. And the top tax rate was 7% on income over $500,000—worth around $12 million today.

Plus, anyone earning under $76,000 (in today’s money)—which was most people—paid no income taxes at all. That’s how nice the tax code was.

The wealthy paid all the taxes, and the poor – even most of the middle class – paid none. People felt pretty good about that.

But it didn’t take long for things to change. Tax rates went up, the exemption fell, and debts mounted from the Great War (World War One).

By 1918 the top earners handed over 77% of their income.

The top tax rate made it all the way to 94% by 1944 to pay for World War Two.

(Two years earlier, President Roosevelt proposed a 100% tax rate to fund the war, arguing “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year.” – about $300k in today’s money.)

At the same time, the exemption fell and lowest bracket tax rate spiked to 23% (a 23x increase).

So in today’s money, remember how everyone making $76,000 or less was entirely exempt from income taxes? Now income taxes kicked in at just $7,000. Those same people owed $15,870 to Uncle Sam.

In just a few decades, the income tax went from barely skimming from the richest of the rich, to confiscating almost a quarter of the middle and working class people’s income.

What happened with the income tax is what always happens with taxes…

They start off only targeting the rich. But inevitably, rates go up, and everyone pays.

The Alternative Minimum Tax is another great example. The AMT originally targeted 155 people who were making over what today would be $1.1 million per year, but weren’t paying any federal income taxes because of loopholes and deductions.

But the tax was never adjusted for inflation.

By 2017, five million taxpayers were paying extra taxes because of the AMT, and more than half of them made less than $200,000 per year.

Same story with self-employment taxes…

Today, people who are self-employed pay double the payroll taxes as typical workers. The government forces them to cover both the employee and employer contributions to Social Security and Medicare.

So the self-employed are out 15.3% of every dollar they earn before we even start talking about income taxes.

When Congress introduced the self-employment tax in 1954, the rate was just 2.25%, and only applied to the first $3,600 of income.

Now there are almost 42 million self-employed people in the US, but they only earn an average of $36,000 per year.

That’s what you get trying to stick it to the rich—ultimately sticking it to tens of millions of working-class Americans.

This is what ALWAYS happens… and here we are doing it again with our favorite socialists proposing sky-high taxes that will inevitably hit the middle class.

It’s now in vogue to endorse income tax rates of up to 70%– just for the rich of course! Don’t worry it won’t effect you… just like the original income tax

Others endorse an annual Wealth Tax on the total net worth of everything the rich own every year. At first, it will only affect people with more than $50 million in assets.  But don’t be surprised when the exemption creeps down, and inflation puts more and more people in that category.

Because the socialists talk about really soaking the ultra-rich billionaires by taxing inheritance. And then they introduce plans to start confiscating almost half the dead’s wealth at just $3.5 million.

That is not a lot of wealth to have accumulated over the course of a life of hard work, and being responsible with your finances.

Don’t worry, they tell us. If you’re not a multi-millionaire, this won’t affect you…

And that may very well be their intention. But rest assured something will change that. It could be expensive war bills, inflation, or a change in the tax code that alters how people calculate their assets and liabilities.

It always starts by targeting the rich… but taxes have always crept their way down to rob the middle class just the same as the rich.

Because it’s never enough. Even if you confiscated 100% of the wealth of every single billionaire in the USA, at current spending levels, it would run the US government for less than a year. Then what? It’s all gone.

Plus, the socialists don’t want to just stay at current spending levels. They have all sorts of ideas the imaginary endless wealth of the rich can finance.

Do you think if the people from 1913 could see America now, would they still vote for the income tax?

Probably not if they saw which people ended up with the burden.

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Understanding Elizabeth Warren’s “Radical” Wealth Tax | Mises Wire

Posted by M. C. on December 3, 2019

However, suppose the individual invests the wealth in fairly safe bonds that yield a return of 3%. At the end of the period, the individual will have the original $1,000 plus the $30 in gross interest income, for a new level of wealth of $1,030. If that wealth is then taxed at 3%, the individual owes the IRS ($1,030 x 3%) =  $31 (with rounding). Yikes! The income generated by that wealth was only $30 during the period, and so if the individual had the same liability from a income tax (applied to interest), then the “equivalent” tax rate would be 103%! 

Wealth is not all cash. It is buildings, machinery, stock (manufactured products)…things that get others employed. You are more likely to find a job with a “rich” person than one taxed to financial death.

https://mises.org/wire/understanding-elizabeth-warrens-radical-wealth-tax?utm_source=Mises+Institute+Subscriptions&utm_campaign=938d32f1ce-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-938d32f1ce-228343965

Democratic presidential candidate Elizabeth Warren has had a long-standing call for a 2% wealth tax on any individuals with a net worth exceeding $50 million, and a 3% tax on wealth exceeding $1 billion. Yet when pressed on how to pay for her “Medicare for All” plan, Warren upped the ante to a 6% wealth tax for those fortunes exceeding $1 billion. (As I noted at the time of the announcement: If Warren doubles her wealth tax during the campaign, imagine how fast it will rise if she’s actually elected.)

Naturally, many conservative and libertarian analysts recoiled from such an economically destructive proposal. One of the ways critics used to illustrate the severity of Warren’s idea was to translate a wealth tax into an “equivalent” income tax on dividends, interest, and capital gains. But other economists pointed out problems with that line of attack, because after all, wealth and income are different things, and so taxes on them affect behavior differently. Wealth taxes are inefficient, no doubt about it, but not because “it’s the same thing as a huge income tax.” In the present piece I’ll try to referee the disputes and present the reader with an intuitive understanding of the issues involved.

How Wealth Taxes Can Correspond to Very High Income Taxes

In order to show that Warren’s seemingly modest 6% wealth tax was in fact quite radical, Richard Rubin at the Wall Street Journal warned that “Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%.” Likewise, Columbia University economist Wojciech Kopczuk—while commenting on the more academic proposal coming from economists Gabriel Zucman and Emmanual Saez—argued that, “If you consider a safe rate of return of, say, 3%, a 3% wealth tax is a 103% tax on the corresponding capital income and a 6% tax rate is a 206% tax.”

Before proceeding, let’s illustrate Kopczuk’s argument with a numerical example. (Note that in the rest of this article, in my examples I’m going to use small amounts of wealth, such as $1,000, to keep the math simple. Warren’s actual proposals of course only apply to wealth exceeding $50 million and $1 billion—at least so far!)

Now then, suppose someone starts with $1,000 in wealth. If he consumes it, then he faces no wealth tax nor income tax. (Kopczuk adopts the convention that any wealth taxes are assessed on wealth at the end of the period, while income taxes are based on income generated during the period.)

However, suppose the individual invests the wealth in fairly safe bonds that yield a return of 3%. At the end of the period, the individual will have the original $1,000 plus the $30 in gross interest income, for a new level of wealth of $1,030. If that wealth is then taxed at 3%, the individual owes the IRS ($1,030 x 3%) =  $31 (with rounding). Yikes! The income generated by that wealth was only $30 during the period, and so if the individual had the same liability from a income tax (applied to interest), then the “equivalent” tax rate would be 103%!

In General, a Wealth Tax Is Not Equivalent to an Income Tax

Although such calculations may be useful to wake up the average American to just how economically destructive even a “low” wealth tax may be, strictly speaking it is incorrect to argue that a wealth tax of x% is “equivalent to” or “the same thing as” a tax on capital income of y%. Over at EconLog, economists Scott Sumner and David R. Henderson both laid out some of the problems.

For our purposes, let me focus on Henderson’s commentary, where he showed the problem with Kopczuk’s analysis. Note, however, that in his actual example, Henderson ran the numbers for a 2% wealth tax. I’m going to change the calculations to make his same point, but using a 3% wealth tax, because I think that’s easier for the reader and also to be consistent with my commentary above:

The way to see what the marginal tax rate on capital income is[,] is to think on the margin: change the income from capital and see how much extra tax is paid.

So, for example, start with $1,000 at the start of the year that earns what Kopczuk calls the riskless rate of return, 3%. With a wealth tax, $1,030 at year’s end is taxed at [3%], leaving the owner with [97%] of $1,030, which is [$999.10].

Now raise the rate of return to 4%. With a wealth tax, $1,040 is taxed at [3%], leaving the owner with [97%] of $1,040, which is [$1,008.80].

How much more did the owner of capital net from the investment at 4% rather than at 3%? [$1,008.80] minus [$999.10], which is [$9.70]. In other words, for an extra income from capital of $10, the owner kept [$9.70]. The wealth tax amounted to a [3%] tax on the income from capital. [David R. Henderson, bold added, with bracketed numbers reflecting Murphy’s tweaking of the size of the wealth tax.]

As Henderson’s example shows, in general you can’t take a given wealth tax and then translate it into the “equivalent” income tax. In his example, if an investor has the choice between Investment A that is relatively safe and carries a return of 3%, and Investment B that is riskier but promises the higher expected return of 4%, then the wealth tax of 3% provides different incentives than a tax on capital income of 103%.

Specifically, under a 3% wealth tax, the investor who takes on the extra risk by switching to Investment B—trying to boost his gross rate of return from 3% to 4%, and hence his gross income on the investment from $30 to $40—will be able to keep 97% of that extra $10 in expected return on the investment.

In utter contrast, if the investor faces not a wealth tax, but instead a tax on capital income of 103%, then even if the riskier investment pays off as expected, the investor ends up worse off! Specifically, if he goes with Investment A our investor ends up with $1,030 gross on which he must pay ($30 x 103%) = $30.90 in income tax, leaving him with $999.10 after the dust settles. But if he goes with the riskier Investment B and even if it pays off as he’d hoped, the investor ends up with $1,040 gross on which he must pay ($40 x 103%) = $41.20 in income tax, leaving him with $998.80 when the dust settles.

In summary, David R. Henderson has come up with a specific example to show why it’s wrong to argue that a wealth tax of 3% is “equivalent to” a capital income tax of 103%. If we assume an investor has the option of putting his wealth into a riskier investment with a higher rate of return, then the 3% wealth tax only distorts the decision by 3% (loosely speaking). If the risker investment pays out, then the investor’s upside is only clipped by the modest 3% tax on the extra wealth he now holds. In contrast, under a 103% income tax, then it would be insane for the individual to even consider the riskier asset. Perversely, the more it pays out, the worse off the investor ends up, because the government assesses a tax that is proportional to, but bigger than, any gains.

At this point, we see that wealth and income taxes can have very different effects on investor behavior. Generally speaking, if we are considering long-term deployments of financial capital, and comparing it to a no-tax baseline, a modest wealth tax will lead investors to seek riskier assets earning higher (expected) rates of return, while a very high capital income tax will lead investors to tread water, putting their wealth into safe assets that earn very low rates of return. Both types of taxes distort financial decisions, but they do so in different ways. They aren’t “equivalent” in general.

Still Not the Full Story

My apologies dear reader, but we’re not done yet: Henderson’s analysis isn’t the full story, either. Strictly speaking, what he showed is that under a wealth tax of 3%, an investor who consumes all of his wealth at the end of the period only faces a marginal income tax rate of 3%. Yet in practice, most investors probably aren’t planning on consuming everything in one fell swoop, and so Henderson has led readers to understate the economic impact of a wealth tax.

Recall the example: An investor who switches his $1,000 in capital from an asset yielding 3% to one that yields 4% will see his gross income jump from $30 to $40. Henderson reasoned that under a wealth tax of 3%, the investor got to retain $9.70 of the extra $10 in gross income, and concluded that the marginal income tax rate was therefore only 3%.  (A reminder to avoid confusion: In order to keep the analysis comparable to the quotation from Kopczuk, I amended Henderson’s numbers to deal with a 3% wealth tax rather than a 2% version.)

Yet to repeat, this is only true if the investor consumes that $9.70. If instead the investor holds it another period, then it will trigger a second tax liability under the wealth tax, this time of ($9.70 x 3%) = 29 cents. And then if the investor carries the balance forward yet again, at the end of the third year he must pay another ($9.41 x 3%) = 28 cents in wealth tax. In contrast, under an income tax regime, if the investor just sits on his after-tax wealth after he earns it the first year, rather than deploying it to earn new income, then he owes no more additional tax on it.

In short, if our hypothetical investor had long-term plans for his wealth, then Henderson underestimated the burden of the wealth tax. In the limit, if the investor earned a one-shot return of $10 and then put it somewhere earning no return, it would asymptotically approach $0 over the years, as the government kept nibbling 3% annually at it. (For example, after 20 years of getting hit with the wealth tax, the original $10 in extra interest income earned that first year would have been whittled down to about $5.44.)

Let’s do one last example to illustrate the subtleties involved. Suppose our investor earned that extra $10 during this year (by moving his $1,000 into an asset that yielded 4% rather than 3%), and then wants to put the $10 under his mattress, where he intends to keep it for 50 years. How then would this extra $10 he earned this year, affect his long-term tax liability? Well, at the end of the first year he owes 30 cents. At the end of the second year he owes 29 cents on the remainder, and at the end of (say) the 25th year he owes 14 cents. However, when computing the burden from today’s perspective, those future tax payments need to be discounted. Since Kopczuk and Henderson both assumed a “safe” return of 3%, we can use that for a discount rate. (For example, the 14-cent wealth tax liability due in 25 years only has a present discounted value to our individual of 7 cents.)

Using this approach, the total wealth tax (in present-dollar terms) that the incremental $10 in wealth will cause our investor, over a 50-year time horizon, is some $4.89. In that sense, then, when our investor is considering whether to rearrange his portfolio in order to earn an extra $10, he faces a “marginal income tax rate” of about 49%.

Another way of showing the issue is to assume our investor wants to set aside a portion of his initial $10 in extra wealth, in order to cover all of the future wealth tax payments over the 50-year horizon. If he puts his earmarked “sinking tax fund” wealth into the relatively safe asset yielding 3%, then the investor must allocate $6.01 of his initial $10, just to cover the future wealth tax payments. Using this approach, the investor could understandably conclude that of his $10 in gross earnings—since he could only put $3.99 under the mattress “free and clear” for use in 50 years—he effectively paid the equivalent of a 60.1% marginal income tax rate.

Conclusion

Putting aside the moral problems with taxation—it’s theft, as a popular libertarian slogan reminds us—Elizabeth Warren’s proposed wealth taxes will have devastating consequences on capital formation, and will encourage investors to hold riskier assets than they otherwise would have. In order to illustrate the magnitudes involved, some analysts translated Warren’s proposals into “equivalent” income tax rates.

However, wealth and income are different concepts, and in general taxes on wealth and income will have different effects. For those investors with a short planning horizon, a modest wealth tax has a relatively modest impact on the decision to save for the future. However, for those with longer time horizons, even a seemingly modest wealth tax has an economic impact akin to a large income tax.

 

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Wealth tax - definition and meaning - Market Business News

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The Greatest Swindle in American History… And How They’ll Try It Again

Posted by M. C. on November 23, 2019

International Man: The Cayman Islands doesn’t have any form of direct taxation. What does that mean exactly?

Jeff Thomas: It means that the driving force behind the country is the private sector.

I think it’s safe to say that political leaders don’t really have any particular concern over whether a tax is applied to income, property, capital gains, inheritance, or any other trumped-up excuse. Their sole concern is to tax.

Taxation is the lifeblood of any government. Once that’s understood, it becomes easier to understand that government is merely a parasite. It takes from the population but doesn’t give back anything that the population couldn’t have provided for itself, generally more efficiently and cheaply.

https://internationalman.com/articles/the-greatest-swindle-in-american-history-and-how-they-will-try-it-again-soon/

by Jeff Thomas

International Man: Before 1913 there was no income tax, and the United States was a much freer country. Initially, the government sold the federal income tax to the American people as something only the rich would have to pay.

Jeff Thomas: Yes, exactly. It always begins this way. The average person is always happy to see the rich taken down a peg, so this makes the introduction of the concept of theft by the government more palatable. Once people have gotten used to the concept and accept it as being perfectly reasonable, then it’s time to begin to drop the bar as to who “the rich” are. Ultimately, the middle class are always the real target.

International Man: The top bracket in 1913 kicked in at $500,000 (equivalent to around $12 million today), and the tax rate for it was only 7%. The government taxed those making up to $20,000 (equivalent to around $475,000 today) at only 1% – that’s one percent.

Jeff Thomas: Any good politician understands that you begin with the thin end of the wedge, then expand upon that as soon as you feel you can get away with it. The speed at which the tax rises is commensurate with the level of tolerance of the people. And in different eras, the same nation may have a different mindset. The more domination a people have come to accept from their government, the faster the pillaging can be expanded.

As an example, the Stamp Tax that King George III placed upon the American colonies in the eighteenth century was very small indeed – less than two percent – but the colonists were very independent people, asking little from the king in the way of assistance, and instead, relying upon themselves for their well-being. Such self-reliant people tend to be very touchy as regards confiscations by governments, and even two percent was more than they would tolerate.

By comparison, if today, say, Texas were to eliminate all state taxation and allow only two percent in federal taxation, Washington would come down on them like a ton of bricks, saying they were attempting to become a “tax haven.” They’d be accused of money laundering and aiding terrorism and might well be cut out of the SWIFT system. The federal government would shut down the state government if necessary, but diminished tax would not be tolerated.

International Man: Of course, once the American people conceded the principle of an income tax in 1913, the politicians naturally couldn’t resist ramping it up. Just look at the monstrosity that exists today in the US tax code, which most Americans passively accept as “normal.” It’s a typical example of giving an inch and taking a mile.

Jeff Thomas: Yes – the key to it is twofold: First, you have to be sensitive as to how quickly you can ramp up taxation, and second, that rate is directly proportional to the level that the public receive largesse from the government. They have to have become highly dependent upon a nanny state and thereby willing to take their whipping from nanny. The greater the dependency, the greater the whipping.

International Man: Homeowners in the US – and most countries – must regularly pay property taxes, which are taxes on property that you supposedly own. Depending on where you live, they can be quite high and never seem to go down. What are your thoughts on the concept of property taxes?

Jeff Thomas: Well, my view would be biased, as my country of citizenship has never, in its 500-year history, had any direct taxation of any kind. The entire concept of direct taxation is therefore anathema to me. It’s easy for me to see, simply by looking around me, that a society operates best when it’s free of taxation and regulation and people have the opportunity to thrive within a free market.

Years ago, I built my first home from my savings alone, which had been sufficient, because my earnings were not purloined by my government. I never paid a penny on a mortgage and I never paid a penny on property tax. So, following the construction of my home, I was able to advance economically very quickly. And of course, I additionally had the knowledge that, unlike most people in the world, I actually owned my own home – I wasn’t in the process of buying it from my bank and/or government.

So, not surprisingly, I regard property tax as being as immoral and as insidious as any other form of direct taxation.

International Man: Not all countries have a property tax. How do they manage?

Jeff Thomas: I think it’s safe to say that political leaders don’t really have any particular concern over whether a tax is applied to income, property, capital gains, inheritance, or any other trumped-up excuse. Their sole concern is to tax.

Taxation is the lifeblood of any government. Once that’s understood, it becomes easier to understand that government is merely a parasite. It takes from the population but doesn’t give back anything that the population couldn’t have provided for itself, generally more efficiently and cheaply.

So, as to how a government can manage without a property tax, we can go back to your comment that the US actually had no permanent income tax until 1913. That means that they accomplished the entire western expansion and the creation of the industrial revolution without such taxation.

So, how was this possible? Well, the government was much smaller. Without major taxes, it could become only so large and dominant. The rest was left to private enterprise. And private enterprise is always more productive than any government can be.

Smaller government is inherently better for any nation. Governments must be kept anemic.

International Man: The Cayman Islands doesn’t have any form of direct taxation. What does that mean exactly?

Jeff Thomas: It means that the driving force behind the country is the private sector. We tend to be very involved in government decisions and, in fact, generate many of the decisions. Laws that I’ve written privately for the Cayman Islands have been adopted by the legislature with no change whatsoever to benefit government. As regards property tax, there are only three countries in the western hemisphere that have no property tax, and not surprisingly, all of them are island nations: The Turks and Caicos Islands, Dominica and the Cayman Islands.

I should mention that the very concept of property ownership without taxation goes beyond the concern for paying an annual fee to a government. Additionally, in times of economic crisis, governments have been known to dramatically increase property taxes. Further, they sometimes announce that your tax was not paid for the year (even if it was) and they confiscate your property as a penalty. This has been done in several countries.

What’s important here is that, with no tax obligation, the government in question is unable to simply raise an existing tax. If you have no reporting obligation, you truly own your property. And you can’t be the victim of a “legal” land-grab.

Instituting a new tax is more difficult than raising an existing one, and instituting any tax in a country where direct taxation has never existed is next to impossible.

International Man: How do Cayman’s tax policies relate to its position as a business-friendly jurisdiction?

Jeff Thomas: Well there are two answers to that. The first is that the Cayman Islands operates under English Common Law, as opposed to Civil Law. That means that as a non-Caymanian, you’re virtually my equal under the law. Your rights of property ownership are equal to mine. Therefore, an overseas investor, even if he never sets foot on Cayman, cannot have his property there taken from him by government, squatters, or any other entity such as can legally do so in many other countries.

The second answer is that, since we’re a small island group, the great majority of business revenue comes from overseas investors. Therefore, our politicians, even if they’re of no better character than politicians in other countries, understand that, if they change a law or create a tax that’s detrimental to foreign investors and depositors, wealth can be removed from Cayman in a keystroke of the computer. Before the ink is dried on the new legislation, billions of dollars can exit, on the knowledge that the legislation is taking place.

Now, our political leaders may not be any more compassionate than those of any other country. Their one concern is that their own bread gets buttered. But should they pass any legislation that’s significantly detrimental to overseas investors, their careers are over. They understand that and recognise that their future depends upon making sure that they understand and cater to investors’ needs.

International Man: Governments everywhere are squeezing their citizens through higher taxes and new taxes. And don’t forget that printing money, which debases the currency, is also a real, but somewhat hidden, tax too.

What do you suggest people do to protect themselves?

Jeff Thomas: Well, the first thing to understand is that many nations of the world grabbed onto the post-war coattails of the United States. The US was going to lead the world, and Europe, the UK, Canada, Australia, Japan, etc., all got on board for the big ride to prosperity. They followed all the moves the US made over the decades.

Unfortunately, once they were on board the train, they couldn’t get off. When the US went from being the largest creditor nation to the largest debtor nation, those same countries also got onto the debt heroin.

That big party is coming to an end, and when it does, all countries that are on the train will go over the cliff. So, what that means is that you, as an individual, do not want to be on that train. If you’re a resident of an at-risk country, you want to, first and foremost, liquidate your assets in that country and get the proceeds out. You may leave behind some spending money in a bank account – so that you have the convenience of chequing, ATMs, etc. – and that money should be regarded as sacrificial.

You then would want to move the proceeds to a jurisdiction that’s likely to not only survive the train wreck but prosper as a result of it. Once it’s there, you want to keep it outside of banks and in forms that are difficult to take from you – cash, real estate and precious metals.

After that, if you’re able to do so, it would be wise to also get yourself out before a crash, as the day will come when migration controls will be imposed and it will no longer be legal to exit.

It does take some doing, but if faced with a dramatic change in life, I’d want to be proactive in selecting what was best for me and my family, before the changing socio-economic landscape made that choice for me.

Editor’s Note: Governments everywhere are squeezing their citizens through increased taxation and money printing–which is a hidden tax. This trend will only gain momentum as governments go broke and need more cash.

Most people have no idea what really happens when a currency collapses, let alone how to prepare.

That’s precisely why bestselling author Doug Casey and his team just released this new video. It shows how it could all go down, and what you can do about it. Click here to watch it now.

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How War Created Taxation – Antiwar.com Original

Posted by M. C. on June 12, 2019

…the question of politics being the continuation of war by other means.

https://original.antiwar.com/luke_henderson/2019/06/11/how-war-created-taxation/

“Liberty tends inevitably to lead to the just equivalence of services, to bring greater and greater equality, to raise all men up to the same, constantly rising standard of living, […] it is not property that we should blame for the sad spectacle of grievous inequality that the world once again offers us, but the opposite principle, plunder, which has unleashed on our planet wars, slavery, serfdom, feudalism, […] and the absurd demand of everyone to live and develop at the expense of everyone else.”

19th-century French politician Frederic Bastiat declared this statement in his fifth letter of what is now called Property and Plunder to demonstrate that taxation and attempts to force economic equality would ultimately do more harm than good. This last letter also calls forth an important question: is taxation the creation of a warring state?

In antiquity, according to Bastiat, war developed from a nation that would instead of creating their own wealth, would wait for other nations to acquire their own property and then proceed to conquer them. After many victories where the citizens would be slaughtered and their property confiscated, these warring nations came to a realization that “putting the vanquished to the sword amounted to destroying a treasure” because they lost any potential wealth the conquered would create. They resorted to slavery to “put plunder on a permanent footing,” and truly acquire all property and services one would acquire.

Though there were actual slaves, the main method of continuing plunder was to enact tolls and taxes for protection from the ruling nation. This set a precedent that can still be seen today of taxation being the primary means of funding and maintaining war. These ruling nations and monarchies, however, ran into the problem of civil unrest because of the clear division between conqueror and conquered and birthed what has become modern politics.

In the collection of lectures titled Society Must Be Defended, postmodernist philosopher Michel Foucault ponders the question of politics being the continuation of war by other means. Among the many ideas discussed, Foucault shows how history and knowledge were narratives created in order to support war, and were the precondition of politics.

He notes how history was used as a tool by nobility to convince the royalty of the magnificence of his victories and where all discourse “explains contemporary events in the terms of contemporary events, power in terms of power, and the letter of the law of the will of the king and vice versa.” At the same time, the idea of equality was being used as a tool to cause unrest between a nation’s citizens and its aristocracy.

“In other words, a device typical of all despotism […] was used to convince inferiors that a little more equality would do them more good than much greater freedom for all,” states Foucault. It was these factors that contributed to politics becoming the in-between of war. Whereas before the dominated had no say in the conquests of their domineers, now they had a slight say in the activities of the State.

To justify war, the elected bodies had to resort to new means to encourage war and, simultaneously, taxation which Foucault describes as a “race war.” The race war is the “us vs. them” narrative between the noble warring group and the savage enemy and is used to justify the murders and other atrocities the State will commit in the name of war. Everything that Bastiat and Foucault describe is evident if one looks at the history of wars in the United States.

Desperate to defeat the Confederacy, President Abraham Lincoln enacted a 3% income tax to fund more troops. However, enforcement failed and the government had to pay off its massive debt through printing $150 million. Its legacy was not forgotten though and many congressmen of the time felt that an income tax was an inevitable future for the country.

Congress passed the nation’s first permanent income tax in 1913 and since then has continually used war as a way to steadily increase the rate. During World War One, the United States raised the highest tax bracket from 15% to 67% and did not drop to pre-war levels after it ended. World War Two was even worse with any income over $2.5 million (in today’s dollars) being taxed a 92%, and only going to 70% at it’s lowest for nearly 30 years.

During those 30 years, the US went to war in Vietnam, Korea, and intervened in many other nations to fight the enemy of communism. This was the greatest demonstration of Foucault’s race wars, as it allowed the continuation of high taxes and shows the use of politics to continue wartime status from decades prior.

It cannot be denied that war and taxation are inextricably linked. Unfortunately, history, Bastiat, and Foucault seem to show that the only true way to eliminate excessive taxation and government overreach is to halt its hunger for conquest. The task is immense, but if taxation’s origins and the State’s methods of justification can be recognized, the task can commence.

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The Income Tax is Destroying the World Economy | Armstrong Economics

Posted by M. C. on May 18, 2019

https://www.armstrongeconomics.com/world-news/taxes/how-the-income-is-destroying-the-world-economy/

by Martin Armstrong

The first income tax was created in 1861 during the Civil War as a mechanism to finance the war effort. In addition, Congress passed the Internal Revenue Act in 1862, which created the Bureau of Internal Revenue, an eventual predecessor to the IRS. The Bureau of Internal Revenue placed excise taxes on everything from tobacco to jewelry. However, the income tax did not last and was not renewed in 1872. In the Springer v. United States 102 US 586 (1881), the Supreme Court upheld the income tax.

Justice Swayne wrote the opinion of the court. The central and controlling question in the case was whether the tax which was levied on the income, gains, and profits was Constitutional since it forbid any direct taxation. The court played games with the words to uphold the government. It wrote: “Our conclusions are that direct taxes, within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate; and that the tax of which the plaintiff in error complains is within the category of an excise or duty.” A Capitation tax is an assessment levied by the government upon a person at a fixed rate regardless of the property, business, or other circumstances. The reasoning used was clearly overruled later which necessitated amending the Constitution in 1913.

Moreover, the Revenue Act of 1862 created a federal estate and gift tax system. Following the end of the Civil War, those taxes were rolled back but the War Revenue Act of 1898 created another death tax to raise revenue for the Spanish-American War.

An 1894 statute was ruled unconstitutional in the case of Pollock v. Farmers’ Loan and Trust Company 157 U.S. 429 (1895) delivered by Chief Justice Fuller. He wrote for the court: ” Whether the void provisions as to rents and income from real estate invalidated the whole act? 2, whether, as to the income from personal property as such, the act is unconstitutional as laying direct taxes? 3, Whether any part of the tax, if not considered as a direct tax, is invalid for want of uniformity on either of the grounds suggested? — the justices who heard the argument are equally divided, and, therefore no opinion is expressed.”

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Income Theft

Posted by M. C. on April 15, 2019

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