Incentive

I get up in the morning.  Exercise.  Go to work.  I pay my mortgage.  Pay my bills.  Donate to charities.  I take care of the house. Take the dog out.  Put dirty laundry down the chute and put the garbage on the curb. I drive carefully and obey the law.  I pay my taxes and I (usually) don’t grouse. I love my wife and family. I go to Church on Sunday.  I try to eat right.  And I try to be nice to and respectful of all people – those I know and those I don’t.

So – big question – why on earth do I do this?  Why do you?  The answer – to me – is the single most important word in the English language. INCENTIVE.  I have incentive to do all of these things.  To earn a few bucks.  Keep a nice house.  Eat right.  Be respectful to everybody.  To drive carefully.  Yadda yadda. . . .

I’m concerned that we are losing that sense of motivation.  It is being replaced with a sense of entitlement.  A sense of expectation.  Something for. . . nothing.  Incentive is waning.  Maybe it’s a bit old-fashioned.  On January 20, 1961, President John F. Kennedy admonished “My fellow Americans, ask not what your country can do for you.  Ask what you can do for your country.”    http://www.youtube.com/watch?v=BLmiOEk59n8   There was loud applause.   Nods of approval.  Media approbation.  Today though, more and more people are asking what their country can do for them.  Gimme gimme gimme.  With no strings attached.   Some politicians encourage it.  According to the Tax Policy Center, in 2013 40.4% of all Americans paid no income tax.  In 2017, that number rose to 43.9%.  A continued rise in that number could reach a tipping point.  And become unsustainable.   

What’s your take?  More importantly – what’s the answer?   

Advertisements

There Goes the Neighborhood

You live in a neighborhood where every time you step out the door, a group of thugs grabs you and take your money. They leave you a few bucks but they take much of it.  The same thugs dictate where you can go, what you can do, who you can hang out with and how you may spend your life. They are on top of you. Always.  Jamming new rules and demands down your throat.

And then someone from the neighborhood says “I moved to a new neighborhood. There are thugs but they’re not so bad.” And so what do you do? What would you do? Move?  Hmmm?   And so we have “inversions.”

The United States is one of the most heavily-taxed and heavily-regulated countries in the world (if you disagree – try Google).  The corporate tax rate is now the highest in the world.  And we punish and demonize the shrinking number of businesses and individuals who actually pay taxes (think Pareto’s Principle).  We are lurching toward the insidious social system that has wrecked Europe’s economy.   So you tell me — what is corporate America supposed to do?  American businesses are under siege.  Regulatory walls are closing in.  Roofs are collapsing.  The smart move is to get out of town.  So some do.  Moving operating headquarters overseas or at least to states which are conducive to business.   After all – why stay in a neighborhood that hates you?    

There’s a big difference between evading taxes and avoiding taxes.  The ignorant say that corporations (and individuals) are evading taxes.  That’s a lie.  Businesses take advantage of legal exemptions (do you cheat because you take a mortgage deduction?).  And they avoid taxes.  Legally.  If those in Washington were smart, they would revise the punishing tax code and make America competitive with the rest of the world.   But that’s expecting way too much.  Ideology and politics get in the way.  Great. 

Taxes

If a person has $500,000 in  annual income, how much should he/she pay in taxes?  Careful.  Think about this question before reading on.

If 100% of the amount is given to charity, then the answer might be zero. There is no taxable income.  If  the entire amount results from interest on municipal bonds (bonds to fund government projects, hospitals, schools), the answer may also be . . . . zero.   Income on municipal bonds is tax-free.  If the income is derived entirely from long-term capital gain, the answer is no more than 15% of the total less lawful deductions. If the income is derived from short-term capital gain or salary income, then the answer ranges from 10% to 35% of the total less deductions. 

Thus the answer to the question “how much tax is owedshould require an educated man or woman to respond “tell me more” rather than a numeric shot in the dark (or worse a demand that those with such income must pay a “fair share“).  As a lawyer, it is disconcerting that some people seem to have forgotten that the American tax code is the law of the land and not a “loophole.”   Should it matter how much a person earns in a year and pays in taxes, so long as these metrics are lawfully achieved?    What’s your “take”?