We received an interesting email from a long-time client today. She asked to be removed from our email list (though stay as a client) because she does not like our emphasis on reducing taxes. She feels that by helping you lower your taxes, we “help eviscerate the social safety net in America.”
As you might imagine, I have a little different take on this, having spent a 30-year career helping people lower their taxes by 10-40% or more. Let me explain by giving a little history lesson on one of my favorite subjects – the U.S. income tax system.
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 “eviscerating 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.”