Inflationomics

Paying Your “Fair Share” While Building Wealth

There’s a lot of rhetoric leading up to the election about taxing the rich, making them pay their “fair share,” etc.  But who’s going to determine how much one’s “fair share” is?  Some poor but greedy politician, some rich politician, or some bureaucrat?  What do they know about what’s “fair?”  Why wouldn’t it be fair just to have everyone pay the same amount regardless of their income?  Isn’t that equal treatment under the law?

Alas, that’s not what we argue about…we’ve accepted the notion that richer people should pay a larger percentage of their income, and now it’s just a question of how much more…25%, 33%, 39%, or 90%.  The problem is…even if you were to seize all the wealth (not just the income) of everyone in the U.S., the total still wouldn’t be enough to cover all the money (debt) the politicians and bureaucrats have wasted in recent years.  The problem isn’t income, it’s spending!

Back when the U.S. was a prosperous country, everybody wanted to become rich.  That was the American way.  And they had to do it by being productive.  But nowadays, some people might think that it doesn’t pay to become rich…others might conclude that it’s more important to hide what little wealth they have than to focus on making more…and they might both be right.  Some people also find ways to live off the government’s ineptitude and wasteful ways.  But a more rewarding and honest approach might be to increase one’s wealth while maintaining a low profile.

This concept reminds me of two attorneys I know/knew.  Attorney A became a practicing attorney in a small city making $100,000.00 per year.  He became a pillar of the community and maintained a high profile to attract new clients.  Of course, in the land of the “soak the rich,” he paid half his income to various levels of government and hardly ever got to see his wife and kids due to his work load.  He had to maintain his expensive high-profile image with a nice car and house.  He was barely able to afford his kids’ college education and all he had in the long run was the house he lived in.  Minimal tax planning was necessary because he didn’t have much with which to plan.  He couldn’t retire…he had to work until he died.

Attorney B became a landlord and spread his holdings out over several cities.  He barely made enough money, in the short run, to survive.  By repairing things himself and financing purchases as much as possible, he kept his taxable income to a minimum and his expenses at a minimum, as well.  By using other people’s money (OPM); i.e., his tenants’ rent, to pay for his properties, he was able to add house after house, hire a handyman to do the maintenance, and eventually retire on the rental income he received from his tenants.  He also put houses into his children’s names and the rent from those houses paid for his kids’ college educations…so they graduated without debt.  By spreading the wealth among several entities, it also reduced the overall tax bite.  Wise tax-planning became as important as being productive.  Few people knew what he was up to.

Both attorneys paid their “fair share,” but when one’s “fair share” is determined by the voters, most of whom are poor, it pays to maintain a low profile and learn the tax laws.  Even then, there’s a limit to how much wealth a family is able to build in the long run.  Eventually, when the governments (on all levels) spend more than they can receive from a “fair” (equal) tax system, they will find more and more (unequal) ways to confiscate their citizens’ wealth.

At some point, either all the wealth will be consumed by wasteful, unproductive governments, and people will keep their hands in their neighbors’ pockets and remain poor, or they will have to adopt the “old” ways and focus on becoming productive and rich, again.  Produce, save and invest…produce, save, and invest…the best way in the long run for you, me, and every country in the world.

Robert F. Sennholz

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