I remember my first job. It was at a pizza place called Puccini’s Pizza, where I was a dishwasher at the age of 15. God I hated it. But the thing I hated more than washing dishes for 8-10 hours straight was seeing how much tax came out of my paycheck at the end of the week.
Social Security? Medicare? State Tax? My calculations told me I worked 15% of my work life just for the government. In a whole year of working 40 hour weeks, that is around 300 hours of working for nothing but paying taxes to Uncle Sam. In reality, I hadn’t seen anything yet. I was still so young and so poor. “Just wait until you have real income,” my dad told me. “More money, more problems.”
Today, we are going to examine all the efforts that the government of the United States is undertaking in order to tax its people, which should be enlightening to say the least. After all, we revolted against Great Britain in the 18th century for much, much less. The truth deserves to be heard.
Tax the R… Poor? – The New IRS $600 Tax Rule
In 2021, the U.S. Government said that it would crack down on the tax loopholes utilized by the rich minority of Americans to evade paying taxes, which was coined “tax cheats.” To accomplish this, our lovely politicians introduced the new $600 tax rule for payment applications such as Venmo, Cashapp, and Paypal effective in January of 2024 via the American Rescue Plan. This rule states that if anyone did a transaction on one of these applications in amounts of $600 or greater during the tax year, then it is considered taxable income. This rule existed before but it used to be a limit of $20,000 which rendered it a somewhat insignificant rule for most people. Now that the limit has been lowered to $600, this could and would affect the millions of Americans who sold their couch on Facebook marketplace… if it weren’t for the IRS.
In an interesting turn of events, the IRS repeatedly decided that it would defy the government’s ruling and cancel the $600 tax rule to be enforced. Now, the deal is that the IRS will raise the threshold from $600 to $5,000. This may be a sigh of relief for a lot of people, but it doesn’t exclude many others.
But don’t get too comfortable. The IRS said it has to abide by the government’s ruling eventually and will be lowering the threshold again to $600 in the year 2025. This means that the crackdown on “tax cheats” for the “rich” has happened via payment platforms that most low-income Americans use to help pay bills or generate side income.
The problem here is that politicians have an oddly different idea of who the “rich” in America are than most of us do, thus creating a rule that hurts the poor while claiming a punishment of the rich.
So that begs the question: who are the ‘rich’? In my opinion, the ‘rich’ are those who have cash-generating, inflation-protected assets that allow them to avoid most taxation and get income without working. These are people who own businesses like rental real estate, oil wells, gold mines, and more. The government’s version of the term ‘rich’ is more like high-income individuals like stock traders, top executives in a company, or just any highly paid employee.
The reason I think that the government has their own version of a rich person is because these high-income earners and self-employed folk get taxed more than anyone else.
Tax the R… Middle class? – How Modern Taxes Work for Working Americans
According to Yahoo Finance, “67% of all federal income tax collected will come from the top 20% of earners, who were bringing home $189,200 annually.” Due to the progressive tax system, the higher your income is from your job, the more you’re going to pay in tax.
Let’s say you were in this category of those who earn $190k per year. Your income is divided up amongst 4 different brackets of taxation, resulting in an average of 17% of your entire income being sent to the government. This means around $32,300 is paid in taxes from your paycheck yearly. Being an employee, there aren’t a lot of ways you can write off $32k since you work for someone else and it isn’t your business. So, what about if you were a self-employed person?
Self-Employment tax is similar, with taxation around 15.3% not including state taxes. (Here in Florida there are no state taxes, making it a great state to start a business.) This means that if you made $190k last year in your Florida-based business, you would’ve been responsible for $28,500 in taxes. However you also have the ability to write off most if not all of your tax bill if you spent money on business stuff (also called Capital Expenditure or CapEx.) Some see this as a good thing, but others see this as no better than the employee’s wages because you ultimately can’t keep the money and use it on things you’d like to use it on unless it is pertaining to necessities or business expenses. Therefore you are basically paying the same taxes as many of the top 20% of earners if you want or need to keep your extra money. The bill gets even higher when you have employees, in the form of payroll taxes.
Founder of the large EuroPacific Growth Fund, Peter Schiff, once claimed that the government takes “45 cents out of every dollar of profit we earn,” which is to say almost half of all profits ear-marked for the government. So how do the asset-owning rich get out of paying taxes?
Let me use the example of rental real estate, since most people can identify with how it works. When you own a cash-generating asset like real estate, the name of the game is cashflow. This essentially means that all the costs of servicing the mortgage on the property and keeping up with the house’s needs are less than what you can charge for rent for that house, thus producing an amount of money on top that doesn’t need to immediately be spent on anything. This is positive cash flow. Cash flow created like this, since it is created using a mortgage from a bank, won’t be taxed in any way by the government. You can imagine that as soon as someone learns this, they may want to have a rental real estate portfolio that generates $190k per year in positive cash flow so that they pay 0% taxes on their income while not necessarily having to work for that income.
To pull something like that off is no small feat. Let’s say the average cash flow on a single family home is around $300. You’d have to have somewhere around 634 houses all cash flowing positively to get this kind of income, which is probably around half a billion dollars worth of real estate. It’s somewhat of a flawed example, because investors can switch to different kinds of property with more cash flow controls, but the point would be the same: this is why those who happen to have the ability to create such a high net worth in cash flowing assets should be considered the rich, rather than those who are receiving the paycheck from their boss.
Taxing the R… Taxpayers? – IRS charging 8% interest on your taxes
Okay, so now you know you are probably going to owe a bunch of taxes if you make $190k per year but that may not be the only expense coming your way if you only pay taxes once a year. Typically, employees get the taxes taken out every time they get paid, before the paycheck even reaches them. However if you are a gig worker, self-employed person, or owner of a single-member LLC and you don’t pay your taxes every 4 months, you are likely paying an 8% interest rate on the taxes owed throughout the year without you even knowing. It is a very sneaky tactic because if you get a refund on your taxes, you likely don’t even know that a chunk of your refund was withheld by the government in order to pay for this 8% interest fee on top of your taxes owed. Most people are just happy that they got a refund. However, 8% interest on $28,500 is around $2,280 of extra taxes to be paid.
The only way to get around this interest charge is to pay your taxes quarterly rather than yearly or to pay the taxes through your payroll company. These methods of payment make the government’s claim of being owed the taxes right away ineffective.
Tax the R… Everybody? – The ‘hidden tax’
After reading the last section you probably thought “I can’t believe they charge a hidden tax like that!” In reality there is yet another tax that is hidden from you but it is not even in the fine print. They don’t even say that it is something you have to pay for. It’s just called inflation.
Inflation is the biggest secret of our government. They print billions of dollars, gift large sums of money to other countries to “help them develop” and let the American people foot the bill in the form of a continuously degrading quality of life.
This happens because we have a central bank called the Federal Reserve Bank, colloquially known as The Fed. The Fed has the ability to create money out of thin air and then use that money to buy government bonds, which puts the newly printed money into the hands of our lovely politicians.The spending of that newly created money is what creates inflation. To put it another way, inflation is caused by the number of dollars in the economy being increased. More printed money, more inflation. So, how does this become a tax?
When a newly printed dollar is spent, that new dollar decreases the value of all the other dollars in the economy by a tiny bit. That fact causes prices in the economy to go up a tiny bit, which is what we call inflation. For example: if we have 4% inflation, then you can expect prices next year to be up 4% from what they are today. In effect, every year you can become 4% poorer every year if you get no raises at your job or if you live on a fixed income.
The reason the government does this is because they can sap the value out of every dollar-holding American all at once without ever telling anyone that they have just been taxed. This is where they get the billions and billions of dollars to send to other countries, overspend on their own budget, and send you $1,200 checks during pandemics.
Whatever the inflation rate is, is the rate you are being taxed on your entire income.
Tax the R… Everybody Again? – Wages & Prices Increase, Tax Brackets Stay the Same
Now that we have discussed the concept of how inflation steals your wages, I can more fully explain how the progressive tax bracket system used in America is leveraged to squeeze continuously more taxes out of Americans as time goes on and inflation reduces our purchasing power.
Below is a graph of how the tax bracket system is set up as of December 2023:
It should be noted that on the above graph, the first tax bracket is so poor for American standards of living that one would barely be able to afford a payment to rent out a room at someone’s house, and that’s without eating any food. $11,000/year is about $900 a month. In Florida, as of December 2023, renting a spare bedroom room out constitutes a monthly rent payment of about $800.
It should also be said that someone with this tiny amount of American income probably will not pay 10% taxes on their paycheck at the end of the year, because you are able to ‘write off’ expenses related to living expenses and other necessities, so none of the income is really taxable income. However this actually used to be a pretty good income, especially at the time this system was set up.
A federal income tax was established via the Revenue Act of 1913. Here is a graph of how the tax bracket system looked at the time of establishment:
Source: wikipedia
To better understand how this was a tax that was supposed to be applicable only to the affluent and above, here is the same tax brackets but adjusted for inflation (2010 dollars)
Source: wikipedia
You must remember that in 1913 the average income for a person was around $750 so this tax only affected the top 3% of income earners in the US. This was a tax on the rich only. This is light-years away from how we are taxed today, even the poorest of the poor are not tax-exempt unless they are spending on bare essentials. In 2023, if you have extra cash in the bank you can be sure the tax man will be expecting either a payment or a write-off.
Now enters the story of the Federal Reserve Bank of the United States, our central bank that was founded via the Federal Reserve Act of 1913. We colloquially call it The Fed. It is essentially a private corporation that was founded by the wealthy Senator Nelson W. Aldrich and several wealthy businessmen and is effectively responsible for setting the interest rate of our economy as well as setting the amount of money available in the economy. The Fed has an agreement with the U.S. government to follow certain protocols as per the Federal Reserve Act of 1913 signed in by President Woodrow WIlson. In other words, the Fed has the ability to make borrowing money cheaper or more expensive as well as controlling the level of inflation, depending on their plans. This is where we will focus, to explain my point of including this section of the article: inflation.
The Fed has ensured that a steady rate of inflation existed in the American economy, about 4.3% was the average for the entire century or so of 1913-2020. That may not sound terrible, but this means that prices double every 23 years or so, or about 4.3 times over since 1913. Yes, your wages will go up as well, but not necessarily your purchasing power since the dollar is fast losing its value because of this excess inflation.
As your wages increase, the tax brackets we mentioned earlier in this section are slow to change and they do not follow a code of conduct. Our incomes grow higher and higher because we need more and more dollars that are worth less and less every year. The tax brackets stay the same for many years so that exponentially more people are told that they are “in a higher tax bracket now” and must pay taxes, progressively including the rest of the population to be exposed to taxation. Today, we find ourselves being taxed at 22% if you make a wage higher than $44,726 when the average American individual’s income is around $60,000 per year.
Prices increase, Social Security recipient’s COLA Adjustments Don’t
Isn’t it strange to go into a fast food restaurant or a grocery store to find that an elderly woman with a tiny white afro and weary eyes is bagging up your food? As many have realized, there is a humongous problem with older folk retiring on their fixed income that they receive in the form of Social Security benefits or pension plans from yesteryear. The prices all around them seem to go up every year but their income stays exactly the same. Eventually, they pay too much to get the dog groomed and can’t afford groceries that week, ultimately deciding that they’ve got to pick up a part time job at the age of 70 years old. Why does this happen and who is at fault?
For what seems like the millionth time, it is the government’s fault. As they use the Fed’s supernatural powers of printing cash in unlimited amounts, our government bids up prices in every sector of the economy. They are also in control of how much is paid out to any Social Security Beneficiary’s bank account. There is a clause in the system that allows Congress to adjust those payouts called a Cost of Living Adjustment (COLA). In reality Congress normally votes to adjust the COLA to something less than it should really be, usually never outpacing inflation. This means anybody depending on these payments to live out their retirement is subject to one day not receiving enough money to pay the bills.
The Wealth Tax – Blurring the Lines Between Income & Appreciation
Today, we are faced with a real doozy: Our lovely government is trying to get the supreme court to favorably rule on a case that justifies taxation of appreciation rather than income. For example, say you buy a house at $100,000. Next year, the price of that house goes to $150,000. The government wants to be able to tax you on the $50,000 of wealth you gained from the appreciation you experienced on your home purchase. So, where are you going to get the money? Our government doesn’t really answer that part of the question and just expects the payment.
To clarify, this is a case that the Supreme Court is looking at as of December of 2023 and have not yet ruled in the favor of the government. This could be a sign of larger dominoes falling, continuing the effects of the first domino that fell in 1913.
Conclusion
Today we’ve pointed out 6 ways that the U.S. government taxes its citizens, while it tries to add a 7th more sinister one. The truth is, the people of America are being swindled by the method of incremental degradation. I hope that this article sheds light on how this works on where its foundations lay, so that in the future we can create a better, more prosperous America.
killermillerblogs.wordpress.com 