Job Creatorsí and 99%ersí Compensation

The failure of the very few politicians that are suggesting fair taxation on the rich is this; they donít explain why we should increase taxes on the rich. They best explanation Iíve heard is that they have access to tax breaks and deductions that the rest of us donít have. What does that really mean?

The fact is that the rich donít have any special deductions that the rest of us canít also use if we had the money. However, the rich have the money to actually use those deductions. The other hot topic nowadays is how the rich donít have to pay capital gains. There are no taxes on capital gains for any American. Itís just that the typical American doesnít enjoy them because they donít have enough money to invest.

The same can be said about deductions. All Americans can itemize deductions thus reducing their overall tax bill. Again, however, the rich typically have the resources to hire tax accountants and attorneys that help find every deduction they can find. In my opinion this isnít unfair either. The rich are lucky enough to be able to enjoy the fruits of their labor (and the labor of the workers actually doing the work).

Actual Compensation isn't Obvious

This is the part that doesnít get explained. Letís say I own a business and am considered one of those Job Creators. I show the IRS that I make $174,000 per year. I pay $40,020 in income taxes after typical deductions that all Americans have access to. I make the business buy two warehouses which I put in my name because I am the owner. The business pays the annual mortgage bill of $50,000 x 2 but I get the benefits of having the property in my name. I also need a car but have the business pay for it. I use the vehicle to drive to and from work and for personal use; just like all my other employees. However, I have the company pay $80,000 for it. The company also pays for the gas and maintenance which amounts to $5000 annually. Since I took a vendor on my boat, the company also purchased the boat and the gas that fills its tanks in the amount of $60,000 for the boat and $3000 annually for the gas. I hire a janitorial company to clean the company but they also clean my house and wash my cars. The company pays $4000 annually for this service of which $2000 is personal. I also claim $4000 in business lunch and dinner. I also took a trip with my family to a meeting in Hawaii which was $6,000. The business paid for it and it booked the vacation as an expense thus futher reducing the tax bill for the business.

Whatever personal expenses the company pays for does not get reported as income and in fact is taken off the business taxes as expenses for the business. This reduces the tax the business pays. This is double tax evasion.

You are probably asking, ďHow can you jump to that conclusion?Ē Iím suggesting this is tax evasion because normal Americans pay for all of these expenses AFTER theyíve paid income taxes on the money they use to pay for these expenses and cannot claim these types of personal expenses as tax deductions. The first evasion occurred when the total compensation that was claimed was $174,000 at a 28% income tax rate but it should have been $474,000 (see the table below).

The second tax evasion was when typical expenses that the 99%ers cannot claim to reduce their income taxes (i.e. tax deductions) are being used to pay less taxes. There is no legitimate deduction of boat gas, for example but since it is "used" for business, a business can take it as an expense.

In the example I give above and below, I don't itemize typical deductions such as property taxes, medical expenses, etc. which would be more for a high earner but do decrease the tax rate by 5% for both to make this exercise easier. 99%ers would typically pay for items such as vehicles, gas, and lunch after they paid income taxes with any remaining money they have and NOT be able to take them as tax deductions.

Compensation Comparison
Job Creators 99%ers
Base Salary
$174,000
$75,000
Property Payments
$100,000
Automobile
$80,000
Automobile Gas
$5,000
Boat
$60,000
Boat Gas
$3,000
Cleaning
$2,000
Travel
$6,000
Food and Entertainment
$4,000
 
Capital Gains
$40,000
 
Actual Compensation
$474,000
Total Tax Paid
$40,020
$15,000
Total Tax Percentage Paid
8%
20%

As you can see in this simple example, a very modest, middle-of-the-ladder, Job Creator (making about $500,000 annually) only pays 8% in taxes where the 99%er pays 20%. Yes, the total tax dollars paid was more but their actual compensation is not proportionally more.

There are so many more ways the Job Creator is able to (and does) reduce their tax bill which I didn't add in to this example so the actual percentage could be much less - I was being conservative. I'm sure you've heard in the media that some Job Creators don't pay any tax...

This is what is unfair about our tax system and this is why us 99%ers are trying to make the top 1%ers pay more Ė which is really just their fair share.


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