Why the Income Tax Will Never Work

Monday, November 07, 2005
There is something fundimental that a lot of people don't understand. The income tax will never work. It doesn't matter how much you try and tax the rich; they will find a way to avoid it. You could tax all income over $1 million at 100% and it still wouldn't matter. Case in point. Warren Buffet.

Warren Buffet doesn't earn his wealth the same way most Americans do. He gets an annual salary of $100,000. That is not a typo. That's it. Than how on earth is he the second richest man in America. It's because he earns his wealth differently. He owns approximately 33% of Berkshire Hathaway. When he wants cash, he just cash's in some of his shares. This wealth grew tax deferred for however long he has held the shares, on the order of 40 years in some cases. He then only pays the 15% tax on capital gains rather than the 35% on regular income. Oh but it gets better. He has an advantage even most wealthy investors don't have. Since he controls Berkshire Hathaway, he also controls how and when he receives his money. Berkshire does not pay any dividends, which would trigger a huge tax for Buffet every year. This is a gigantic, and perfectly legal, tax shelter.

You can't blame the rich. Warren Buffet isn't doing anything illegal. Most of the super rich are just taking advantage of the rules the game presents. They just are better at the game and have more resources than most.