Taxes
Benjamin Franklin wrote, In this world, nothing is certain except death and taxes.
You’re taxed when you earn. You’re taxed when you spend. You’re taxed when you save. You’re taxed when you die.
Some history
We need to look at the history of taxes.
In England and America originally, there were no taxes. Occasionally there were temporary taxes levied in order to pay for wars. The king or the president would put the word out and ask everyone to “chip in.” Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America taxes were levied to pay for the Civil War from 1861 to 1865.
In 1874, England made income tax a permanent levy on its citizens. In 1913, an income tax became permanent in the United States with the adoption of the 16th Amendment to the Constitution. At one time, Americans were anti-tax. It had been the excessive tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.
The idea of taxes backfired on the poor and the middle class
What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. This point is very important to understand. The idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal.
Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class.
Once government got a taste of money, the appetite grew. Capitalists and government bureaucrats are exactly opposite. They get paid, and their success is measured on opposite behaviors.
- Bureaucrats gets paid to spend money and hire people. The more they spend and the more people they hire, the larger their organizations become. In the government, the larger their organizations, the more they are respected. They have different objectives from most capitalist/business people. As the government grows, more and more tax dollars will be needed to support it. Bureaucrats sincerely believe that the government should help people. They always strive for additional grants and increases in their budget so that they could hire more people. From bureaucrats, we hear how the rich are greedy crooks who should be made to pay more taxes.
- On the other hand, within a Capitalist organization, the fewer people that are hired, and the less money they spend, the more they are respected by their investors. They work in an opposite way to the government people. From capitalists, we hear that government workers are a pack of lazy thieves.
It is not easy knowing who to believe.
Yet, when we study the history of taxes, an interesting perspective emerges. The passage of taxes was only possible because the masses believed in the Robin Hood theory of economics, which was to take from the rich and give to everyone else. The problem was that the government’s appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept “trickling down.”
According to the story, Robin Hood and his Merry Men robbed from the rich and gave to the poor. Robin Hood may be long gone, but his followers live on. They are the people that say, “Why don’t the rich pay for it?” Or “The rich should pay more in taxes and give it to the poor.”
But, this idea of taking from the rich to give to the poor caused the most pain for the poor and the middle class. The reason the middle class is so heavily taxed is because of the Robin Hood ideal. The real reality is that the rich are not taxed. It’s the middle class who pays for the poor, especially the educated upper-income middle class.
It is the knowledge of the power of the legal structure of the corporation that really gives the rich a vast advantage over the poor and the middle class. No matter what the “Take from the rich” crowd came up with, the rich always found a way to outsmart them. That is how taxes were eventually levied on the middle class. The rich outsmarted the intellectuals, solely because they understood the power of money, a subject not taught in schools. It seems that the socialists ultimately penalized themselves, due to their lack of financial education.
How did the rich outsmart the intellectuals? Once the “Take from the rich” tax was passed, cash started flowing into government coffers. Initially, people were happy. Money was handed out to government workers and the rich. It went to government workers in the form of jobs and pensions. It went to the rich via their factories receiving government contracts. The government became a large pool of money, but the problem was the fiscal management of that money. There really is no recirculation. In other words, the government policy, if you were a government bureaucrat, was to avoid having excess money. If you failed to spend your allotted funding, you risked losing it in the next budget. You would certainly not be recognized for being efficient. Business people, on the other hand, are rewarded for having excess money and are recognized for their efficiency.
As this cycle of growing government spending continued, the demand for money increased and the “Tax the rich” idea was now being adjusted to include lower-income levels, down to the very people who voted it in, the poor and the middle class.
Average Americans today work five to six months for the government before they make enough to cover their taxes. That is a long time. The harder you work, the more you pay the government. That is why I believe that the idea of “Take from the rich” backfired on the very people who voted it in.
Why does one have to pay taxes?
The government levies taxes to provide for the common good. Without them, society wouldn’t be able to function. Paying taxes is a social responsibility and should be taken very seriously, as the consequences for not paying them can be harsh.
Governments, whether federal, state, or local, tax their citizens to raise revenues to fund their activities and services, such as building and maintaining infrastructure (e.g., roads, bridges, subway systems), running schools, fielding a military, and providing social programs like Medicare and Social Security. Taxes are mandatory, have been around for more than 5,000 years, and are how we pay for the collective good.
Types
There are three basic types of taxes: income, property, and sales. They are levied as a percentage on what you earn, own, and buy.
- Income tax: Federal, state, and local income taxes are withheld from the paychecks of salaried employees. For the self-employed, federal income taxes must be paid only in estimated quarterly installments.
- Property tax: They are collected at regular intervals, most often semiannually, and are paid in arrears (i.e., you pay your 2022 taxes in 2023).
- Sales tax: It is paid when you make your purchase.
Opinions
There are opposing attitudes in thought about taxes. Some people feel that the rich should pay more in taxes to take care of those less fortunate. There are others that feel that taxes punish those who produce and reward those who don’t produce.
Tax Underpayment Penalty
An underpayment penalty is a fine charged by the Internal Revenue Service (IRS) when taxpayers don’t pay enough of their estimated taxes due during the year, don’t have enough withheld from their wages during the year, or pay late.
Death Taxes
Death taxes are taxes imposed by the federal and some state governments on someone’s estate upon their death.
Inheritance Tax
- https://www.investopedia.com/terms/i/inheritancetax.asp
- Inheritance Taxes: How Much Are the Wealthy Really Paying? https://www.investopedia.com/inheritance-tax-what-the-wealthy-pay-11697100
Estate Tax
- https://www.investopedia.com/terms/e/estatetax.asp
- How to Use a Roth IRA to Avoid Paying Estate Taxes https://www.investopedia.com/how-to-use-a-roth-ira-to-avoid-paying-estate-taxes-4770869
- Are Estate Distributions Taxable? https://www.investopedia.com/ask/answers/101315/are-estate-distributions-taxable.asp
Google Tax
A Google tax, also known as a diverted profits tax, refers to anti-tax-avoidance provisions that have been introduced in some countries. Several jurisdictions implemented the provision to stop companies from diverting profits or royalties to other jurisdictions that have lower or even zero tax rates.
TODO
- How the Richest People in America Avoid Paying Taxes https://www.theatlantic.com/economy/archive/2025/08/billionaire-tax-study/683987/
- What Is Income Tax and How Are Different Types Calculated? https://www.investopedia.com/terms/i/incometax.asp
- Income: What It Means and How It’s Taxed With Examples: https://www.investopedia.com/terms/i/income.asp
- Tax Strategies: https://www.investopedia.com/articles/personal-finance/032116/top-6-strategies-protect-your-income-taxes.asp
- How to Owe Nothing With Your Federal Tax Return: https://www.investopedia.com/articles/taxes/08/owe-nothing-federal-tax-return.asp
- Tap Into These 5 Free Tax Help Resources: https://www.investopedia.com/free-tax-help-resources-11680780
- Why Is the Bahamas Considered a Tax Haven? https://www.investopedia.com/ask/answers/060516/why-bahamas-considered-tax-haven.asp
- How Inheritance and Estate Tax Waivers Work https://www.investopedia.com/articles/fa-profession/091916/how-inheritanceestate-tax-waivers-work.asp
- What Is the Generation-Skipping Transfer Tax (GSTT) and Who Pays? https://www.investopedia.com/terms/g/generation-skipping-transfer-tax.asp
- How to Maximize Tax Savings When Transferring Wealth to Loved Ones https://www.investopedia.com/tax-savings-strategies-for-wealth-transfer-8417034