Why Don't Rich People Pay Taxes

Why Don’t Rich People Pay Taxes – The government has the authority to take taxes from the people. Moreover, it is also their legal right. Almost everyone in the United States pays their taxes, but the rich prefer not to pay taxes. Why is this so?

Why don’t rich people want to pay taxes?

Taxes are not bad, and they are beneficial for you because they are spending over you. In historic times, taxes were taken from people so that the country could gather weaponry for war and protect the people and lands. The same is the case today. The government takes taxes from the people to keep the country running.

Some governments can afford to run the country even without collecting taxes. Dubai does not take taxes to form its citizens because it is rich enough to keep the country running. In some countries there are certain conditions for this but let us not get into that. There are many reasons why the rich do not want to pay taxes. Some of those reasons are:

Rich people are not paid:

Most people in the United States of America are working class. It means that they do not own any business or are not partners with a person who runs a business. People who work are paid. They receive incentives such as wages, salary, or income. The person who owns the company has to pay the wages.

Moreover, the government applies taxes on the working class too. They have to pay a tax which is known as the income tax. The government deducts a percentage of the income earned by the working class and sends it to the state treasury. The state uses the money from the treasury for making multiple projects such as parks and roads. They are also used for maintenance, such as fixing a broken road.

Rich does not get paid. I will give you a task, and when you complete that task, you will have a better idea of what I am talking about. The top business owners in the world are Jeff Bezos, bill gates, warren buffet, and Larry Ellison. Go on google and check how much salary they receive, and I also want you to check how much tax they pay.

They can improve their image in the eyes of the public

You will be surprised when you find out that they pay almost no income tax. But why is that so? They do receive salaries, why do they pay so little in taxes? The answer is simple, they do not want to. They are owners of huge companies and can control almost everything, and as a result, they reduce their salaries so much so that they have to pay little in taxes.

These rich people do not need the salary as their expenses are taken up by the company. Moreover, they can take out cash from their company reserves to earn ever they want. Mostly rich people tend to take salaries so that they can improve their image in the eyes of the public. It is because their popularity decreases, and magazines note that the person is not paying taxes. Some of them do not care about popularity and focus on their company. As a result, they have zero salaries.

From the above, we can analyze that the rich do not want to pay taxes because they do not get paid by the government of the public and they fear losses in the business. Moreover, they feel that they are paying too much and not getting enough in return.

Higher tax rates:

 The government of the United States of America has a diverse system for dealing with tax issues. Taxes are a part of our government, and there have to be proper procedures to collect the taxes from the public. The government has to be fair with everyone. I will explain this point by giving you an example. There are two people, A and B. Man A has a monthly income in millions whereas man B is relatively poor and has a monthly income of 1000 dollars. If the government sets the tax rates by not determining the income of the person, then Man B will always remain in debt. So tax rates are applied in such a way that every individual pays it according to their income.

Tax rates are higher for the rich, and so the rich have to pay more on taxes. Suppose Man A earns 500,000 dollars yearly and man B earns 50 thousand dollars yearly. The government sets the tax rate at 5 percent of yearly income.

Let us do the math:

( 5 / 100 ) * 500000 = 25000

( 5 / 100 ) * 50000 = 2500

Look at the difference between the yearly payments. The rich have to pay 25000 dollars in tax, and the poor have to pay only 2500 dollars.

Rich people negatively take this, and they complain that they pay too much in taxes and the government is unfair. They can not do anything about it and still have to pay it because if they do not pay, the country will not be able to run properly. In addition to this, rich people have much more expenses than people who earn lesser money. The more facilities they use in the United States of America, the more tax they have to pay to the government. Let me tell you a fun fact about taxes in the United States of America. When s person is born in America, he has to pay the country taxes all his life.  He will still pay the taxes if he resides in another country. The country does not exempt smaller children as their parents will have to pay the taxes for them until they reach an age when they are capable of earning themselves.

Taxes in extra facilities used by the rich:

The rich use more facilities than people who have lower income. When you calculate the total taxes at the end of the month, it contributes to a lot of money that they have to pay the government. I will explain this using an example so that you can understand it better. Suppose we have a person named John. John is a multimillionaire and earns thousands of dollars in revenue from his company. On the other hand, we have a mike. Mike is an employee and works a 5 to 9 job. Who do you think will pay more in taxes? John will. One reason for it is that John has higher revenue and ultimately has to pay more than mike. However, john can reduce his salary to zero so that he does not have to pay taxes. It means that john pays lesser takes than mike.

That is not entirely the case. John runs a business, and he has to travel a lot. Suppose John takes 50 business trips abroad and mike takes 1 trip outside the United States of America. It means that John has to pay more in taxes because of the business trips he has to make for his business.

It is yet another reason why rich people do not want to pay their taxes.

Unequal facilities:

Moreover, there are moral reasons why the richer people do not want to pay taxes. The rich pay more in taxes than the poor people, and it is because of the law set by the United States of America. Moreover, the rich have enough money to spend their lives in luxury and comfort. As a result, they do not see any personal benefit in it and consider it unfair. The poor are deprived of the necessities, so taxes are used to fulfill those necessities. The poor have a clear change in their lifestyle whereas the rich have so many facilities that they don’t see any difference in their living style. It is a psychological problem due to which the rich dislike paying taxes.

Tips the rich use to lower their taxes:

Taxes are difficult and can become very difficult to pay. People such as warren buffet, Jeff Bezos and bill gates are billionaires, and they run huge companies. Moreover, their companies earn them a yearly profit in millions of dollars. The more a person earns, the more the person has to pay in taxes. The rich have different physiology, and they run their business on two things i.e, profit and loss. They consider the tax paid to the government as losses and their main goals are to reduce losses and increase profits. As a result, they find ways to cut off their taxes. The following are the ways the rich take to avoid taxes.

 

Charitable donations:

This method is used by most billionaires to reduce their taxes, and it was used by billionaires in the ’90s. According to research, the rich can reduce their taxes up to 60 percent if they give their money to non-profit organizations.

I will explain this using an example. For instance, a rich person owns land in an area where development is slow. Ohio, located in the United States of America, has very cheap land. The land may have some fault in it and the rich owner would like to sell it as soon as possible. Sometimes they can talk with land conservation trusts and strike a deal with them. You can ease your taxes on that land if you pay some money in donations to that trust. As a result, they will have to itemize their taxes. Itemization of taxes provides two benefits. They sell their faulty land to prevent any further losses in the future, and they also reduced their tax payments.

Managing gains:

Investing in the stock market is another way the rich avoid heavy taxes. When they sell their stocks, they have to pay little in taxes than if they were to receive salaries. As a result, they bring their salaries to zero and use that money to buy stocks in the stock market. If he requires money for daily expenditure, he will sell some percent of those stocks. This also allows them to take bigger risks and earn more money.

When avoiding taxes, short-term gains are preferred. It is because long-term gains are time-consuming, and you will have to pay higher taxes. The tax rates for long-term capital gains were zero, 15 percent, and 20 percent. The percentage rate depends on the income of an individual. Short-term taxes are low, and they are beneficial if you sell your stock within the first year of buying them.

Another way used by the rich to save themselves from taxes is by creating a business structure.  A limited liability company is an example of a business structure. These LCC companies are given the responsibility to manage several investments. It brings two benefits, the first benefit is that it lowers taxes, and the second benefit is that it provides a governance system to manage your finances.

Exempt taxes by gifts:

The rich also benefit from gift and estate exemptions as it can bring down taxable income. The new tax laws imposed by the government of the United States benefit the rich as tax deduction has decreased by half. If a person had to pay Ten million dollars in tax for the property, he will pay 5 million dollars in taxes. This law was imposed after 2017 and will remain till 2025, so the rich are taking as much advantage possible.

Most people are establishing trusts. These trusts allow the rich people to transit their wealth from one generation to the other generations without paying any taxes. An example of such trust is the Delaware dynasty. Moreover, the government can apply income tax on these trusts, but they will not be able to apply taxes on them if it is given as a gift. Another advantage is that they will not have to pay estate tax for it when the money comes out.

Using a benefit plan

The benefit plan is similar to a pension plan, and it allows a business to save money when they retire. If a person runs a multi-million business, he can set aside some money when they retire. They call this retirement money. The government does not apply taxes on the money it is saved for retirement purposes. It will help the rich people in bringing down taxable income and hence reduce their taxes for the year.

Moreover, this benefit plan doesn’t always work. Owners of high-income businesses will have to check retirement savings and business needs before they start to initiate the benefit plan. If they do not do so, they could face higher taxes later on. I will explain this by using an example. If a person starts saving for retirement and faces business issues, he will have to pull out the retirement money to pay for the expenses of the business. When he takes out the money, he will have to pay higher taxes on that money.

What happens if the rich stop paying taxes?

The whole system of a country is run by taxes and the rich contribute the most to taxes. The country will have to face tough financial situations if the rich stopped paying their taxes. Some consequences of low tax collections will be:

No running administration:

Tax money collected from the public is used up in different things, and they help in running the countries.  The administration runs the country, and it involved many people that help in running it. If the rich stop paying taxes, the government will not be able to pay for the salaries of these people, and eventually, they will quit their jobs and the administration will collapse.

Failing to fulfill necessities:

The government will fail to provide necessities to the poor due to lower tax collection. It will lead to bad health situations as the government will not be able to provide loans to poor people. Moreover, the government will have no option but to increase the taxes on poor people to keep the country running. As a result, the economy will collapse, and the country will go into defaulter mode.

Conclusion:

From all of the information, we can conclude that there is just one main reason why the rich do not like to pay taxes. They want to become richer, increase their profits and reduce their losses. However, it can lead to consequences such as higher taxes on the poor and instability in the government.

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