ESOWRN; Taxing the Wealthy

The host discusses the economic state of the world and the role of taxation in income inequality. She mentions a tax information gap among high-income individuals and its impact on income inequality. Small businesses also face challenges due to tax policies. The host interviews her father and brother who share their experiences with taxes. The host explores different approaches to taxing the wealthy, such as increasing tax rates, taxing wealth directly, and closing loopholes. She distinguishes between tax avoidance and tax evasion. The host also discusses failings of the tax system, including preferential treatment of certain income types and the use of deductions and credits by corporations. Welcome to the economical state of our world right now, or also known as ESOWRN if you don't want to say the whole thing, but it's really up to you. I'm your host, Pamela Baez Morales, who's a finance major and wants to dive into the world of taxes. This show, we'll be talking about the issues that are shaping our world today. In this episode, we're going to be exploring the complex landscape of income inequality and the role of taxation in bridging that gap. Recent studies highlight a stark reality. There exists a tax information gap among high-income individuals, and there's a gap that perpetuates income inequality. Yeah, it's bad, but it's not just about wealthy. Small businesses also face significant challenges due to tax policies, and we'll be diving into that later. Join us as we unpack these issues, examining the impact of taxes on small businesses, exploring various approaches to tax the rich, discussing the strategies used by the super rich to avoid paying their fair share. And I think it's just time to shine a light on these critical issues and explore how we can work together to make a more fair and more equitable society. Yes. Anyways, ladies and gentlemen, thank you so much for joining in today. Alrighty. Our first topic is understanding the tax information gap at the top, so understanding taxes in general. Ever wonder why some people seem to pay less in taxes than you spend on coffee? It's not because they have a secret coupon code or anything, but it's because of the tax information gap, and that's at work. Now, think about this. The IRS is like your friend who is always checking the bill, making sure everyone pays their fair share. But some high income individuals are like that friend who conveniently disappear when it's time to settle up. Now, this gap isn't just a numbers game. It's a real issue that affects everyone. It's like trying to fill up a bucket with a hole in the bottom. You can pour as much as you want, but you'll never fill it up. Now, what is the tax gap? It's the difference between how much you owe and how much you actually pay. For some folks, it's a lot. In referring to this gap, we've discovered in our studies that mostly the people at the top are the only ones that are avoiding paying anything. Now, let's talk about taxing small businesses and how it affects small businesses in general. I feel like small businesses are like the underdogs of the economy. They're trying to make a buck while big money corporations swim in money like Scrooge McDuck. But when it comes to taxes, small businesses often get the short end of the stick. Now, imagining you're running a small coffee shop trying to compete with Starbucks. You're already scraping by and then Uncle Sam comes knocking by and trying to take a chunk of your earnings. It's like trying to fight Mike Tyson, but you're not going to win. And I'm pretty sure we know who's winning. Starbucks. And let's not forget the paperwork that a lot of small businesses have to fill out as well. Not only do they have to run their own business, get a startup, hire people, now they got a whole bunch of paperwork they need to do as well. Now, discovering, talking about small businesses, I did interview my father, who was a small business owner. He works in my hometown and rocked him out as a carpenter. And if you need his kitchen done, please let me know after this segment. He tells me that it isn't all fun and games. So I sat down and asked him the responsibilities that came around, you know, tax time when he had to go pay his taxes. He explained that he would have to save all of his receipts and that he went through in the past 12 months. Now, mind you, he's paying a lot of money to, like, a lot of people. And he has to save all these receipts so that he can get to his accountant to show that all the money went to his business. Now, I don't know about y'all, but that seems just like a lot of work to me. Then I asked him around, like, when he had to pay his taxes, like, how much did he have to, like, how much did he end up owing? He told me that, like, he almost had to pay, like, around $7,000 to $5,000, which was way more than his business has made. Or, like, you know, his business does well to keep him afloat, but he doesn't understand where all this, how he owes all this money. And his accountant has tried to explain it to him, of course, but he says that, like, he still doesn't understand it. Because, like, all, like, he does well enough to where he, I think, like, he thinks that he shouldn't have to owe any money at all. Now, I've also interviewed my older brother who has a degree in finance, but he's working in T-Mobile, at T-Mobile as a manager, you know, where you get your phones and stuff. And I asked him how much he ended up having to pay in taxes this year, and he said he ended up paying $10,000 in taxes. And mind you, he only made $83,000 over the past, in the past year. Like, so, his income wasn't that high, especially with how inflated housing is, and renting, and insurance, you know. So, $10,000 to give back to the government, even though I made, like, a minimum, was crazy. And he said that he's going to have to go on a payment plan, and he doesn't, he really does not understand why he owes that much. And, I don't know, I think that's just unfair. Additionally, tax policies can impact small businesses' ability to compete with larger corporations. For example, tax credits and incentives that are designed to benefit businesses may be more accessible to larger companies with resources that can take advantage of them. And then that leaves a lot of small businesses at a disadvantage. And when we think about it, when we think about how, in this world, or in our economy, the rich are always thriving and stuff like that, I feel like the most basic answer that everybody is like, oh, let's tax the rich, let's tax the rich. I did some research, and the people at the Tax Policy Center, I read an article that outlines different approaches on taxing the wealthy. And one approach was to increase tax rates on high-income earners. And this can be done by creating a new tax bracket for ultra-high-income individuals, or by implementing a more progressive tax system that taxes high-level income at higher rates. So, you know, in a way, just like, just taxing them. But then another strategy is to tax the wealthy directly, and this one was interesting. It's like, you're not taxing the person, but you're taxing their wealth. So you would be taxing, like, their properties, their investments, their assets. And that way, I don't think that's fair. Like, it's not, the problem isn't them being wealthy or their wealth, it's more of just, like, what they're doing with it. It's not really what they're doing, it's not their wealth directly, it's just more of them just not being equal. And another was, like, another approach was just closing the loopholes that they take. Like, and implementing more stricter, like, measures to ensure that high-income individuals pay their fair share. And I feel like that way, that right there, I mean, that's fine and all. But I feel like we should probably take more of an approach of, you know, doing the same thing they are, you know what I'm saying? Like, nobody wants to pay their taxes, or nobody wants to pay income to the government, if anything, you know. And so then, I feel like if we just learn how they do it, obviously the legal way, then I think it could just benefit everybody. And then it's like a cool little F.U. to the government, if we think about it that way. But there's a key significance that I feel like everybody needs to learn, that there is a difference between tax avoidance and then tax evasion. Tax evasion is illegal. Tax avoidance is the way a lot of millionaires reduce their, how much money they owe to the IRS. So tax evasion is when you don't pay the taxes you owe at all. But tax avoidance is when you learn a way to not have to owe that money. One you already owe, paying it, while the other one you don't owe the money yet, so you're trying to limit it, if that makes sense. That's exactly how the rich do it, they just tax avoid. Because if they were all doing tax evasion, then I think it would have already called attention to the IRS. And that's why I feel like nothing is happening, because it just seems like a simple crime. It's not even a crime, but it just seems like something innocent, so they don't want to take it away. Let's address some tax system failings, shall we? We dove into the American Progress article, and great people by the way. They critique that the tax system failings, particularly the same failings that are, well not failings in their way. But in favoring billionaire corporations, it's like a game of tax loopholes and ladders. Where the wealthy climb higher on the ladder, while the rest of us are stuck on the loopholes. Now, one of the main issues in the article, they talk about how one of the key failings of the current tax system is the preferential treatment of certain types of income. Such as capital gains and dividends, which are often taxed at lower rates than ordinary income. And mind you, this is how a lot of big businesses make their income. And this preferential treatment disproportionately benefits the wealthy. Because that's where a big significant portion of their income come from. They come from a lot of investments. And then other issues were that tax deductions and credits by corporations to reduce tax liability. While these deductions and credits are intended to incentivize. Another issue is the use of tax deductions and credits by corporations to reduce their tax liability. So in essence, they try to use those deductions and they lower the amount they have to pay back. Because of the deductions. And it's right there, it's like on the W-2 when you're filing your taxes, it's like right there. Like, do you have any deductions and then ask. And these credits, these deductions are supposed to incentivize certain behaviors. Like investments in research or development. And they end up being exploited by corporations to significantly reduce their burden. And to address these failings, the article proposes a lot of reforms. And one proposal is to increase the tax rate on capital gains and dividends. Bringing it more in line with the tax rate on ordinary income. And this would help ensure that the wealthy pay their fair share. Because most of their income come from these investments. And then another proposal was talking about how we could just, again, just close the loopholes. Stop the avoidance. Stop all the tax avoidance. My professor talked about how a lot of these corporations, they gain a big win. And then when they're doing stocks or trading and stuff like that, they get a big win in their capital. But then they grab a really big loss and it just mutualizes it. And they don't have to pay anything back because their loss in the eyes of the IRS was too big. But it's nothing to them. It's just pennies. Their loss wasn't even that bad. For example, my professor talked about how, let's just say I won $10,000 in one of my investment plans. And it raised $10,000. But then later on, I lose $5,000. Well then, I'm not going to get taxed at all on the rest of the $5,000 because it was like 50%. Which is crazy. And I think we have to do something about that. Or, I guess maybe use it to our advantage, knowing this. So, I've been talking a lot about how Texas is, how it's a corrupt system. And I keep talking about how these loopholes, well let me tell you about the loopholes. And our people in the DC article report discussed how it's like a financial game of hide and seek. Where the super rich are the masters of disguise and the IRS is just left wondering where they went. And so, one of the main tricks that they use is like, one of the common strategies that the super rich use though, are the use of tax havens. And that is like countries or territories with a favorable tax laws. And they allow the individual to shield their income and assets from taxation. These tax havens offer secrecy and low tax rates, making them attractive destinations for wealthy to park their money. Which is tragic. Another loophole that they use is they hire these high net worth individuals to exploit and minimize their tax liabilities. So, they just end up hiring like a finance person that just knows the system. And this includes like strategies such as setting up a shell company, creating offshore trusts, and engaging in complex financial transactions designed to reduce taxable income. And then, thank you so much for listening today. I hope you guys enjoyed learning about taxes and learning about how the wealthy don't pay. And I hope you grab some satisfaction and realize that we need to get more educated and get up to be honest. Thank you.