The present tax system is a repudiation of the rationale behind taxes. Taxes are, or should be, collected to solve and prevent problems affecting the citizens. This repudiation is evident in the disparity between those who benefit the most from the government and those who pay the most to support the government. One would think that tax revenues would come foremost from those who benefit the most; after all, they have the most to lose. Illogically, however, the politically well-fixed have used their wealth to buy politicians and tax exemptions. Subsequently, the people who benefit most are the people who pay the least.

These absurdities are the content of this chapter: specific tax abuses and the illogical rationales behind them. Among the abuses are

progressive taxation,
foreign exemptions,
tax-free swaps (bartering),
tax exemptions as tax supports,
charitable deductions,
windfall profit taxes,
patriotic tax avoidance, and
double taxation.

This list is not complete. Hopefully, it is the beginning of a lengthy list of abuses which the American taxpayer will overturn through better democracy in Congress.

Too many individuals and industries use their economic leverage to buy additional tax breaks. They are trying to get something for nothing. Yet, in a zero-sum world, if someone gets something for nothing, it is only because someone else pays for it.

Questions of ethics are secondary to pragmatic considerations. When politicians allow special interests to escape their pragmatic share of funding government through tax exemptions, everyone suffers. What is the result when an economy is plagued by people wanting wealth at the expense of production? When people turn their attention away from the creation of wealth, the economy is plagued by shortage inflation. Shortage inflation occurs when production per capita falls relative to demand per person (capita). Shortage inflation, or "sinflation" for short, occurs when lawmakers write counterproductive, illogical laws.

If legal laws reduce the taxes of a special group without an increase in production by that group, the non-special, overtaxed people will divert their efforts into becoming undertaxed, overpaid people. Initially, the result may be a statistical rise in retained earnings; however, the more important variable is the drop in production of wealth per person. The following quotation indexes how Americans have turned from producing wealth to manipulating wealth, for the tax benefits are greatest on the non-manufacturing side of the economy:

Personal income rose an adjusted 0.6% in November [of 1981] as service-industry salary increased more than offset declines in manufacturing payrolls ....

Inflationary suffering is in our future. National income is rising while production is falling. Taxes are a major reason for the shift toward a service economy. Someone incorporated as a "server" can have more net income after taxes thTimism.comn in manufacturing who cannot incorporate.

Escaping one's pragmatic share of funding stable government, however, is not long-term. Such escapes actually threaten the stability of the government. Ironically, the special people who generate the escalating socio-economic instability have most to lose. Tax avoiders engage in financial Russian roulette--another bullet is added with each tax break. Very simply, history dictates that the spontaneous combustion of social revolt will consume the fools.

Each of the following major sections details a specific abuse of the tax system. Common to each is a counterproductive willingness to avoid taxes that must be reversed.

No Progressive Tax System

One tax avoidance rationale--behind Reaganomics in specific and supply-side economics in general--claims that the American economy suffers from a progressive tax system. The idea is that a progressive tax system punishes the more entrepreneurial capitalists who create the greatest amount of wealth. Hogwash!

With countless exemptions, taxation in America is punishing to the capitalistic spirit and less than progressive. Recall how half of all corporations do not pay any taxes, and recall that America is headed toward a zero tax climate for all corporations. The tax tables are only statistically progressive. Taxes are in fact regressive as income increases! As one's wealth increases, one can afford a tax accountant to locate the loopholes. Then, with these dollar savings, one can eventually buy more loopholes. For example, Reagan's "leaseback" tax credits were regressive, not progressive.

Consider this excerpt from a letter to the editor:

The current structure embodies a form of lie: Low-income people are led to believe that it is those rich folks who pay most, while higher-income earners are encouraged to focus on loopholes that allow their effective rates to be well below statutory rates.

Second, elimination of those myriad loopholes would simplify filing, auditing and daily maintenance of tax records. The psychological benefit alone would warrant the change. In addition, there would be direct reduction in the cost of expert tax advice.

Suspect is any economic program or tax rewrite (such as Reaganomics) which is predicated on correcting the injustices of a progressive tax system. There is no progressive tax system to correct, since tax exemptions lower "effective rates to well below statutory rates." Any political group that relies on the argument against progressive taxes is either lying (corrupt) or stupid (incompetent). In pursuing "corrections" of progressive taxes, politicians are diverting attention away from the real problem--the inflationary,