Devil’s Attorney (Part II)

“I don’t believe in a law to prevent a man from getting rich; it would do more harm than good.”

Abraham Lincoln

The very last thing that any government would want to do is give money. In the best of cases it would be like a Robin Hood, stealing money from some people (not always the rich class) to give it to others, since governments do not generate money. That is why the government does not feel any weakness or hesitation to apply taxes to those who really work awfully hard for their money.

According to Economipedia, Tax is a tribute or charge that people are obliged to pay to an organization (government, king, authorities, etc.) without there being a direct consideration. This is, without a direct benefit being delivered or assured for its payment. In the United States government, or popularly known as Uncle Sam, the institution that monopolizes this task is the Internal Revenue Services (IRS).

Money is also considered merchandise, a special one that allows us to obtain a purchasing power in a lesser or greater amount affected by various factors such as work, time, dedication, intelligence… perhaps luck if you hit a prize, inheritance and everything you want to add. Nevertheless, there are innumerous ways to generate money in America and Uncle Sam will always be present to take his cut of the cake, however that cut will not always be the same to all people.

Although there are countries where taxes are not paid such as Brunei, Qatar, Vatican City… and even Somalia (Seriously???). Most countries have tax schemes in one way or another, sometimes overly aggressive, to raise funds for the government, public works, armies, and so on. There are even taxes that are considered voluntary, for instance lotteries, scratch & win, etc. People generate an incredible amount of money without being obligated to do it… just dreaming of hitting it big.

In America and all over the world you pay taxes on everything you can imagine. There are corporate or business taxes and personal taxes. The most common being income taxes, value-added taxes, sales taxes, estate taxes and property taxes. Also, state taxes, local taxes, and so many more that are invented to just to suck anyone’s soul until the very last drop.

To explain the percentages of tax payments in a simple way, we will use a schema described by Robert Kiyosaki in his book “The Cashflow Quadrant” where he describes the basic ways of generating money in a “normal” country and the maximum percentage of taxes to pay by a person.

  – Employee (The President of the United States is a public officer) can pay up to 37% tax.

  – Self-employed or person who has a business and at the same time is the only employee. This includes the famous single-owner, one person only Limited Liability Corporations (LLC). These can pay up to an abusive 60% in taxes.

  – Employer that has workers or an established system (they create jobs). They pay up to 21% tax or much less.

  – Investor (The money works for the person). The amount of taxes to be paid may be 0%.

A person can have several jobs and/or working more than one shift and be in a defined mix of ways to earn money based on the above quadrant. It could be a case where a person is a millionaire and works as an employee (this is hard to see but it is technically possible). This is the case if the mechanism that is applied to the winners of big prizes such as Powerball, MegaMillions and other prizes.

It’s worth adding that in the case of people who are not employees, taxes are paid after deducting all expenses incurred and in the case of employees there are plans such as 401K, IRA and others where taxes will be paid after having contributed to the plans, let’s just remember that Uncle Sam is the one who keeps the key to those savings, does not admit competition and will penalize you severely if you get your hands on it before you reach the stipulated age, generally 59 and a half years.

Let’s not forget that there are other payments or taxes collected directly in the Payroll payments to employees and indirectly in the tax return to others (not to investors) that are payments to Social Security and Medicare, which does not guarantee that you be rewarded at a future time since no one knows if they will survive many more years.

In the case of the president of the United States, Donald Trump, he generates money in more than one quadrant, as a government employee (president) he makes about $400,000.00 a year plus some other benefits, which would “penalize” him with a 35% tax, even this tax percentage is not yet the highest tax bracket, but that money is almost completely donated (this data is public), which is formally considered as a deduction and at the same time he gets exempted from payments completely. It has also been said that “out the door” the president keeps in his pocket a ridiculous figure of $7.00 or less. Then let us look at the money indirectly made as a business owner and investor. It turns out that in this regard that President Trump or any other person  would only pay a percentage of less than 21% after all expenses, payments to employees, investment in raw materials, benefits paid to employees, training expenses, legal expenses, accounting, life insurance, health, property… and many other losses included on his personal taxes that are in the public domain. Totally legal. Which brings you to the final number that has everybody and the media talking about. Please keep in mind that this figure only refers to the remaining amount to be paid on the tax return form and does not consider the other obligations mentioned above.

Summarizing, I invite every person not to limit themselves to saying what so many who have never created a job repeat without any evidence. Therefore, President Trump does pay taxes like Peter and Paul, and Mr. So, and So. Trump has the “advantage” that he pays as he wants within the premises and statutes dictated by the law. Now what he really does is pay taxes wisely, within the law. That makes him “smarter” than the other competitors.

Note: The figures and currency above illustrated apply only to the tax system used in United States of America and does not imply that they can be applicable to other countries.