FedUpUSA

Posts Tagged ‘Taxation’

Government promises to public employees have created “zero-risk” Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.

Every government entity that reckoned it was moated from the market economy will be snapped back to “discover” risk and consequence. Let’s lay out the dynamic:

1. Every government can only spend what its economy generates in surplus.

2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.

3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.

4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.

5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.

6. The Federal government and the Federal Reserve have pursued a policy of inflating serial speculative credit-based bubbles.

7. These bubbles inflated assets, profits and taxes, creating the illusion that blow-off speculative tops were “the new normal.”

8. Speculative credit-based bubbles misallocate capital and incentivize malinvestment on a spectacular scale.

9. Once the bubble deflates, the capital is lost or trapped in illiquid malinvestments.

10. As a direct result of the dot-com bubble, Stockton’s tax revenues (general fund) leaped to $139 million in 2001. As a direct consequence of the housing bubble, it jumped to $186 million in 2007.

11. This “new normal” encouraged the belief that the stock market would double or triple every decade into the future, generating 8%+ annual returns for public union employee pension funds.

12. The city government granted employees open-ended guarantees of lifetime healthcare coverage.

13. This meant that there was no limit on the cost of each employee’s benefits.

14. As noted here many times, healthcare costs rise by 7%-10% every year, even as the economy which supports healthcare grows by 2% on average.

15. Healthcare alone will bankrupt the nation, and the bankruptcy of entities that promised open-ended healthcare is merely one manifestation of the coming bankruptcy of the entire sickcare/entitlement Status Quo.

16. Once the stock market reverts to the mean and is revalued to the “new normal” of global recession and low earnings growth, it will decline by 40% or more and yields will remain around 2%.

17. Pension funds earning 2% at best based on expectations of permanent 8% returns cannot sustainably pay the benefits promised.

18. If the city attempts to make up the shortfall annually, the services provided to the citizenry will be gutted. The risk and consequence of malinvestment and favoritism has been offloaded onto the citizens while those protected by the government moat live “risk-free” lives of guaranteed pensions and benefits.

19. The public-employee pension and healthcare benefits were separated from the market economy with this government guarantee: regardless of what happens in the real economy, you will be paid pensions and benefits that have zero exposure to the market economy and private-sector pensions/benefits.

20. In effect, the government has placed its employees and vested interests in a moated “risk-free” zone outside the market economy. The risk that is distributed to all participants in an open market (i.e. a democracy) is transferred to the citizens and taxpayers.

21. Any government that siphons off an increasing share of its taxpayers’ disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city’s mismanagement of their capital and income.

22. Every city, county and state in the U.S. which has secured a risk-free wonderland for its favored few will “snap back” into the real economy and face the discipline of the credit market and the “discovery” of price and value.

23. Risk cannot be eliminated by government mandate, it can only be transferred to others. No government entity can maintain a “risk-free” fortress outside the market forever. The moat around Wonderland will be drained or filled, regardless of what promises were made.

24. Government has no mechanism to transparently price risk, value and return on investment. The market will “discover” all these and re-set government services and salaries accordingly.

How Stockton went broke

Charles Hugh Smith – Of Two Minds

In recent days, the fact that Mitt Romney has millions of dollars parked down in the Cayman Islands has made headlines all over the world.  But when it comes to offshore banking, what Mitt Romney is doing is small potatoes.  The truth is that the global elite are hiding an almost unbelievable amount of money in offshore banks.  According to shocking research done by the IMF, the global elite are holding a total of 18 trillion dollars in offshore banks.  And that figure does not even count any money being held in Switzerland.  That is a staggering amount of money.  Keep in mind that U.S. GDP in 2010 was only 14.58 trillion dollars.  So why do the global elite go to such trouble to hide their money in offshore banks?  Well, there are two main reasons.  One is privacy and the other is low taxation.  Privacy is a big issue for those that are involved in illegal enterprises such as drug running, but the biggest reason why people move money into offshore banks is in order to avoid taxes.  Some set up bank accounts in foreign nations because they want to legally minimize their taxes and others set up bank accounts in foreign nations because they want to illegally avoid taxes.  You would be absolutely amazed at what some large corporations and wealthy individuals do to get out of paying taxes.  Unfortunately, the vast majority of the rest of us don’t have the resources or the knowledge to play these games, so we get taxed into oblivion.

So why do they call it “offshore banking”?

Well, the term originally developed because the banks on the Channel Islands were “offshore” from the United Kingdom.  Most “offshore banks” are still located on islands today.  The Cayman Islands, Bermuda, the Bahamas, and the Isle of Man are examples of this.  Other “offshore banking centers” such as Monaco are actually not “offshore” at all, but the term applies to them anyway.

Traditionally, these offshore banking centers have been very attractive to both criminals and to the global elite because they would not tell anyone (including governments) about the money that anyone had parked there.

These days some governments (particularly the U.S. government) are trying to change this, but we certainly will not see the end of offshore banking any time soon.

The amount of money that goes through these offshore banks is absolutely astounding.

It has been estimated that 80 percent of all international banking transactions take place through these offshore banks.  $1.4 trillion is being held in offshore banks in the Cayman Islands alone.

One article in the Guardian estimated that a third of all the wealth on the entire globe is being held in offshore banks, and others believe that as much as half of all the capital in the world flows through offshore banks at some point.

Obviously, all of this tax avoidance means that governments around the world are missing out on a whole lot of money.

It has been estimated that the U.S. government is missing out on $100 billion a year because of these offshore banks.  Others would put that figure significantly higher.

Avoiding taxes is a game that the global elite have mastered.  They are playing a whole different ballgame than you and I are.  They don’t just sit there like idiots and get blasted with taxes.  Instead, they hire the best experts and they employ every trick in the book to hold on to as much money as they possibly can.

These days, taking advantage of offshore tax havens is not that complicated to do.  The following is from a recent Politico article….

A plausible scenario plays out like this: I hire an accountant. Doing her job, my accountant tells me that if I sign a few legal documents and route my money through a small Caribbean island, I could keep more of my paycheck and pay a lower tax rate. I may have earned my money in the United States, but legally I can claim that it was, in fact, earned in a tax haven.

If it is legal, perhaps more of us should look into this.

After all, if playing these kinds of games is good enough for Mitt Romney, then why isn’t it good enough for all the rest of us?

During a campaign stop recently, Romney said the following….

“I can tell you we follow the tax laws”

I certainly believe him when he says that.  But it is what he said next that is troubling….

“And if there’s an opportunity to save taxes, we like anybody else in this country will follow that opportunity.”

I certainly believe him when he says that too.

ABC News recently revealed that Bain Capital has established an astounding 138 different offshore funds in the Cayman Islands.

Something has got to work pretty well to want to do it 138 times.

But Bain Capital was also very busy over in other offshore banking centers as well.

One of the largest shell companies that Bain set up down in the Caribbean was called Sankaty High Yield Asset Investors Ltd.  It did not have an office in Bermuda and it had no staff in Bermuda.  But it helped clients of Bain Capital avoid a whole lot of taxes.

The following comes from a 2007 Los Angeles Times article….

In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans.

Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory.

“It’s just a mail drop, essentially,” said Marc B. Wolpow, who worked with Romney for nine years at Bain Capital and who set up Sankaty Ltd. in October 1997 without ever visiting Bermuda. “There’s no one doing any work down there other than lawyers.”

The amount of money being funneled through Sankaty today is absolutely stunning….

Today, Bain Capital manages $60 billion in assets, according to a spokesman. The total includes $23 billion in Sankaty debt and credit funds. Half a dozen Sankaty affiliates now are active in Bermuda, corporate registry records show.

The Sankaty debt hedge funds are organized as partnerships in Delaware that produce taxable business income by investing in fixed-income bonds and other debt instruments. Under tax law, even tax-exempt U.S. institutions may face a 35% tax if they invest directly in such hedge funds. By investing instead through a Bermuda corporation, the taxes are legally blocked, experts say.

Of course all of this is perfectly legal.

So nobody gets into trouble for any of this.

By keeping money offshore, even those managing these kinds of funds can avoid being taxed.

Victor Fleischer, a tax professor at the University of Colorado Law School, recently explained how this works….

“The idea behind some of the Cayman Island strategies was that the income that the fund managers receive for managing the money would be kept offshore in the Cayman Island — and the chief benefit is that you can defer when you recognize that income until a later date and you can reinvest the money from the Cayman islands and none of those reinvested funds get taxed until you bring them back either”

So was Romney doing this?

We may never know unless he shows us his tax returns.

What we do know is that Romney has millions of dollars of his own personal wealth invested in offshore tax havens.

The following comes from ABC News….

In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.

But Romney does not just have money invested down in the Cayman Islands.  Apparently his money is invested in a whole host of offshore tax havens.

The following quote comes from a Reuters article….

Bain funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong, according to a Reuters analysis of securities filings.

So is there anything wrong with this?

Well, it depends on how you define “wrong”.

What Romney is doing is perfectly legal.

But it also stinks.  Washington lawyer Jack Blum recently told ABC News the following about Romney’s finances….

“His personal finances are a poster child of what’s wrong with the American tax system”

So now we may have a few hints as to why Romney may not want to release his old tax returns.

But as noted above, what Romney is doing is just small potatoes compared to what the ultra-wealthy do.

The U.S. Congress has been trying to clamp down on offshore banking, but the ultra-wealthy are always two or three steps ahead of them.

The ultra-wealthy will go to just about any extreme in order to avoid paying taxes.

In fact, the Washington Post has reported that an increasing number of wealthy individuals are actually deciding to renounce their citizenship rather than face the wrath of the IRS.

The ultra-wealthy aren’t really concerned that much with national citizenship anyway.  If they want to influence an election, they can have far more influence by donating a few million bucks to a “Super PAC” than they can by casting the few votes that they have.

In a previous article, I described how the ultra-wealthy use offshore banks as a “shadow banking system” that plays by rules that most people don’t even know exist….

It is a shadow banking system that most Americans don’t know anything about. Most Americans don’t have the resources to be able to set up shell companies in half a dozen different countries so that they can “filter” their profits.  Most Americans don’t know a thing about complicated tax avoidance plans that tax lawyers use such as the “Double Irish” and the “Dutch Sandwich”.  Most Americans would have no idea how to eventually have most of the money that they make end up in Bermuda so that it can avoid taxes.

Most among the global elite simply do not care that U.S. debt is climbing into the stratosphere.  All they care about is keeping as much of their own money in their pockets as they possibly can.

Of course there are always exceptions to this rule.  Warren Buffett recently wrote a check to the U.S. Treasury for a little more than $49,000 to help pay off the national debt.

But considering the fact that the U.S. national debt is increasing by more than 100 million dollars an hour, that didn’t exactly do much to help.

Our system is deeply broken and the global elite are getting away with bloody murder.  Over the decades, they have carefully crafted the rules so that as much wealth as possible is funneled into their pockets, and they have carefully crafted the rules so that as much wealth as possible stays in their pockets.

Of course if we got rid of the personal income tax and the corporate income tax entirely and replaced them with a completely new system we could get rid of all of this game playing once and for all.

But what do you think the odds are of that happening?

The Economic Collapse

Everything that you own is slowly being taken away from you.  It is being done purposely and it is being done by design.  Many Americans like to think of themselves as “well off”, but as will be demonstrated below, we don’t “own” nearly as much as we think that we do.  The truth is that most of us have to frantically run around accumulating wealth as rapidly as we can so that we can somehow stay ahead of the rate that wealth is being taken away from us.  The entire system is designed to take what you have away from you.  There are many ways that this is accomplished – taxation, inflation, debt, interest, fines, fees, tickets, government seizures and good old-fashioned corporate greed.  If you tried to just sit back and do nothing but hold on to the wealth that you already have you would find out that it would disappear rather quickly.  When you take the time to really analyze our system the conclusion is undeniable – everything that you think that you own is being systematically taken away from you.

There is a reason why the wealthiest one percent of all Americans control 40 percent of all the wealth in the United States.  The system is designed to funnel all of the wealth to them and to the government.  Average Americans are experiencing a declining standard of living and it is not by accident.

Just check out some of the ways that our wealth is being taken from us….

#1 Do you think that you own your house?  You might want to think again.  Most Americans that “own a home” are paying a mortgage.  If you stop paying that mortgage you will lose that home.  Over a million American families were kicked out of their homes last year.  This year a million more American families will get the boot.

But when those families get booted out onto the street they don’t get their down payments back.  They don’t get all the mortgage payments that they have made back.  The banks get to keep all of the money and all of the houses.

Perhaps you don’t have a mortgage.  Does that mean that you “own your home”?

No, not really.  Just refuse to pay your property taxes and watch what happens.  At best you can say that you have the right to rent your home from the government.

In any event, the reality is that the banks now own more of “our homes” than we do.  During the most recent recession, the total amount of U.S. home equity owned by the banks surpassed the total amount of U.S. home equity owned by the rest of us for the first time ever.

Things used to be far different in this country.  Once upon a time American families owned most of the houses and most of the land in this nation.

But now the banks own most of it.  Sadly, most American families that believe that they “own homes” are actually enslaved to 20 or 30 year debt contracts.

#2 Do you think that you own your car?  You don’t own it if you are still making payments on it.  If you stop making payments you will rapidly lose that car.

But even if your car is paid off, you can only operate that car if you do the following….

*You must pay the license fee

*You must pay the car registration fee

*You must pay the emissions inspection fee

*You must pay the property taxes on that car (if that applies in your area)

*You must pay the tire taxes

*You must pay the gas taxes

If you have paid all of those taxes, then you are permitted to drive only where the government allows you to drive and only under the rules that the government sets for you.

But at least you “own” your car, right?

#3 What about your possessions?  Do you own them?

Well, yes, you probably own some possessions.

But that doesn’t mean that they are not enslaving you.

After all, did you use a credit card to pay for any of them?

If so, you could end up paying much more for your possessions than you originally thought that they cost.

For example, if you only make the minimum payment on your credit card each month, a $6,000 credit card bill could end up costing you over $30,000 (depending on the interest rate).

#4 Do you own your education?  Well, it is undeniable that nobody can ever take it away from you.  But if you took out student loans that debt may end up enslaving you for decades.

The borrower is the servant of the lender and student loan debt is more of a financial drain on Americans than ever before.  Americans now owe more on student loans than they do on credit cards.  As hard as that is to believe, that is actually true.  Americans now owe more than $903 billion on student loans, which is a new all-time record.

#5 Will you protect your wealth if you put your money in the bank?

No, in fact your wealth will be systematically destroyed in the bank.

Inflation is a hidden tax on every single dollar that you own.  It destroys the value of all dollars in existence.  There are some Americans that have been saving money for decades, but those savings are being taxed into oblivion by inflation.  Many experts are now projecting that the average price of a gallon of gasoline will hit $5 by the end of the year.  So the next time you go to the gas pump just take a moment to think about how your wealth is being drained away by inflation.

#6 Insurance costs continue to soar.  After insuring everything in our lives many of us barely have any money left over to actually live our lives with.  In particular, health insurance premiums have become completely and totally ridiculous.  According to the Los Angeles Times, Blue Shield of California plans to raise rates an average of 30% to 35%, and some individual policy holders could see their health insurance premiums rise by a whopping 59 percent this year alone.  So how are American families supposed to survive if they keep on handing over bigger and bigger chunks of their income to the health care industry?

#7 State and local governments all over the nation have turned to ticket writing as a primary revenue source.  In fact, in some areas of the country traffic citations are soaring at a crazy rate.  For example, 110,000 more traffic citations were written in Los Angeles County last fiscal year than were written in the fiscal year immediately prior to the last recession.

The truth is that the police even realize what is going on.  Just consider the following quote from from Police Chief Michael Reaves of Utica, Michigan….

“When I first started in this job 30 years ago, police work was never about revenue enhancement, but if you’re a chief now, you have to look at whether your department produces revenues.”

#8 Some states have decided to simply confiscate wealth even if nothing has been done wrong.  For example, the state of California is aggressively seizing “unclaimed” safe deposit boxes.  If you have a safe deposit box that you have not checked on in a while you might want to make sure that it is still there.

#9 You might end up losing your valuables when you cross the border.  It is being reported that U.S. border agents are now regularly seizing laptops and other electronic devices as people cross the border.  In many cases those items are never returned.

#10 If you don’t pay your property taxes, you will lose your house and it will likely be a big Wall Street bank that will be taking it from you.  As I have written about previously, the big Wall Street banks are buying up thousands upon thousands of tax liens and are making a killing by socking distressed homeowners with predatory interest, outrageous penalties and almost unbelievable legal fees.

#11 Of course the biggest way that our wealth is being drained is through federal income taxes.  The reason that the Federal Reserve and the IRS were established back in 1913 was to redistribute wealth.  Wealth is transferred from the American people to the U.S. government and then ultimately to the elite and to the causes that the elite favor.

But federal taxes are only one of the taxes that we pay.  The truth is that the average American pays dozens of different taxes each year.  Just check out a few examples of the different taxes that drain our wealth….

#12 Accounts Receivable Taxes

#13 Building Permit Taxes

#14 Capital Gains Taxes

#15 CDL License Taxes

#16 Cigarette Taxes

#17 Corporate Income Taxes

#18 Court Fines (indirect taxes)

#19 Dog License Taxes

#20 Federal Unemployment Taxes (FUTA)

#21 Fishing License Taxes

#22 Food License Taxes

#23 Gasoline Taxes

#24 Gift Taxes

#25 Hunting License Taxes

#26 Inheritance Taxes

#27 Inventory Taxes

#28 IRS Interest Charges (tax on top of tax)

#29 IRS Penalties (tax on top of tax)

#30 Liquor Taxes

#31 Local Income Taxes

#32 Luxury Taxes

#33 Marriage License Taxes

#34 Medicare Taxes

#35 Payroll Taxes

#36 Property Taxes

#37 Real Estate Taxes

#38 Recreational Vehicle Taxes

#39 Road Toll Booth Taxes

#40 Road Usage Taxes (Truckers)

#41 Sales Taxes

#42 Self-Employment Taxes

#43 School Taxes

#44 Septic Permit Taxes

#45 Service Charge Taxes

#46 Social Security Taxes

#47 State Income Taxes

#48 State Unemployment Taxes (SUTA)

#49 Telephone federal excise taxes

#50 Telephone federal universal service fee taxes

#51 Telephone federal, state and local surcharge taxes

#52 Telephone minimum usage surcharge taxes

#53 Telephone recurring and non-recurring taxes

#54 Telephone state and local taxes

#55 Telephone usage charge taxes

#56 Toll Bridge Taxes

#57 Toll Tunnel Taxes

#58 Traffic Fines (indirect taxation)

#59 Trailer Registration Taxes

#60 Utility Taxes

#61 Vehicle License Registration Taxes

#62 Vehicle Sales Taxes

#63 Watercraft Registration Taxes

#64 Well Permit Taxes

#65 Workers Compensation Taxes

Even the future is being taken away from us.  The future is literally being stolen from our children and our grandchildren.  They will be inheriting the 14 trillion dollar (and still rising) national debt that we have accumulated.  What we have done to future generations is unthinkable, and yet we continue to endlessly borrow more money.  The Congressional Research Service estimates that the U.S. government will need to borrow $738 billion between April 1st and September 30th.  Faith in U.S. Treasuries is falling so rapidly that now the biggest bond fund in the world, PIMCO, is actually shorting U.S. Treasuries.

When you base an entire economy on debt, eventually you end up with money problems that never seem to end.  As a nation we are now enslaved to a vicious spiral of debt that is going to destroy everything that our forefathers worked so hard to build.

As the debt loads of our federal, state and local governments become even more burdensome, they are going to want even more money from us.  For decades we gave in to new tax after new tax thinking that it would finally satisfy them.  But it never seems to be enough.  They always want more.

It is the same thing with the banksters.  They are never satisfied either.  They always want more assets and they always want more Americans to be enslaved to debt.

Unfortunately, most Americans are so caught up in the “rat race” that they never take much time to think about who designed the race or why they are running it.

Hopefully more Americans will wake up and will realize that our entire economy and our entire financial system need to be reformed.  Our current system is inherently flawed and it will eventually impoverish the vast majority of us if we allow it to.

The Economic Collapse