In 1969 while testifying to Congress, US Secretary of the Treasury Joseph Barr called out 155 Americans who were not paying their “fair share” of taxes.
Those 155 Americans had managed to reduce their federal tax liability to essentially zero by using perfectly legal deductions and credits in the tax code.
Congress was furious. Even though these taxpayers were following the law, the politicians didn’t like it. So they created a new, highly bureaucratic layer of tax complexity on the entire nation, specifically to target those 155 people.
It became known as the Alternative Minimum Tax (AMT).
But don’t worry, Congress said, this new AMT will only affect a couple hundred people…
The idea behind the AMT is to ensure that high-income earners pay at least a minimum level of taxes, regardless of the various deductions and credits they might be eligible for.
So they’re forced to calculate their taxes under two different systems:
- The regular tax system which allows deductions for things like state income tax, local sales tax, property tax, and itemized deductions.
- The Alternative Minimum Tax system which does not allow most deductions and exemptions.
The taxpayer must then pay the higher of the two taxes.
I don’t know about you, but doing my taxes just once is a big enough waste of time.
And again, while the AMT originally targeted just 155 specific people, within decades millions of Americans— including many in the middle class with modest incomes— were forced to calculate their taxes twice, and pay the Alternative Minimum Tax.
And while the Tax Cuts and Jobs Act of 2017 increased the exemption amount for the AMT, hundreds of thousands of taxpayers are still subjected to it. Plus, when those tax cuts expire in 2026, the AMT is expected to once again ensnare seven million taxpayers.
This story is not unique.
For example the 1913 income tax was only supposed to affect the wealthiest households in America. Just 3% of the US population paid it, and the base rate was 1% while the top rate was 7%.
By 1922— just nine years later— the government had increased the tax to beyond 50%. Plus they had created DOZENS of tax brackets, with most of the middle class having to fork over a hefty portion of their income to Uncle Sam.
But that isn’t even close to the record time between when a tax was introduced, and when the government declared its intention to increase it.
Look at the recent stock buyback tax, which politicians snuck into the Inflation Reduction Act last year.
It is a 1% tax on companies which buy back their own stock, and it went into effect on January 1st of this year.
38 days later, Aviator-Sunglasses-in-Chief announced in his State of the Union address that he wants to quadruple the tax to 4%.
That’s almost certainly a record— thirty eight days from the time a new tax took effect to the time they start trying to increase it!
Even the first income tax, introduced in 1861 (and later declared unconstitutional) took 11 months until the rates were nearly doubled, from 3% to 5%.
The key lesson is that taxes are never truly targeted, nor temporary.
But even more crazy is that increasing taxes doesn’t even guarantee more money for the government.
Top marginal income tax rates in the US have ranged from as low as 28% during the 1980s, to as high as 94% just after WWII.
But during that time US tax revenue since 1946 as a percentage of GDP has remained around a narrow band of around 19%.
In other words, the government’s slice of the nation’s economic pie is always around 19%– no matter how high or low they set tax rates.
So you’d think they’d understand the obvious implication here: if you want to maximize tax revenue, you need to concentrate on making the pie bigger… not on making your individual slice bigger.
With a bigger pie, everyone wins. But these progressive socialists don’t understand that simple maxim.
Instead they’re talking about wealth taxes, billionaire taxes, or making the rich pay their “fair share”. And they think you’re too stupid to realize that the middle class will soon be paying these taxes too.
Even the President’s campaign promises to not raise taxes on families making under $400,000 have already gone out the window. Now they want people making just $600 from online platforms like Etsy and eBay to be reported to the IRS.
Plus they’re going after undeclared tips from waiters and other food service employees. Not exactly millionaires…
These politicians are like ravenous beasts, and they’re coming to feast on your livelihood .
That’s why it makes so much sense to take advantage of the perfectly legal ways to reduce your taxes. I’m not talking about dodgy schemes and creative loopholes. I’m talking about easy deductions written right into the tax code.
We talk about these all the time— things like maximizing contributions to retirement accounts, moving overseas, or even moving to Puerto Rico can slash your tax rate (in some cases to 0).
They think you are too stupid to notice these tax increases, or to realize that sooner or later they’ll apply to you.
But using their own legal rules to reduce what you owe is a great way of saying, I’m not as stupid as you think.