Our Tax Laws Are Unfair
Tax laws favor the rich. People like to blame corporations for creating and magnifying wealth inequality but much of the blame actually belongs to the government. In this episode, we discuss several ways that regulations are biased in favor of the wealthy and how you can take advantage of them if you know how.
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Transcript Below:
Speaker 1 (00:07):
Welcome back once again to 30 Minute Money, the podcast that delivers action oriented smart money ideas in bite-sized pieces. I'm Scott Fitzgerald, who not really a host, but is sort of a guy who likes to talk to a guy who knows a lot about money. Steve Wershing!
Speaker 2 (00:21):
Steve, we're gonna have somebody in here like that. Oh,
Speaker 1 (00:23):
Nice to see you. Steve. Steve from Focused Wealth Advisors today, gonna talk to us about our terrible, unfair fa uh, tax laws.
Speaker 2 (00:32):
We're gonna rant today. We're gonna
Speaker 1 (00:33):
Rant
Speaker 2 (00:34):
No technical, there's no guidance in this. We're just gonna rant today. We're gonna complain ,
Speaker 1 (00:39):
Because that's, that's my jam.
Speaker 2 (00:41):
Because our taxes are, they're not just, I mean, it historically we're in a relatively low period, but they are unfair. And I wanted to talk about that a little bit. It just, you know, that bug got under my saddle, that bird got under my saddle at some point this week, and I just said, you know, we really need to talk about this because the system is really just bad. It's just unfair. Is
Speaker 1 (01:02):
It, is it, is it rigged? Is it rigged for, or is it set up for to, for other people, or, you know, to Yes, it is.
Speaker 2 (01:09):
All right. Let's, it is, that's why it's unfair. Let's
Speaker 1 (01:10):
Jump in.
Speaker 2 (01:11):
It's, it's, you know, it, it, it's a, um, uh, it's a game like any other, and the more, the more of the rules, you know, about the game, the more likely it is that you can win, but that makes it unfair. Yeah. Right. So, but let's just talk about, you know, one of the reasons, one of the reasons that, that, you know, the tax system is so screwed up these days is because it's so big. It's just so long, and there are so many things that the government is trying to do through the tax code that it's just gotten to be this monster. So, you know, recently I said on one of these episodes that the, the, you know, tax regulations run to about 4,500 pages. And it's, there's, there's some disagreement about that, you know, about how many pages Exactly. Because you know, what exactly is part of the tax regulation, what's an interpretation, what's, you know, associated with that? But the tax foundation says that we currently have about 6,000 pages of tax regulation that is exclusive of interpretations, which runs another 15,000 pages. Um, and tax law cases and those kinds of things. But, you know, 6,000 pages, which adds up to being about, you wanna take a guess, how many words that is? No. 4 million , four mi, 4 million words. I mean, how complicated does it actually have to be? Like, you know, as a comparison, declaration of Independence, how many words do you think are in that ?
Speaker 1 (02:39):
Like 2000?
Speaker 2 (02:40):
Yeah. Not even 1,450 words in the Declaration of Independence. How about, how about the, how about the Constitution? Let's go to the how, how it is much bigger, you know, more, more out document. How many words are in the, in the US constitution, I'm gonna
Speaker 1 (02:54):
Take a guess and say 7,591 words.
Speaker 2 (02:57):
That's ex That's exactly it. You've got crib notes, which is cool. Constitution 7,500, it says 7,591 words. The Bible , including the New Testament, 774,746 words ish, depending on the edition, right? But less than 800,000 words, the tax code is 4 million words. I mean, seriously, if the Bible is less than a million, what do they need another 3 million words for? Anyway? And the reason I bring that up first is because fun fact, in case you go to another cocktail party, you can whip these things out. But more important than that is, um, anything that is that complicated is inherently unfair because it is incomprehensible to most taxpayers. You know, it fairness requires clarity. You know, if you don't understand what the rules are, how could you poss how could they possibly apply fairly to you? Yeah, it can. And so that's one of the reasons why it's so unfair, and something that, that comes out of that.
(04:09):
One of the reasons that that's unfair is because if you're gonna make the most of those 4 million words, if you're gonna take every tax opportunity that's available to you, you probably have to hire pretty expensive tax counsel. You probably have to hire some, you know, some accomplished professionals to do that. And middle and lower income people can't afford that. Right? The tax code is biased in the direction of the rich, cuz the rich can afford the expensive tax lawyers. So that's unfair. The, the other thing is that it would be one thing if we were just going to say, okay, now there's a bunch of stuff that we have to pay for. We have to pay for the military, we have to pay for the post office, we have to pay for the national parks. And so we need to raise some money from y'all to be able to do that.
(04:55):
Okay, I'm cool with that. Um, but one of the challenges is that the government does social engineering through the tax code. And I don't know that that's legitimate. I don't know that that's, what do you mean by social engineering? Well, what they do is the ta, there are all kinds of things in the tax code that incentivize specific behaviors. So for example, charitable contributions. Now, there's nothing inherently wrong with that. Charity is good, it's good that we support things. It's good that the community comes together and supports things, but first the government dictates who should be supported because you don't get a tax deduction unless they have a specific tax designation on the, you know, it has to be a 5 0 1 C three organization to be deductible. But, but then, you know, and you know, so should, the question is, should the government be in charge of that?
(05:48):
Should you be able to support whatever causes you want? Or should the government have a hand in deciding, you know, who gets those benefits and who doesn't? Um, so that's one example, but there's another example. There are a couple other good examples too. The government thinks that home ownership is good, and I'm not gonna take a position for or against either way, but there are all kinds of tax benefits that come with owning a home. And the question is, should the government be deciding that? Should the government decide that, well, you know, home ownership is a good thing, so we wanna stimulate home ownership. We're gonna build that incentive into the tax code so all of us have to pay, and the people who get the benefits of it are the people who buy houses. Is that legitimate? I don't know. You know, I'm not sure that the government should be in that business. Right. Um, the, um, to get a little more pointed on it, you know, my point before was complexity biases this in favor of the rich, and that's not fair. Um, charitable contributions in home ownership also cater to the rich because the, the more you make, the more likely it is that you'll be able to give money away and, uh, be able to own a home. But there are other things like capital gains tax, you know, capital gains are taxed at a lower rate than income. So,
Speaker 1 (07:09):
Yeah. Which I never understood that. Yeah. Yeah. That makes zero sense to me.
Speaker 2 (07:14):
And there's a legitimate question about why would it matter where you make your money? Right? Why would it matter whether you make your money by working, you know, working hourly for a job or because you sell a stock at a profit? Why should that make a difference? Right. It's not clear to me that it should, but of course, it's really the higher your net worth, the more likely it is that you'll be able to make money buying and selling things at a gain. And so that, that bias is the rich as well. But there are even things like, you know, tax credits for energy know for energy efficiency, you know, if you buy an electric car, if you, if you right. Solar, install solar, solar panels at your house, solar, all kinds of tax in and incentives for that. Is that equitable?
Speaker 1 (07:56):
I know, I, I've looked into that. There was the, there's the one where you can use the ground, uh, heat or something. Oh,
Speaker 2 (08:04):
Okay. Yeah, sure.
Speaker 1 (08:05):
You know the geothermal stuff. Yeah, yeah, yeah. And I was like, that is really cool science I look cuz I love that kind of stuff and yeah. And, and it's good for the environment. And I looked at it and I was like, I can't afford that . Right. And, you know, the tax break might be great, but how am I gonna, and that's a huge investment, right?
Speaker 2 (08:21):
Right. And, you know, but the people who can afford it, you know, the higher net worth people who can't afford it Yeah. They end up getting a break on their taxes because of that. Yeah. Um, even things like being able to save for retirement pre-tax. Now that's a good thing. I, you know, I I think everybody should be saving for their retirement and, you know, it's nice that you can get a tax break on it, but who benefits from that? The more you make, you know, the more you can afford to put money, the less of your income that you spend on day-to-day expenses and the more you can afford to put away for later should you get rewarded for. Well, I think there's a conversation to be had about that. Mm-hmm. , and again, I'm, I'm not, I'm not objecting to retirement savings. I'm certainly not objecting to any kind of tax break I could find, but really, I mean, we should, we should have that conversation.
(09:07):
Is that fair? Because it, it, it discriminates against people who have less and, you know, so, you know, again, I I just, you know, it, it, there are all kinds of things in there that, you know, you, we que i i question should the government really be deciding that should be, should the government be in a position of incentivizing specific things that, that the government thinks are, is good? Right. And, and rather than just letting people decide for themselves what they wanna do with their money and what kinds of goals they want to, to achieve, same kind of thing for, you know, even 5 29 college savings plans. There are tax incentives for that. Um, so if, if you are trying to, if you want your kids to do better than you because you're middle class and you can afford to save less, then you get less of a tax break than somebody who makes a lot of money and can pump a lot of money into the 5 29 plan. Um, again, I'm not objecting to tax deductions for, for college savings, but the question is, is it fair? Well, I, I I think that's a conversation's worth having.
Speaker 1 (10:07):
Yeah. And I don't, I don't, I'm not so sure that, I mean, where does that conversation take place? You know, , it's such a big issue that it's like, where, where does, where do you start?
Speaker 2 (10:19):
Yeah. Well, I mean, it's, you know, write your congressman, you know, it's, um, whenever, uh, you know, the, the Biden administration just proposed all kinds of tax breaks and in fact incredibly complicated schemes for, you know, for, for tax advantaging specific parts of the population. You know, it may, you know, if if you, if you call your congressperson, if you write letters, they look at those mm-hmm. and, um, you know, so it's, it's a, um, you know, pay attention to what candidates are saying about what they'll, what they'll do with the tax code if they get elected. And, and you know, if, if you have a strong feeling about it, write your congressperson about it.
Speaker 1 (11:00):
Yeah. I, I've always had this, this kind of love-hate relationship with, with the whole tax thing, because like you stated earlier, you know, we need schools, we need roads, we need infrastructure, we need things that taxes pay for. Right. Um, but, you know, Yeah. Whoever comes up with this stuff, it's just not, it's, yeah.
Speaker 2 (11:22):
And I'm, I'm not objecting, I'm not objecting to the existence of taxes. Yes. The government serves valuable purposes. Right. We could have a long conversation about which of those they should be doing Right. And which they should not be doing. Yes. They need to manage the roads and they need and, and public education. It, you know, there, there's actually, there's a lot of really interesting conversation about public education, um, and whether or not the government should be in that business, but, you know, we don't have to go down that road. Right. Um, interesting case study as an aside, interesting case study in New Orleans when Katrina came through and, you know, and flooded New Orleans, they, they, the schools were washed out. They couldn't get the schools back open again. And the, and the charter schools stepped in to take up the slack, and oh, low and behold, kids did better. The racial divide narrowed. I mean, educational outcomes got a lot better all of a sudden when charter school, you know, when it wasn't, when, when public schools wasn't really this, the, the, the monolithic kind of choice, the, the most obvious choice. That's
Speaker 1 (12:24):
Interesting. I didn't hear about that.
Speaker 2 (12:25):
Yeah. So we could have, yeah, we could have, I think, good conversations about what kinds of activities the government should really be taking, you know, should, should be getting into. But the bigger question is, um, however, however much th however much you think that the government should be funded, what's the best way to do that? And having an incredibly complicated tax code with all kinds of breaks that invariably benefit people who make more money. Not sure that's the right way of going about doing it.
Speaker 3 (12:57):
Your retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner, Steve Waring and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government. This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life. How to move tax savings into a tax-free environment. The Widow's Tax, the Secure Act, the secure Act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot. So go to focused wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next five or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
Speaker 1 (14:23):
Life isn't fair. Taxes aren't fair. Get off my lawn. What's your, uh, 30
Speaker 2 (14:27):
Minute action item, ? Well, so here's the thing. We, yeah, I just spent a few minutes ranting about that whole thing, but here's your 30 minute action item. Make sure that you're taking advantage of all of those, all of those breaks that you can get. Take a look at your tax return. Are you taking advantage of all the different breaks that are available to you? That would be your 30 minute action item.
Speaker 1 (14:49):
And, and I know that, uh, Steve here is one of those guys who knows a lot of those ins and outs and can very likely help you, and you can find him at focusedwealthadvisors.com. Thanks again for listening to 30-Minute Money, which is at 30-minute dot money. We'll catch you next time.