An article that almost slipped through without notice suggests that part of what has Progressive's panties in a bunch is that Trump engaged in "tax avoidance" to minimize tax penalties involved in raising funds for a project.
For the sake of clarity: Tax EVASION is illegal. Tax avoidance is not.
What is the difference? Tax evasion is when you engage in a transaction that generates taxable income (usually) but you do not declare it and do not pay it.
Tax avoidance is when you configure your transactions in a way to trigger the lowest taxes.
Suppose you are retired and most of your assets are in a 401-k. Furthermore, consider a parcel of property comes up for sale in November and it is a property you want.
If you negotiate with the seller to pay half of the price in the current year and the remainder in January of the next year...and you extract those funds from your 401-k by liquidating assets and taking it as income over the two years, you avoided taxes because of the "progressive" income taxes. That is, you paid a lower marginal-rate on the money you extracted because you did not climb as high up on the ski-jump. That is perfectly legal.
While it might seem pointless, one of the side effects is that it reduces "thrashing" where assets are bought-and-sold at high frequency. Thrashing makes the market disorderly and hampers the rational determination of "value".
If the Progressives want to change the definition of the kinds of activities that are considered "evasion", they are welcome to try to do that through the Legislature. If they are envious of Trump's wealth then they are free to attempt a "wealth tax".
Both proposals have enormous potential to fragment functioning enterprises and making them less-than-viable. That is, it is the equivalent of NYC being force to pay-as-they-go and resorting to cutting struts out of the Verrazzano-Narrows Bridge and selling them as scrap to create cash-flow.
IRAs and 401(k), flexible spending accounts, 529 plans are all tax avoidance schemes too.
ReplyDeleteare those definitions around the right way?
ReplyDeleteWhen taxation became fashionable, a wise man said something to the effect that tax evasion was a crime, tax avoidance was a duty. To my enfeebled mind the progressive income tax is a wealth tax, whatever would follow is just another bite of the apple.
ReplyDeleteOle Grump.
The fact that vast numbers of people are incapable of understanding the difference between "evasion" and "avoidance" is merely more proof that our education system is failing and the average IQ in America has been dropping precipitously for decades.
ReplyDeleteTax evasion is when someone you DON'T like does it.
ReplyDeleteTax avoidance is when you do it, even though you favor increased taxes to support what you want to be paid for by everyone else who doesn't have the money to pay an accountant like you do.
It is always interesting to me that people who otherwise embrace big government programming and spending are forever grumbling about their own taxes.
ReplyDeleteTo really jump start a conversation, ask them about their willingness to donate to help pay the national debt.