Over and over I keep hearing both Barack Obama and John McCain endlessly discuss the need for tax reform. In Obama’s case, the cancellation of the Bush tax cuts and a modest increase in taxes for the wealthiest citizens among us. John McCain will preserve the Bush tax cuts and take a long hard look at rationalizing our tax code.

But what angers me is that both politicians, being politicians, are simply figuring out ways to sell their revenue enhancements to the American public in such a manner as to avoid adverse consequences at the polls.

So let’s review the facts surrounding the existing tax code.

(1)  The actual tax code is complex by design. Consider this the full employment opportunity act for accountants and other tax professionals whose entire livelihood is based on explaining the tax code to us mortals and insuring that the special interests are provided with the special privileges they had sought and paid for through their campaign contributions. One of the great paradoxes of nature is that tax code legislation is mostly written by lawyers with little sympathy for the ordinary man and promoted by legislators who claim it is the ordinary man they are trying to protect.

(2)  You pay more in taxes than you realize.  Especially since the United States, as well as local and state entities, use unofficial tax collectors such as your employer, your local gas station, your local telephone carrier and others to charge you and remit the taxes to Washington and other places. Often these taxes are disguised with that magic code word designed to make you think it is not a tax, but a fee.

The difference between a fee and a tax is simple. When someone chooses to use a government service and pays for it, he is paying a user fee.  If the government service is funded more broadly by all citizens, and especially those who don’t want or need that particular government service, it is a tax.

In other words, paying taxes is not a matter of choice and what you pay is not directly related to the government service you are actually using.

(3) Corporations do not pay taxes. Corporations are artificial constructs of law. They are, for all practical purposes, artificial persons. And being artificial, they pass all of their costs, including taxes, along to individuals who purchase their goods and services. Therefore, any tax that is imposed upon a corporation is spread among the ratepayers or clients of the corporations. Another nifty way that your legislators avoid directly taxing the citizenry.

In many cases, those “record fines” which are widely hailed as punitive actions and collected by various governmental entities are just another form of taxation on corporate users. So when you cheer on the government who has just unloaded a “record fine” on a corporation for some form of malfeasance, rest assured that the stockholders, ratepayers and clients are paying the freight.

(4) The rich are different, and the mega-rich are offshore. The merely rich can afford advisors to handle investments, tax and liability avoidance trusts and have a far greater chance of preserving their wealth. In fact, various government entitites are willing to sell them tax exempt bonds and other financial instruments which let them avoid even filing returns should they choose.

And the really rich, the so-called mega-rich don’t even bother telling the taxing authorities what they have, in what form their wealth is held, what the return on their investment might be or anything else which might be subject to tax in the future.

Precisely why I hate limousine liberals …

These are the wealthy individuals, living large with multiple mansion-style homes, expensive cars, yachts, planes and other goodies who constantly tell you that you need to pay your fair share. The “do as I say, not as I do” crowd that attends charity events more to see and be seen than actually do good works. Of course, with the exception of precious few, charity is mostly about foundations, tax shelters and naming opportunities.

So before Teddy Kennedy demands that I pay more taxes to support his idea of a socialist nirvana where entitlement programs are used to secure political power, let him fully divest himself of the family trusts and those investment trust vehicles which are alleged to be parked in the Bahamas and/or Cayman Islands.

Ready for a vacation?

Here is a nice little house, known as Ugland House,  located in balmy George Town on Grand Cayman Island. And you would be greatly surprised to find that 18,857 (more or less) individuals and corporations reside here.

In fact, according to the Government Accountability Office (GAO), Ugland House has as its sole tenant the “Maples and Calder law firm which provides registered office services to companies established in the Cayman Islands.

• 18,857 registered entities at the Ugland House address
• Very few have a significant physical presence in the Cayman Islands
• Five percent wholly U.S. owned.
• Fewer than 50 percent have a U.S. billing address

“Ugland House registered entities included investment funds, structured-finance vehicles, and entities associated with other corporate activities.”

“Gaining business advantages, such as facilitating U.S.–foreign transactions or minimizing taxes, are key reasons for U.S. persons’ financial activity in the Cayman Islands. The Cayman Islands’ reputation as a stable, business-friendly environment with a sound legal infrastructure also attracts business.”

“This activity is typically legal, such as when pension funds and other U.S. tax-exempt entities invest in Cayman hedge funds to maximize their return by minimizing U.S. taxes.”

“Nevertheless, some U.S. persons have used Cayman Island entities, as they have entities in other jurisdictions, to evade income taxes or hide illegal activity.”

A scenario …

Imagine, if you will, an insurance company located in the Bahamas or the Cayman Islands that supplies re-insurance to insurance companies and collects large premiums to insure that portion of the risk that a domestic company is unable or unwilling to assume. Now imagine if you had a number of subprime loans that used some form of insurance in order to secure their triple-A rating. The risk of default being insured with domestic companies in the United States who then re-insure the risk with offshore entities who may or may not meet our domestic insurance standards for good governance, core capital, liquidity and financial soundness. Now as long as the underlying borrowers are paying their mortgages everything is fine. Now imagine what might happen if there is a large loan default group that forces the investor to call upon insurance to make them whole. The domestic firm quickly runs out of cash … and the offshore firm is nowhere to be found. It exists as a paper transaction somewhere in someone’s file cabinet. Even if the domestic insurer could pursue a claim in a foreign court, there is no guarantee that the firm will prevail and secure a legal judgement or that the funds to satisfy a legal judgement can be found.

The people who put the deal together made a large profit. The people who sold the insurance policies made a large profit. The people who collected the offshore premiums made a large profit. And nobody goes to jail.

Of course, the American taxpayer is left holding the bag? Which is a real possibility in today’s financial climate.

In the final analysis …

The rich will get richer, the powerful will consolidate their power – and hopefully some of us ordinary people can ascend to the ranks of those wealthy enough to actually do good works without worrying about securing a tax advantage.

What can YOU do?

Before voting for any candidate who wants to increase your tax burden, ask them if they maintain any offshore or trust accounts of their own and if they are listed in their financial disclosure documents.

Before voting for any candidate who wants to increase your tax burden ask them why the legislature does not require more complete disclosure of their personal finances and those of the family members who hold joint funds subject to the legislator’s beneficial control.

Before voting for any candidate, ask them why the public should trust them with additional funding since the government’s internal accounting system is often unable to be audited and billions of dollars are lost in the system each and every year.

Before voting for any candidate, ask them about their direct or indirect earmarks and/or benefits for special interest groups which does not benefit the public as a whole.

Before voting for any candidate who wants to expand government and social entitlement programs, ask them for a pro-forma statement showing the costs of such programs and a list of those who are most likely to reap the rewards of such programs. Are they legal citizens of the United States is also a good question to ask.

Before voting for any candidate, ask them if this particular plan is designed solely for public relations purposes and what the real chance of having the program signed into law.

Before voting for any candidate, ask them how they plan to determine if their proposed program is working and what they will do if the program suddenly develops massive and unanticipated (yeah, right) cost overruns?

It’s your money that these candidates propose to spend. Isn’t it about time that we had some form of vote on who we are giving our hard-earned money to and for what purpose. The thought that our politicians routinely give away millions to a government which may be hostile to the  United States to secure a photo opportunity or some meaningless agreement makes me sick.

We are at the crossroads of our beloved nation’s continuing development. One wrong turn and we can easily find our collective wealth siphoned off and shared with others – only to purchase their temporary approval. And, of course, when adverse events strike, we will be expected to bear the full burden in both blood and finances. I say enough. We take care of our own people first, before diluting our strength to the point where we actually require assistance from other nations to remain the nation we once were.

-- steve

Quote of the Day: “When it is a question of money, everyone is of the same religion.” --Francois Marie Arouet de Voltaire

A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

Reference Links:

Cayman Islands: Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist.  1-page highlight report|GAO

Cayman Islands: Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist.  57-page full report|GAO