4 Paths To Tax-Free Money
As you probably know, the tax codes in the US and in many different countries are long and complicated.
The question is, why?
It is because government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want them to do by utilizing the tax code.
It might surprise you to learn this, but if you physically work for money, you will pay taxes.
The harder you work, the more hourly or salary you make, and the more you pay in taxes. Under this system, people who work hard, get promoted and make more money are actually punished for initiative.
Conversely, if you have your money work for you, you pay less in taxes—you are rewarded by the tax code.
In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.
Sometimes governments make the mistake of thinking they can create jobs or build housing better than the free market. Eventually, they realize that the market does a better job. And it costs the government a lot less to give tax benefits to business owners and investors than it does to add jobs or build housing through government-sponsored programs.
So let me break down what the government wants:
The purpose of the foundation [the General Education Board] was to use the power of money, not to raise the level of education in America, as was widely believed at the time, but to influence the direction of that education… The object was to use the classroom to teach attitudes that encourage people to be passive and submissive to their rulers. The goal was—and is—to create citizens who were educated enough for productive work under supervision but not enough to question authority or seek to rise above their class. True education was to be restricted to the sons and daughters of the elite. For the rest, it would be better to produce skilled workers with no particular aspirations other than to enjoy life.
–G. Edward Griffin in The Creature from Jekyll Island, on Rockefeller’s General Education Board, founded in 1903
This is important today, because although these attitudes are over a century old, they have not gone away, and they are the driving force behind your education, my education, and the education of your children. And they are the driving force behind the suppression of financial education even today. You do not need to know about money when you are destined to simply be a cog in someone else’s money machine or a worker on someone else’s plantation.
Some may accuse me of holding onto a conspiracy here, but I believe this is what the government actually wants—mindless employees.
The problem is that no government can create real jobs. Only entrepreneurs can do that. Only entrepreneurs can see the future and bring it to life—risking, losing, and winning—over and over. In the process, they create new industries and opportunities for people all over the world.
For example, in 2018, Amazon was shopping for a new city to relocate its new headquarters.
Many cities would have loved to have thousands of highly paid employees, which is why so many cities oﬀered tax incentives to Amazon.
Elon Musk’s Tesla Motors received over $1 billion in tax incentives to build his battery factory in Nevada.
In addition, Amazon and Tesla have thousands of well-paid employees. Generally speaking, the more an employee is paid, the more tax revenue is generated. Highly-paid employees attract hundreds of small businesses.
Small business owners pay higher taxes.
That is why local governments oﬀer tax incentives to companies like Amazon and Tesla to move their businesses to cities and states across the United States. Big businesses attract small businesses, which means more jobs, and more jobs mean more housing, more schools, more government service employees, and more taxes to city and state governments.
Simply put, when our government creates jobs our taxes increase. When taxes increase, life becomes more expensive, people suffer, our economy suffers, and our country grows weaker. When entrepreneurs create jobs, those jobs generate taxes, our debt goes down, we export, and our country grows stronger.
What else does the government want? Affordable housing.
Following the crisis of the Great Depression, the U.S. government created many government agencies such as the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Administration (FHA), and Social Security; and the government took more control over our financial lives via taxes. This led to an acceptance of increased government intervention via social programs and agencies.
In other words, government efforts created to solve the Great Depression will probably cause a bigger depression in the future.
Real Estate Investors
The laws benefit the risk-takers, the doers, who spur the economy. Therefore, if you invest capital into your community by buying real estate, you are rewarded with tax breaks so that you can maintain and continue investing while, at the same time, you provide a much needed social service.
In real estate, one major tax advantage is depreciation. Through depreciation, I am able to deduct an IRS-determined portion of my asset’s value from my income on my tax return over a certain number of years. This helps me because while it is technically not a loss in that no money actually comes out of my pocket, the government nonetheless treats it as a loss on my income statement, which lowers the amount of income I have to pay taxes on.
The government learned its lesson several generations ago that it does a very poor job of providing low-cost housing. The old joke that there is nothing more permanent than temporary government housing arose from these past and unsuccessful efforts. In some cities, such as San Francisco, the municipal government still owns large housing complexes. They are the most mismanaged rat traps around. All in all, the private sector just does a much better job of it, which most governmental agencies now keenly recognize. Accordingly, it is more efficient to encourage individual investors through tax advantages to performing this service than for the government to muddle its way through the important community need for housing.
Editor, Rich Dad Poor Dad Daily