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Lesson 4: The History of Taxes and the Power of Corporations
Here we start with a very interesting look into income taxes. Prior to 1913, taxes were optional and opt in to finance war efforts. Meaning, if you did not want to - you did not have to pay income taxes. However, in 1913 these became permanent due to the 16th amendment. These mandatory taxes started only with the top earners, however, due to increasing “need” they quickly ended up in the middle class.
However, unlike the middle class, the rich did not try to change the government, they worked within the rules and started corporations to avoid and reduce their tax liabilities. These taxes fund the government and government projects, and these projects are completed by independent contracts, which are owned by the rich. Basically, these income taxes are going from the middle class to the rich, whereas income tax was initially invented to tax the rich. Interesting eh?
One example of a loophole rich people exploit is code 1031, which allows deferment of gains in real estate sales to buy more expensive real estate. So if you own a lot of property and “trade it up” every few years, you will only pay taxes when you sell and do not buy bigger.
The rich leverage these fundamentals to gain more and more wealth and stay rich.
This book is great, we are hitting yet another eye opening chapter. I cannot recommend this book enough - it has provoked some great conversations.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.