From Human Events

“A virtuous and industrious people may be cheaply governed.” ~ Benjamin Franklin

“Little else is required to carry a state to the highest level of opulence but peace, easy taxes, and a tolerable administration of justice.” ~ Adam Smith

Today, on April 15 Tax Day, hundreds of thousands of citizens are protesting out of control government spending and taxes at Tea Parties across America.

Should we complain?

The good news is that marginal tax rates have gradually declined since the 1950s, when the rate on income was 90%. And taxes on long-term capital gains and dividends are now at 15%. Long live supply-side Reaganomics tax cuts.

The bad news is that prior to the 1980s, there were plenty of loopholes to escape onerous 90% tax rates. Those tax shelters are largely gone.

The good news is that Tax Freedom Day (the amount of days you have to work to pay Uncle Sam) arrived two days ago, on April 13, according to the Tax Foundation. This is eight days earlier than in 2008, and a full two weeks earlier than in 2007, due to the recession, and the large temporary tax cuts for 2009 and 2010.

The bad news is that Americans will pay more in taxes than they will spend on food, clothing and housing combined! (Source: http://mjperry.blogspot.com/)

Moreover, if you add in the federal budget deficit to total taxes collected, the real Tax Freedom Day is May 29, the worst since World War II.

But there’s more bad news: For American business, the corporate tax rate is 40% in the United States, 50% higher than the average size of other industrial countries. The average corporate tax rate in OECD countries has been falling over the past 20 years, but not in the U.S.

In addition, legislators have discovered ingenious ways to taxing its citizens — through import duties, levies, and fees of various sorts. Today the federal “excise” tax is taking its toll on gasoline, tobacco, telephone and utility bills.

And sales taxes are inevitably rising in state after state, and I know of no state that has cut sales taxes. After every recession, the governor “temporarily” raises the sales tax by a penny, but then never rescinds it. Moreover, the state legislators are always finding ways to expand the tax base. When I was in Florida recently, the state imposed its 6% sales tax on hotel parking fees!

The few sales tax exemptions left, such as out-of-state and online purchases, are gradually disappearing.

Not surprisingly, taxes at the federal, state and local level are at an all-time high as a percentage of GDP. And under President Obama’s tax increases on the wealthy and on average citizens through his “cap and trade” energy tax (which will raise substantially the price of gasoline and utility bills), the percentage is expected to reach 27%.

Now more than ever, we need a stable, sound, low tax system that individuals and businesses can depend on for long term planning. Unfortunately, we change the tax law practically every year.

Countries like Hong Kong do it right. For the past fifty years, they have not changed their tax code hardly at all. They have a flat tax of 18% on individuals and corporations, and no tax on interest, dividends and capital gains. And they live within their means. No wonder the Economic Freedom Index ranks Hong Kong #1 in the world in terms of economic freedom and economic growth. We could learn a lot from Hong Kong.

I say, it’s time for a tax revolt. I favor a flat tax like the one advocated by Steve Forbes. It’s better than the so-called “fair tax” on consumption because it will create a new bureaucracy and will inevitably result in the U.S. having both a national sales tax and income tax.

But why wait for Congress to change the rules again and again? I say, wage your own tax revolt. But remember, some methods are effective, others are downright dangerous and could land you in jail. Here’s some do’s and don’t:

1. Take advantage of all legitimate tax-advantaged strategies. The two best ones right now are (a) a Sub S corporate business, and (b) investing in real estate, including your own home. Both offer ways to minimize FICA and income taxes; both can benefit from tax credits. In fact, it’s the best “buyers” market in real estate I’ve seen in decades.

2. Do consider moving to low-tax states, including ones that don’t impose an income tax (Florida, Texas, Nevada, Tennessee, Alaska, Washington, Wyoming, and New Hampshire). You might also consider living in a border state to avoid both the income and sales tax, such as Vancouver, Washington (by living in Washington state, you are exempt from the state income tax; by shopping in Oregon, you avoid the sales tax.)

3. Do consider working abroad and taking advantage of the foreign earned income exemption for Americans. My wife and I lived and worked two years in the Bahamas in the 1980s and saved so much in taxes that we bought a second home in London.

4. Do NOT get involved in tax protest movements involving the refusal to file tax returns on Constitutional grounds, or suspicious offshore tax haven deals. You’ll end up losing money and perhaps going to jail.

5. Do NOT renounce your citizenship and move abroad. Recent tax legislation forces ex-patriates to pay taxes on the next 10 years of income. It also limits severely how much time you can spend in the United States.

Finally, do NOT make business or investment decisions solely on the basis of avoiding taxes. There’s more to life than avoiding the tax man. Protest all your want today, but don’t make foolish financial decisions.