[ramcem]

Unseen Employer: Government Taxes

All forms of taxes are matters of public policy. The rich must pay the government, who holds the money temporarily. In return, the government redistributes it to the poor directly through welfare scheme or indirectly through the improvement of infrastructure. Therefore, it is only right that the rich pays more taxes as compared to the poor. The income tax laws of most countries are progressive in nature. This would mean that the more you earn, the higher the extra dollar will be taxed.

The rich do not pay as much taxes as the poor. In fact, the rich have the government to subsidize their expenes whenever they spend. That is why the rich gets richer and the poor gets poorer.

For all employees, their income is subjected to taxes. Their after-tax income is their disposable income that is the money available for spending. For employers, their income less their spending is their profit. This represents that their net income is taxable. Let us illustate this point with an example.

An employee earns $100,000, subjected to an average tax rate of 20%. His disposable income is $80,000 and he uses $50,000 to buy his car. He has a balance of $30,000.

An employer earns revenue of $100,000 and he spends $50,000 to buy a car for his personal use under his company's account. The company net profit is $50,000, subjected to a tax of 20%. He has a balance of $40,000. The rich pay $10,000 less in tax as compared to the poor. Isn't it amazing?

The poor buys a property and takes up a loan. The interest payment can be as high as 200% of the total loan taken up over a 30 year period. The installment payments are not tax deductible. The rich can own a company and buy a property through the company. The loans taken up for the purchase of the property are considered as debts that are tax deductible. The poor pay for interest in mortgage and is not deductible. The rich pays for the mortgage interest through a corporation, is tax deductible. Once again, the rich becomes richer and the poor becomes poorer.

In fact, it is the poor that subsidize the taxes of the rich.

~Mr Peter Tan
Author of f.Q. i.Q.