Wayne Huizenga, founder of Blockbuster and owner of the NFL Miami Dolphins, is afraid of the tax situation that allowed him to buy the Dolphins in the first place. The late Joe Robbie's family sold Huizenga the Dolphins, primarily to pay the federal estate taxes caused by Robbie's death.
Now Huizenga fears that he will have to pay high taxes too when he sells the team, whether during life or after his death.
Laying aside the fact that a good estate or tax attorney can minimize these consequences, these are valid concerns. The problem is that these are taxation of wealth issues. For this discussion, wealth means assets owned by a person, regardless if a business asset, personal asset, real estate, stock, politician . . . er, never mind . . . . The point is . . . .
Wealth taxes are different than income taxes. So, what are income taxes, in truth? Income taxes are taxes for money received in exchange for anything other than wealth. If you work and receive a wage, income taxes apply. If you own a rental home, income taxes apply to rental income. If you own a store, income taxes apply to profits. Day-to-day transactions generate income taxes.
In an entrepreneurial environment, income is used to make business grow big. Entrepreneurs with no knowledge of taxes and wealth creation solely focus on managing their businesses by managing income creation. They make a dollar; they pay 40 cents in taxes. That's normal, right?
That's not the way the wealthy play. The wealthy don't run a business. They manage investments. A wealthy businessman knows that his company creates wealth by showing the world he can generate income. Once he puts those numbers on paper, he works to remove that income from the books. Tax cheats do it by stealing the money. Smart, wealthy, scrupulous businessmen do it by finding ways to recharacterize the income as something else. They buy new equipment for their business. They spend money on their businesses to make next year's income go up but save taxes this year. This process causes the income to disappear while increasing the amount that possible buyers of the business would be willing to pay to get control over that income stream.
Making the future income look higher while making current income nontaxable through deductions is good investment management. The wealthy businessman knows that he doesn't need a paycheck today any larger than his mortgage company and auto loan servicer require (assuming he doesn't own these outright already). He is willing to wait for his money. He has that luxury.
Once he can afford to wait for the money, and he has avoided as much in income taxes as possible by making his business work better and have more value to potential buyers, he wants to make sure that no one causes his hard to fall apart. That's where politicians in your pocket are invaluable.
The goal of the wealthy is to cause taxes on wealth to be as small as possible and the tax on income as high as possible. Politicians are happy to do this. They can complain about the wealthy businessman to voters and take the wealthy businessman's contributions at the same time. The typical voter doesn't realize his dream of punishing the wealthy businessman is actually making the wealthy businessman wealthier and more powerful.
The wealthy businessman has avoided the income taxes, now he prevents newer, "greedier" businessmen from knocking him off his thone. Now he gets to sell his business based on its valuer being higher because competitors can't enter the field of play. He sells his business through outright sale or stock offering to the public. He gets to move his investment out of the business into a new investment, sometimes for not a penny in income taxes. Now he can invest in assets like those that will generate no taxes even if it generates income. The usual asset used is municipal bonds. These create no income taxes because they "help cities build roads and bridges, so it helps the community."
Does this sound too good to be true? It's not. That is what wealthy businessmen do every day.
Compare that to the entrepreneur who is solely focused on how much money his business makes. He pays more taxes for every dollar earned than our wealthy businessman. He has to compete with guy down the street. He has his whole life invested in his business, and no one wants to buy it.
Politicians tax these guys the heaviest. Why? Ignorance. Few Americans in public schools learn about wealth, taxes, or business. They sure learn about how great import tariffs were to allow American industry to grow during the pre-income tax era. They don't learn how important the development of real estate and mortgage law was in creating a cash-based society (granted, because the research is rather new).
Income taxes on businesses prevent job creation and prices for everyday good from falling. Income taxes on businesses allow politicians to brag about their care for the average Joe while stealing them blind.
Fear any politician preaching about equality. How can he want equality for anyone when he is running to be a member of an elite, over the masses? He wants you to be equal with your neighbor so long as he is above you. His tool for both is the income tax on you and no effective taxes on his wealthy buddies.
The solution? Liberty. Less politician written rules. Less room for the politician to generate power bases.
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