Richard Jernigan -> RE: Spanish Revolution (May 26 2011 18:13:42)
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quote:
ORIGINAL: Ruphus It´s about time for people to understand that states statistics aren´t the wholy grail of sincerity, but manipulated to desire just like declarations of combines. The numbers on US tax contributions quoted above obviously are not empirical, but projection on official dues of income groups. Everyone who regularly reads the papers over a longer period of time, knows from countless reports that official dues have absolutely nothing to do with actual pratice. True instead is that the higher the income group the more official and unofficial opportunities of bypassing tax there exist. Any tax consultant with wealthy clients would confirm that to you provided anonymity / trusting you enough. [;)] Ruphus In the USA, people are regularly fined or sent to jail for falsifying the balance sheets of publicly traded corporations. This is not to say it never happens. But in a number of cases, the truth comes out and the perpetrators are prosecuted and punished. A notorious case was that of Enron. It was one of the highest flying "innovators" in business, making sizable profits for its investors. It turns out that Enron's principal innovations were in "creative" accounting. The word got out, the stock crashed, the company went bankrupt, employees lost their pensions. The CEO and other high ranking officers of the company were prosecuted and jailed. There are thousands of people working every day to investigate and evaluate the finances of publicly traded businesses. Their job is to provide advice to wealthy clients and institutions. These people and institutions have no tolerance whatsoever for fraud in financial reporting. Let's look at this a little more closely. A major cause of the recent and ongoing financial crisis was the packaging of risky mortages into securities, which were then sold to large institutions. The quality of the individual loans was not concealed. Instead the ratings of the collectivized securities was based on an erroneous analysis, that turned out to be disastrously wrong. The evaluation of risk was calculated by a complex formula based on the risk of default by the people paying the mortgages. Unfortunately, no detailed information existed on the risk of default. An ingenious PhD said, "Well, we can use the price of previous securities of this type as a substitute for risk of default. After all, the price of a security represents risk in a rational market." The problem was that the price of previous securities didn't represent risk of default. As long as house prices went up, you didn't lose money if someone defaulted. You just repossessed the house and sold it to the next sucker. You were likely even to profit. When house prices tanked, the securities fell apart, as did the insurance written for them by companies such as AIG. Numerous economists had warned of the danger of the housing bubble. A few astute statisticians had pointed out the fallacy of the risk assessment models. After the deluge, dozens of financial journalists asserted that very few people even understood how the risk assessment models worked. The crisis was not the result of fraud. It was the result of greed and stupidity. This doesn't excuse the behavior of the financial sector. But it does undercut the public perception of widespread fraud. Some companies, and some individuals like Bernard Madoff may get away with fraud for extended periods, but it is rare. Throughout my working life I participated in the preparation, submission and negotiation of numerous proposals for government contracts by a variety of private corporations. The companies ranged from my private consulting firm to General Electric, Lockheed and Raytheon. The size of the contracts ranged from a few hundred thousand dollars to billions. In every case, detailed financial information was submitted to the government to support the proposed cost. In every case this information was audited in detail by the government. I participated in both the preparation and auditing processes. In no case was any of the financial information found to be fraudulent, or even in error. This is not to say that fraudulent information has never been detected. But it has been extremely rare. Large corporations with skilled tax departments don't need to practice fraud to avoid taxes. Congress has passed laws providing enough loopholes for the skilled and powerful to sail an aircraft carrier through.. To me, this appears to be a clear case of big money influencing politics for the worse. It is true that higher income individuals have access to more sophisticated tax advice. Many also evade the law. While my daughter was in private practice as a lawyer, she took the divorce case of the wife of one of the earliest vice presidents of Dell Computer Corporation. I asked her what strategy she would follow to get a fair financilal settlement. "Find his hidden assets and talk to him about the Internal Revenue Service," she replied. "You seem confident that he has hidden assets," I remarked. "Anybody with that much money has hidden assets," she answered. Although the very wealthy may evade taxes to some considerable extent, I believe these figures from the IRS on actual tax collections are accurate: Even with their more sophisticated strategies and the evasions of the very wealthy, the top 50% of income earners pay 97% of the income tax. Why do I believe this? Most of my friends and associates are in the top 5-10% of income earners. I have known many of them for decades and discussed personal finances with them. Yes, some have hidden assets, but they still pay substantial amounts of income tax every year. Another reason I think the statistics are accurate is the poisonous political atmosphere in the USA. The Democrats and Republicans are at one another's throats on practically every issue, especially fiscal ones. It would require a conspiracy of both parties to defraud the public with tax statistics. The two parties are unable to cooperate on anything, much less to conspire. When payroll taxes to support Social Security and Medicare--wealth transfers to older people--are factored in, the burden falls more heavily on the lower 50% than does the income tax. But it comes nowhere near tipping the balance. The wealthy may, and many do evade taxes, but they still pay the lion's share of individual taxes. RNJ
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