Word of The Day—Unearned Income—How the Wealthy Avoid Paying Taxes

The Rich and The Not-Rich

In my previous post on “Earned” vs. “Unearned Income”, I  concluded that the IRS keeps Americans at the bottom and the middle of the income scale from achieving their “American Dreams” by use of “limits” on contributions, and “carry over deductions” .

As proof,  I’m going to show about two examples of IRS tax credits for charitable giving that serve to keep the Not-Wealthy down.

Then I’ll reveal how the wealthy avoid paying taxes on their unearned incomes. Because, in actuality, today there are only two social classes left in the U.S. – The Rich and The Not-Rich.

The Not-Rich are workers: the Rich are investors and inheritors.

I will show that workers, including self-employed professionals and small busines owners, earn lower incomes, while being taxed at significantly higher tax rates on their earnings than investors.

Why? Because the IRS limits the amounts that workers can use their”earned” or “unearned income” to obtain tax credits (i.e., deductions from gross income) on their taxes.

Meanwhile, IRS tax shelters on “unearned income” (i.e,. investments and inhertiances) by the rich are making them even richer.

Ways The IRS Holds the Not-Wealthy Down

The IRS allows those who make “earned income” only very small portion of the the huge amounts of untaxed income granted to wealthier taxpayers who make “unearned income” from their inheritances and investments.

The IRS calls tax loopholes for the not-wealthy “Deductions” or “Credits”.  “Earned income” ensures that workers will rarely be able to progress up the ladder to become wealthy after they are taxed. Here’s why:

Read some of the instructions in IRS manuals or on its web site. You’ll see the word “LIMITS”.

Like traffic signs they’ll blare at you! You’ll also see the phrase “CARRY OVER” combined with this word “LIMITS“.

I first became aware of limits on tax credits for middle class earned-income workers when I got a 20 percent homeowners’ credit for my first-time mortgage on a condo.

Every tax year there would be a limit on how much money I could claim credits for. Every year I had to carry over money until the next tax year. Over ten years of payments, I never even got close to getting 20 percent deductions on my taxes! Continue reading →

Words of the Day—Earned Income vs. Unearned Income – Definitions Matter

In my previous blog post on Brucenomics, I traced the history of the terms “earned income and “unearned income” back to Karl Marx’ infamous book, Das Kapital. Was it coincidence that the U.S. Internal Revenue Service (IRS) chose those two terms to use in its federal tax system back in the early 20th century? I think not!

In this post  I’ll discuss how the U.S. Internal Revenue Service and other government agencies use these terms to ensure that most Americans will find it difficult if not impossible to get out of lower and middle income levels to achieve their “American Dreams”.

The IRS continues to provide the wealthy with with largess and leaves wage earners, retirees, and minorities behind in the dust when it comes to their efforts to build wealth. In my next post I’ll show how the IRS does this. But first let’s look at who is impacted by these IRS lables.

Who Earns What Kinds of Income?

I define Marx’s two categories of income as used by the IRS this way:

  1. Earned Income is what workers get from their labor (“the sweat of their brow”).
  2. Unearned income is what capitalists (a.k.a., investors and inheriters) get from their corporate and real estate incomes.

The IRS framework for federal taxpayers rests upon this hierarchy of these two types of incomes. They split Americans into groups based on types of income we make and the amounts of income we make.

This use of a hierarchical framework of privileged and less privileged individuals instantly creates discrimination against many groups of Americans. Also importantly, it fosters the growing income inequality found within our government—in favor of investors over workers.

Moreover, it isn’t just the IRS that differentiates Americans based on how much money we make and how we make it. Discrimination against minority groups and the poor and middle classes can be found in many of our federal and local government agencies as well.

For example, the title of the so-called “Small Business Administration” is a joke. That agency has evolved to give preferential treament to funding multimillion dollar corporations, like Microsoft, Apple and Chipotle by linking them with hedge fund funders—not to aid to truly small businesses on Main Street.

Bias exists in the EPA too which lets loose toxic chemicals in poorer neighborhoods, and in banks’ redlining for mortgages. Many other agencies throughout our government too. And it’s really obvious when it comes to retirees!

How Definitions of Income Define Individual’s Social Class

Continue reading →

Karl Marx’s Gift to the IRS

While our new President was speaking to Congress for the first time this year, seven speakers put on a Zoom webinar labeled “In Plain Sight: The Racism Hiding in Our Tax Code” — hosted by the m4bl.org.

Moderators Makani Themba, Chief Strategist at Higher Ground Strategies, and Andrea Ritchie, Writer, Lawyer & Activist, joined five other speakers who were experts on law, race, women’s issues and taxation from activist non-profit organizations in the U.S.

Issues they discussed covered far more than IRS’ taxes!

Their focus included state property taxes that fund education; sales taxes that harm the poor; state taxes that are not shared with cities and counties; unequal revenue spending; tax credits that favor those with money; income inequality; wealth divergence; regressive, progressive and flat taxes; revenue sharing for cities who are broke; the balance between military and domestic tax spending; cannabis taxes based on money made by harming the environment; taxes for reparations to African Americans; public health taxes; and taxes on the poor.

Key issues closely related to the title of this zoom group talk, were:

(1) disparities in choice of groups that the IRS doesn’t go after for tax cheating, a subject that our current President has also been recently discussing.

(2) The figure of 380 billion dollars of lost tax revenue from unpaid taxes by richer people was tossed out. (See this article from the Center of American Progress supporting that figure),

(3) the confusing amount of jargon and verbiage used by the IRS in numerous booklets filled with too many pages, and

(4) last but not least, disparate treatment of taxation on two types of income; one for the rich vs. the other for the middle class and the poor, i.e., “unearned income” vs. “earned income”. Continue reading →