Now that you have paid your income taxes, calculate
how much you own of your own labor.
You can do this by dividing the federal, state and
local income taxes you paid (including Social Security
and Medicare) by your taxable income.
Generally speaking, the higher your income, the less
you own of yourself. A person with $300,000 in taxable
income will discover that government in the year 2002
has a claim to about one-third of his labor – the
maximum tax that could be levied on a
If you have a low income or work primarily off the
books, you will be rewarded with an “earned income tax
credit,” that is, you will receive a tax “refund” even
though you paid
no tax. You not only own all your own labor, but
also have legal claims to the incomes of
higher income persons.
Democracy produces the opposite results of feudalism.
Instead of an upper class living off the sweat of a
lower class, the lower class lives off the sweat of an
Philosophers such as John Rawls created a philosophy
to justify the latter as “moral” and the former as
“immoral,” but it all comes down to the same thing: some
people live off
other people`s activities.
Income taxes are not the only taxes. There are
property taxes, wealth taxes, excise taxes, and sales
taxes. If you add together all the taxes you paid, you
might find that you own no more of your own income than
a 19th century slave. (A slave owed his master about
half his work product, the rest being necessary for his
Some of the taxes we must pay are not really taxes.
Capital gains and estate taxes are confiscations. A
capital gains tax is a tax on the rise in the price of
an asset. A home or land rises in value because of
inflation and supply and demand. A person who sells his
home or land has no real gain, because he cannot
repurchase the home or land at a lower price. A capital
gain tax simply confiscates a percentage of the asset.
If the asset is a commercial asset such as plant and
equipment or stock shares, a rise in value reflects a
rise in projected earnings. The increased earnings from
the assets will be taxed as business and personal
income. To tax the assets themselves is a confiscation.
For example, if you sell 100 shares of stock and pay
a capital gains tax of 20 percent, you are left with the
replacement cost of 80 shares of stock. Where is your
Capital gains can produce 100% tax rates and higher
for investors in some circumstances. In the year 2000,
stocks peaked early in the year and then collapsed.
Investors in mutual funds and investment partnerships
ended up paying large taxes on losses, otherwise known
as “phantom profits.”
The Internal Revenue Service created phantom profits
by pretending that investors in mutual funds and
investment partnerships realize capital gains every time
a fund manager sells stock at a higher price than the
fund paid, even though the “earnings” are ploughed back
into the fund and are not realized by the investor
unless he cashes out.
Early in 2000 funds managers, expecting the stock
market`s decline, sold shares to protect the values of
their funds. The “capital gains” realized by the funds
on the sales are attributed to the funds` investors by
tax law. However, no investor realized the “gains”
unless he cashed out of the mutual fund or investment
partnership when the fund manager sold the shares.
Few did. By definition, such investors rely on
professional management and are less attuned to adverse
developments. Moreover, exit from investment
partnerships is only permitted on a quarterly basis with
30 days notice. Otherwise, the investment partnership
would have to keep large cash reserves to meet
withdrawals and, thereby, produce a poor return on
By the end of the tax year, the vast majority of
investors had large unrealized capital losses in their
mutual fund and investment partnership holdings.
However, the IRS forced individual investors to pay
personal income taxes on the “gains” that occurred
within the funds early in the year prior to the collapse
of the stock market.
In other words, in a year when people suffered a
large decline in wealth, they were forced to pay large
taxes on phantom gains that they did not realize.
Capital gains should not be taxes at all, as they are
not real. If they are to be taxed, however, they should
be taxed only when the investor himself realizes a gain
by cashing out of a mutual fund or investment
partnership. The way the IRS imposes capital gains
taxation is nothing but robber barony.
Craig Roberts is the author with Lawrence M. Stratton of
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click
here for Peter
Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.