Taxes: Here's What's Going To Stay The Same

Authored by Simon Black via,

On October 3, 1913, US President Woodrow Wilson signed the Underwood-Simmons Act into law, creating what would become the first modern US income tax.

The legislation (at least, the income tax portion) was only 16 pages and imposed a base tax rate of just 1%.

The highest tax rate was set at 7%– and it only applied to individuals earning more than $500,000 per year, which is about $12.6 million today according to the Bureau of Labor Statistics.

And individuals earning less than $3,000 (about $75,000 today) were exempt from paying tax.

Tax rates moved up and down over the years– the government raised rates to fund World War I, then lowered them in peacetime.

In fact, taxes were cut at least four separate times during the 1920s alone, reaching a low in 1929 of just 0.375% for the bottom tax bracket.

Back then, making major changes to tax law was pretty simple. Today, thanks to heavily vested interests on all sides, it takes a miracle to make any serious modifications to the tax code.

That’s why there hasn’t been any significant tax reform in the Land of the Free since Crocodile Dundee was the #1 movie in America (that’s 1986, by the way).

There are now two versions of legislation that will make major changes to the US tax code– one in the Senate and one in the House of Representatives.

I spent most of the nearly 30 hours of travel time during flights over the past week from Santiago to Sydney, Sydney to Bangkok, and Bangkok to Singapore, reading the proposals’ 400+ pages.

The media is touting these bills as a ‘major overhaul’ and ‘comprehensive reform,’ and financial markets have been treating this legislation as if the second coming of capitalism is walking across the water.

It’s not.

Sure, there are a few significant changes.

They’re scrapping the idiotic Alternative Minimum Tax, which ensnares more and more people each year.

Tax rates on certain business profits are going down substantially.

And they’re making tax reporting a lot simpler, saving countless hours of senseless paperwork.

Undoubtedly there are plenty of positive changes in this proposed tax code.

There are also plenty of negative changes.

Some people will benefit. Others will see their tax bills grow.

But for the most part the tax code will stay the same– they’re essentially just rearranging the pieces on the board rather than coming up with an entirely different game.

The existing tax code is built on a legal framework that goes back to the 1950s… a time when manufacturing and agriculture were economic mainstays.

Businesses rarely outsourced their production back then or even thought about selling their products overseas.

Entrepreneurship was uncommon. Employees often remained with the same company for decades. And few women were in the labor force.

Today it’s completely different. The digital economy has displaced manufacturing; business is now dominated by ideas, not factories.

And it’s easier than ever before in human history to start a business, sell products and services worldwide, and even hire employees who live on the other side of the planet.

It seems ludicrous to govern the digital, global businesses of the 21st century with such an antiquated, industrial-era tax code.

True reform would have started by throwing all of it in the garbage, right where it belongs.

You wouldn’t even have to reinvent the wheel; there are plenty of great examples in the world of tax systems that work extremely well– like right here in Singapore.

Singapore’s government is awash with cash.

They almost always run a small budget surplus, yet they’re able to provide ample public services, world class health care, high quality education, strong national defense, pristine infrastructure, and a substantial reserve fund.

But at the same time they encourage people to become wealthy, ensuring that they keep the vast majority of what they earn.

Tax rates in Singapore are quite low and incredibly competitive. Whereas the US corporate tax rate may drop to as low as 20%, in Singapore a company pays no more than 17%, and typically less than 10%.

Right now I’m in the process of negotiating the sale of an asset we purchased here a couple of years ago which will likely produce several million dollars in net realized gains once the deal is closed.

But we won’t pay a dime of tax here on any of it… because Singapore does not tax capital gains.

It’s a model that works: Singaporeans have one of the highest standards of living in the world… plus there are more millionaires per capita here than in any other country.

And this country is just one example. There are plenty more.

Point is, while it’s nice that they’re trying, it’s going to be very difficult for the US government to achieve anything meaningful or truly revolutionary when they’re essentially just making some changes to the pitifully outdated, existing tax code.

But the good news is that, even though the euphoria and expectations about this new proposal are totally overblown, there are still plenty of gems from the current tax code that aren’t going anywhere.

For example– if you’re a self-employed professional and you’re worried that the new tax code will probably increase your tax bill, you still have some excellent options.

There’s nothing in the proposed law that changes, for example, the substantial tax benefits you can realize from establishing a solo 401(k) or SEP IRA plan.

Nor did I see anything changing the enormous benefits from setting up a captive insurance company (in which you effectively insure yourself against certain risks, shielding up to $2 million per year from taxation).

Those are still fully intact.

So is the US federal tax exemption for certain legal residents of US territories. Which means that you can still qualify for Puerto Rico’s ultra-generous 0%/4% tax incentive programs.

There are dozens of other great tax strategies from the old tax code which will remain.

To continue learning how to legitimately reduce your taxes, I encourage you to download our free Perfect Plan B Guide.


adanata shankster Thu, 11/23/2017 - 22:19 Permalink

The IRS is the enforcement arm of the FED which is essentially a branch bank of the Bank for International Settlements; the Barons de Rothschild. The IRS has virtually unlimited power and is, in fact, a collection agency effectively stripping Americans of their assets; the “bagman” for the globalist scum running this dog and pony show. Stealing from us really is easier than taking candy from a baby....

In reply to by shankster

MuffDiver69 Wed, 11/22/2017 - 17:55 Permalink

This is being done with reconciliation. You aren’t going to get much that way. Speculating is not worth it until the two houses reconcile if they get that far. Just killing the individual mandate would be something. The lobbyists influence on the deductions they wrote will never go away until money is taken out of politics etc etc etc blah blah blah..

There Wed, 11/22/2017 - 17:56 Permalink

The special interest and loop hole hounds will continue to look to the Tax Code to find their clients.It is just another  Accountants and Lawyers full employment act. 

Blue Steel 309 Wed, 11/22/2017 - 17:59 Permalink

Business is not dominated by ideas, it is dominated by factories (production) all we are doing is slowing the rate wealth leaves the country with "ideas". You can not create wealth without products, all you can do is change the direction and velocity of money.

There is 100% certainty the USA becomes an impoverished nation without bringing the production back. The only question is how long it takes dependent upon the rube goldberg complexity of the "ideas economy".

venturen Wed, 11/22/2017 - 18:21 Permalink

The will still be Loops and Holes....that is for sure...Joe Six Pack isn't writting the code that is for sure....Cohn and accountants!

InnVestuhrr Wed, 11/22/2017 - 18:21 Permalink

Singapore is AWESOME - I would have transferred my flag there except for 2 issues:1. too hot & humid2. much too small, crowded and developedSingapore is FAR SUPERIOR in government than USA, Canada, European countries, Oz, Kiwi, etc

Pernicious Gol… Wed, 11/22/2017 - 18:35 Permalink

Staying the same:Spending will remain wildly excessive and out of control.Both parties consider the primary purpose of the tax code is encouraging campaign bribes to Congress.Republicans' insertions that will be defended to the death, and survive into the final bill, will all be subsidies to those who fund Republican campaigns.Democrats want the economy harmed as much as possible, and regulations and taxes on businesses and businesspeople as onerous as possible, to produce as many envious, angry, dependent poor people as possible, who vote for Democrats.Both parties will insert secret clauses diverting enormous amounts of money to military contractors based in "important" member's districts.Both parties will continue to regard citizens as nasty buffoons, to be reviled. 

Faeriedust Wed, 11/22/2017 - 18:36 Permalink

How DARE the government tax windfall profits on speculation.  How DARE the government tax enormous profits made from "flipping" assets around like pancakes without creating a single useful product. How DARE the government charge taxes on the sale of "structured debt instruments" and credit-default swaps, which constitute little other than gambling tokens by which the large investment banks have already come within a hair's breadth of crashing the entire economy and for which the government had to bail them out in the past and will have to bail them out in the future.TAXES ARE HORRIBLE!  THEY DESTROY THE ABILITY OF THIEVES, FRAUDS, AND CON-MEN TO MAKE MILLIONS DOING ABSOLUTELY NOTHING!  They allow the government some recourse against those who place the entire economy at risk!  They actually -- GASP! -- might discourage financial speculation and gambling, and encourage the use of money for legtimate ends! Or at least fritter it away on bombs and useless military toys like the F-35 that at least pay a lot of workers decent wages building them.  No, no, taxes are just ALL WRONG.  There should be no taxes, and especially not on the wealthy leisure class that "works" by speculating on mostly fraudulent "investment" schemes ever since the South Sea Company collapsed in 1720.When will believers in "freedom" realize that stealing your neighbors' livelihood and destroying the national treasury is NOT a virtue?

Woodrox Wed, 11/22/2017 - 21:36 Permalink

Dimon says he'd raise his own taxes to get corporate rates cut .Yeah right. 90n % of his wealth is from options tied to earnings, really going out on a limb, gfo

Greenie Wed, 11/22/2017 - 22:33 Permalink

Woodrow Wilson signed both the Underwood-Simmons Act and the Federal Reserve Act.Up until now I mistakenly believed LBJ was the worst president.