When you make taxation onerous, people find ways to avoid it.
Driving down the road at 60 MPH we are getting an astounding 16 MPG, which is nice, given the price of gas. Then, a "big bus" motorhome blows by us as 80 - the bow wave of wind nearly throwing us onto the shoulder. On the back are Montana tags. Why pay a 7% "title fee" in places like Georgia, when you can form an LLC in Montana and register your $750,000 motorhome there and avoid fifty grand in taxes? Of course, some States are getting wise to this!
That is the conundrum. In Southern California, progressive legislators passed a law taxing "yachts" and as a result collected a windfall of tax revenue of... bubkis. The people with real money who had 50 foot or greater yachts, simply registered them in Mexico, and hired some nice Mexican boys to wash and wax their boat on the Baja peninsula - where they went fishing anyway - and avoided California's tax. So long as the boat was not docked in California for x days, they didn't have to register it there.
In Old Town Alexandria, the town tax collector would cruise the apartment complexes, where people parked their cars outside, and write down the tag numbers and days they were parked there. If the car was there for more than x days, a notice would be sent, by mail, with an accompanying "personal property tax" for their seven-year-old Hyundai. Meanwhile, on the North end of town, every morning, the electric garage door openers would slide open, revealing brand-new Mercedes S-class sedans, with District of Columbia license plates (but no Alexandria tax sticker!). I know this as I experienced it firsthand.
Of course, these are just examples of upper-middle-class grift. The very wealthy have far better tax avoidance dodges. The super-rich get laws enacted to strip them of all tax liability. Act shocked.
You may have noticed that a lot of celebrities get involved in the wine business in California. Some of them actually make good wine, too and unfortunately make a profit, which creates more tax problems. But if you live on an estate of 200 acres, it pays to plant a few rows of grapes and declare you land "agricultural" as it can lower your property taxes - a lot.
For example, when we had the lake house in New York, I looked into this. If you had a minimum of, say, 20 acres, you could lease that out to a local farmer for haying or planting corn or whatever, and the value of the property for tax purposes would be assessed at a far lower rate as "agricultural" land. And the law has a good reason - if farmers were taxed for their land at the same rate as homeowners, they would go bankrupt. And one homeowner on a 1/4-acre lot, uses as many County services as a farmer on 200 acres. If you didn't have the minimum acreage, you could still qualify if you made, say, $50,000 a year in gross income. So you could set up a winery, buy your grapes (or grape juice) and make your own wine and sell it, and the five acres you have would be taxed at the lower rate. Of course, if your house was on that land, they had specific rules about how much land around it would be taxed at the residential rate.
We knew a guy - a staunch Republican - who was a real operator and had his hands in so many grifts it wasn't funny. He decided to start a winery and planted a few rows of scraggly vines and called it a winery. The actual wine was made by someone else and since he was also in the propane business, we joked that he was aging his wine in old propane bottles. The grape vines never took off as he paid someone to plant them and then never watered or took care of them. They were mostly for decoration anyway. But we always wondered why he did that, and wondered whether it was to get that lower tax assessment.
And in an area where $10,000 property tax bills were considered "low" it wasn't hard to wonder. If you could save tens of thousands a year on property taxes, maybe setting up a winery isn't a bad idea, even if it "breaks even." Hell, even a small loss works to your advantage, as it is tax-deductible. You lose ten grand a year and save $3800 on income taxes (plus the hefty New York taxes!) AND get ten grand knocked off your property tax bill. You actually come out ahead unless you run out of cash-flow.
I wonder if he got a PPP loan.
Of course, like I said, the real players have even better schemes at their disposal. Off-shore accounts were a big thing, but are being reined-in in this era of modern banking. Special tax deals for staring new businesses are a whole level above the small-time grifts I mentioned above. You want to build a new factory, a new stadium, or even a new Walmart distribution center, and you can get one city or town to compete with another with tax forgiveness and even hard cash money, right in your pocket.
A recent deal in Jacksonville, for example, was shot down by progressives. The owner of a local sports team had a modest request: Build me a new stadium, let me keep all the profits from ticket sales and concession sales, as well as the lucrative parking revenue. The adjacent 20 acres? Build me an office park and shopping mall and let me run it rent-free for 20 years and then it will revert back to the city! Of course, 20 years is the design life of many of these types of buildings. The city gets back an empty shell and a white elephant.
I can't understand why some people were against that deal! Sad truth is, probably a similar deal will go down, once the hoopla is over.
And of course, the councilmen who voted for the deal argued it would "create jobs" and stimulate the economy. You too, could be guiding cars into parking spaces or selling hot dogs in the stadium! It's a definite career move!
The casino owners make the same pitch - build me a casino, let me run it, tax-free, and I'll create jobs, such as croupier, waitress, prostitute, drug dealer, and loan shark. And when these operations all go bust, the owners walk away, leaving the city or country with an empty venue and a lot of bond debt to pay off - for the next 20 years.
Or say you own a shipping line or a cruise line and want to register your ships? Why not register (flag) them in landlocked African country? No pesky inspections or regulations to deal with, and low, low, annual fees. It's all perfectly legal, too, and based on the manufactured fiction that "countries" are somehow independent of one another and not part of a greater planet.
Celebrities have used this dodge for years - renouncing their citizenship and moving to a tax-friendly country overseas to avoid millions in income taxes. Why we let this go on is anyone's guess. Maybe a one-world government with one tax code is the only possible answer - good luck with that!
Major corporations play games with Patents and Intellectual Property in that regard. Apple registers a company in Ireland and transfers all their "IP" to that company and then licenses-back their own IP to the company for an amount that is conveniently equal to their income in the USA. So their net income is zero for US tax purposes but is astounding in their Irish affiliate - but taxed very little there. Ireland is, of course, happy to take these scraps, which still amount to a small pile of money, but a lot smaller than the pile Uncle Sam was expecting.
Maybe some of these loopholes can be closed. In Virginia, they stopped doing the "car tax" entirely, as a way of preventing cheating. It is a lot easier to collect taxes on real estate and income than it is on movable, depreciating assets. Georgia is cracking down on Montana LLCs as the article linked above notes. It isn't hard to go to the Montana Secretary of State's website and download the LLC data, as well as DMV data and figure out which LLCs are basically shell companies whose only job is owning a million-dollar motorhome. Cross-index that with Georgia income tax filings or even phone book addresses, and you've got a list of people to go after. Like in Virginia, in Georgia the tax is not based on what State the vehicle is registered in, but where it is primarily kept.
But again, it is easy to catch Joe Upper-Middle-Class at these games than the really big fish. The guy who owns a bus company or car rental company can get away with it far easier (although I have heard that many States went after AVIS and Hertz years ago, over this issue. Where is a rental car primarily domiciled, anyway?) It is no coincidence that the bulk of rental cars have Tennessee tags on them.
Of course, one way to reduce the incentive for such shenanigans is to make taxes more affordable. As the article linked above noted, forming an LLC in Montana for your $300,001 motorcoach will still cost you $9000 over ten years (plus attorneys fees for forming the LLC and filing annual registration updates as well as Secretary of State fees) - versus paying the one-time $20,000 "title fee" in Georgia. If the Georgia title fee was, say, 4% instead of 7%, chances are, the urge to cheat would be a lot less. And enforcement costs would drop way off as well.
Much has been written lately about how Democrats have installed jack-booted thugs at the IRS to audit people - this after years of GOP congress stripping the enforcement arm of the agency. Funny thing, the Parcheesi club got audited this year, but the auditor was pumping a dry hole - no one takes home a salary from there and there is no "profit" in that non-profit. But even with enhanced auditing, the odds of being audited are pretty slim. As an ordinary citizen, the real audit-bait is unreported income (a 1099 you forgot to include in your return!) or taking deductions for a "hobby business" (which doesn't show any profit for five years out of seven, or some such). Sketchy deductions are also an issue, particularly if you have a large proportion of deductions in relationship to your income.
But again, those are amateur mistakes that are easily detected, even if the amounts of tax due are pretty trivial. The big boys get away with a lot more and then can hire lawyers to bollux up the whole thing for years, until the IRS throws in the towel and negotiates a settlement. A friend of mine spent his entire career at the Justice Department, litigating one case involving a major aircraft manufacturer. He racked up a lot of frequent flyer miles going from Washington to Washington.
Should we be outraged by any of this? Perhaps in part. Perhaps not so much. So long as there are taxes, there will be people willing to cheat on them. Even back in the days of Monarchs, there were Dukes and Earls who were willing to cheat their own King on tax payments, even if it meant literally losing their heads. Ideas like tax simplification seem like one "answer" - everyone pays 15% of their income! The problem is, clever lawyers re-define what "income" is, and thus defeat the scheme.
Cutting taxes sounds appealing, but results in huge deficits, if spending is not cut as well (and both parties have been guilty of this!). If deficits persist, we end up with inflation, as the currency is devalued. This in turn, acts as a tax on everyone, but particularly the poor, who spend every dollar they have on survival needs (food, clothing, shelter). Sadly, this seems to be the way the USA is going, having learned nothing from the stagflation era of the late 1970s and early 1980s.
I am not sure what the answer really is, other than it is an ongoing battle since the dawn of time, and everybody thinks they are paying too much and the other guy isn't contributing his fair share.
Shit never ends!