Recently, Abigail Disney wrote an article entitled, I Was Taught From a Young Age to Protect My Dynastic Wealth (Miss Disney is the granddaughter of Roy Disney who founded with Walt Disney the successful entertainment company in 1923).
According to Miss Disney: “When ProPublica published its report last week on the tax profiles of 25 of the richest Americans, jaws dropped across the United States. How was it possible that plutocrats such as Elon Musk, Jeff Bezos, and Warren Buffett could pay nothing in income taxes to the federal government? What sneaky sleights of pen, what subterfuge, what acts of turpitude could have led to this result?
The shock stems, in part, from a disturbing reality: Nowhere does ProPublica assert that these men cheated, lied, or did anything felonious to lower their tax burdens. The naked fact of the matter is that not a single one of the documented methods and practices that allowed these billionaires to so radically minimize their tax obligations was illegal.”
I perfectly understand Miss Disney's statement that, “not a single one of the documented methods and practices that allowed these billionaires to so radically minimize their tax obligations was illegal.” However, to consider is what the economist Frédéric Bastiat already observed at the beginning of the 19th century: “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
In other words, if a group of vile, corrupt and immoral people have the power over the legal system then they can create laws that are highly favourable for them. In simple language it means that the American tax system is rigged just as are the financial system, healthcare, education, etc.
Miss Disney argues that the common ideology that underlies all of these tax avoidance practices is that, “The government is bad and cannot be trusted with money.”
Let us assume the super-wealthy Americans created a system of taxation which combined with expansionary monetary led to growing wealth and income inequality we need to take the following into account: If wealth inequality increases but everybody is to a larger or lesser extent better off, then the increase in inequality is acceptable. However, a problem arises when the accumulation of income and wealth of a tiny minority (the 0.1%) occurs at the expense of the majority of the population. According to the Fed's own statistics, median wealth in real terms has been declining since the 1980s, while median income has been largely stagnant. This at a time when the 0.1% of wealth owners have moved ahead immensely.
What I find rather fascinating about the current stock market is that it reflects the widening wealth and income inequality. We have a small number of companies which are doing fantastically well in terms of growth and stock performance while the majority of stocks is no longer moving up. In this respect, it is interesting to note that we encounter the rare occasion when the major indices are making new highs while at the same time, only around 50% of S&P 500 stocks are still above the 50-day moving average.
A further negative factor is that we have a tightening of global liquidity, which is unfavourable for stock markets, and the economy.
Regarding taxes, do remember that nobody likes to pay taxes. As the former Canadian Minister of Finance Sir Thomas White (1866 – 1955) exclaimed, “In such experience as I have had with taxation – and it has been considerable – there is only one tax that is popular, and that is the tax that is on the other fellow.”
With kind regards
Yours sincerely
Marc Faber
Ready to get started?
