how to pay less income tax

Mr. Liberty

Taxes.  It’s that day – the day the bloodthirsty government takes its pound of flesh out of you to pay for the programs and causes we (as a people) have voted for, again and again.
Medicare, Social Security, the wars in Iraq and Afghanistan (and before that, the Cold War), and public roads, schools, libraries, safety and health are all part of that check you cut.  It’s a tough burden to bear – and Americans pay less in taxes than any country save Iceland and Ireland – but we are tough enough to bear it.

I’ve found the awful but foolproof way to pay less income tax this year. Earn less.  It’s not the answer anyone wants to hear, but it’s true on several levels:

  1. Earn less income and you’ll pay less tax.  Everyone knows this.  Lose your job, and if nothing else your taxes go down.
  2. Earn less income and make more money through capital gains, dividends, interest income and other “asset-generated” means and you’ll pay less tax.  This method is what makes millionaires.
  3. Earn less income and you’ll qualify for all sorts of benefits that you won’t get as a  middle class American.  Medical benefits, tax credits, unemployment, government housing and thousands of other benefits will suddenly become available to you as you earn less.

Living in New York, I always realized that there was a weird economic situation going on:  you can live easily in Manhattan (or New York in general) if you are very rich OR very poor. I’m not equating the two – being rich is much easier, of course.  But if you can qualify for government-subsidized housing you can live across the street from multi-million dollar homes in Manhattan.  If you are middle class, you’ll get squeezed.

If I can step outside my own life and look at it from a distant perspective, I’ll be interested to see how my 2009 tax bill shapes up. I’ve ratcheted up insane medical bills (through COBRA premiums) against minimal income.  If I owed 2009 income taxes today, I’d be impoverished.  My net worth is still fairly high – I’m living off liquidating some assets right now – but as far as income goes, I’m staggering along far below the New York/New Jersey poverty line.  I should show up as impoverished, and I’ll be interested to see what that does to my tax bill.

So as this recession deepens, I’ll tell you how to pay less income tax:  earn less income and buy more income-generating assets. The US tax code favors people who earn less from income and earn more from income-generating assets – it’s that simple.  Looking at a business owner or a corporate lawyer generating the same income but from different sources, the business owner will win.  When the tax deadline comes on Wednesday, you want to be earning less.

photo credit: TheeErin

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