The way that we tax people in the United States is fundamentally broken and should be completely discarded. The U.S. tax code is absolutely riddled with loopholes that allow the super rich to legally avoid taxes while many of the rest of us are being taxed into oblivion. In our system of taxation, middle class families that work hard and try to play by the rules are deeply penalized while those that are willing to abuse the system make out like bandits. There is something fundamentally wrong with a system that enables wealthy politicians such as Barack Obama and Mitt Romney to pay a smaller percentage of their incomes in taxes than millions of middle class families. Mitt Romney has millions of dollars parked down in the Cayman Islands and in other tax havens. He does this to avoid taxes. Unfortunately, most Americans do not have the resources to funnel money through offshore tax havens. Most Americans just automatically have their paychecks shredded by taxes and then try to live on whatever is left over. Most Americans are just trying to survive financially from one month to the next. But the super rich have options. Thanks to technology, they can live almost anywhere they want and they can run their companies and manage their investments from anywhere in the world. The truth is that the wealthier you are the easier it is to avoid taxes. But even as the ultra-wealthy do their best to avoid taxes, many of them still feel free to demand that the rest of us be taxed more.\nSo what are some of the ways that the super rich avoid taxes?\nWell, let’s start with those that are just “somewhat wealthy”. Many millionaires still want or need to be U.S. citizens, so they are subject to the U.S. tax code. Fortunately for them, their tax lawyers know of thousands of loopholes that have been designed to help the rich avoid taxes.\nThe following is from a recent article by Jen Talley….\nSome of the richest people in the country pay the least, relatively speaking, in taxes. How is this possible? Answer: Through the clever manipulation of the U.S. tax code’s loopholes. And it works: as income rises, effective tax rates rise as well, but only up to a point. IRS data shows that the effective income tax rate flattens out at just over 24 percent for those making over a million dollars. As income exceeds $1.5 million, the rate begins to decline; those with incomes above $10 million pay an average income tax rate of around 19 percent. So, how do they do it?\nYou could write an entire series of books on the technical details of how this gets done. Trust me, I studied tax law when I was in law school.\nIf you are interested in digging into some of the technical details of tax avoidance, a recent Businessweek article detailed 10 ways that the wealthy use our current tax code to avoid paying billions of dollars in taxes. It is an article worth reading if you have the time.\nSadly, tax avoidance by the wealthy is not just something that happens in the United States. The truth is that the exact same kind of thing happens in the UK as well.\nThere is not an easy fix to this problem. Our politicians have had decades to try to come up with a fair tax system and they have completely failed. The wealthy are always several steps ahead of them.\nBut federal taxes are not the only taxes that can be avoided. The vast difference in state tax rates creates another opportunity.\nOne advantage that wealthy Americans have is that they are far more mobile than most other Americans are. So if they don’t like the tax system in one state they can simply pick up and move to another state.\nAccording to the Tax Foundation, 3.4 million Americans left New York state between 2000 and 2010.\nSo where did they go?\nThe following is from a recent CNS News article….\nWhere are they escaping to? The Tax Foundation found that more than 600,000 New York residents moved to Florida over the decade “ opting perhaps for the Sunshine State’s more lenient tax system “ taking nearly $20 billion in adjusted growth income with them.\nThere is no state income tax in Florida. So moving from New York to Florida can end up saving you a bundle.\nThe same kind of migration is happening out west as well. According to that same CNS article, hundreds of thousands of people have been moving from California (a high tax state) to Texas (no state income tax)….\nBetween 2000 and 2010, the most recent data available, 551,914 people left California for Texas, taking $14.3 billion in income. Texas has no state income tax or estate tax.\nA total of 48,877 people moved to Texas from California between 2009 and 2010 alone, totaling $1.2 billion in income. Another 28,088 from California relocated to Nevada and 30,663 to Arizona, a loss of $699.1 million and $707.8 million in income respectively.\nNot that anyone really needs much of an excuse to move away from California. It is rapidly decaying right in front of our eyes.\nBut a lot of families do not have the same options that wealthy people do. Unfortunately, most average Americans are tied to their jobs and it would be much more difficult for them to pick up and move across the country. In this economy it can be economic suicide to give up a good job.\nThe reality is that most of us simply do not have the resources to play the same kinds of games that the wealthy play.\nSadly, even our most prominent politicians avoid taxes.\nJust look at Massachusetts Senator John Kerry. He has avoided approximately $500,000 in taxes by docking his yacht in Rhode Island rather than in Massachusetts.\nYet Kerry sure does love to call for more taxes on the rest of us, doesn’t he?\nNow let’s talk about the “super rich” and the “ultra-wealthy”. For many people that are worth billions of dollars, tax avoidance has become an art from.\nFacebook co-founder Eduardo Saverin made national headlines recently when he gave up his U.S. citizenship, but the truth is that his case is small potatoes compared to the global elite and the shadow banking system that supports them.\nAccording to the IMF, the global elite are holding a total of 18 trillion dollars in offshore banks.\nThat amount is more than the GDP of the entire planet for an entire year.\nSo what do I mean by “offshore banks”? I defined the term in a previous article….\nWell, the term originally developed because the banks on the Channel Islands were “offshore” from the United Kingdom. Most “offshore banks” are still located on islands today. The Cayman Islands, Bermuda, the Bahamas, and the Isle of Man are examples of this. Other “offshore banking centers” such as Monaco are actually not “offshore” at all, but the term applies to them anyway.\nTraditionally, these offshore banking centers have been very attractive to both criminals and to the global elite because they would not tell anyone (including governments) about the money that anyone had parked there.\nIt has been reported that 80 percent of all international banking transactions involve offshore banks. A whopping 1.4 trillion dollars is being held in offshore banks in the Cayman Islands alone.\nAn article that appeared in the Guardian estimated that a third of all the wealth on the entire planet is being kept in offshore banks. One of the primary reasons for this is tax avoidance.\nA lot of wealthy individuals never even visit these tax havens and yet reap the benefits anyway. The truth is that tax avoidance has become way too easy. The following example is from a recent Politico article….\nA plausible scenario plays out like this: I hire an accountant. Doing her job, my accountant tells me that if I sign a few legal documents and route my money through a small Caribbean island, I could keep more of my paycheck and pay a lower tax rate. I may have earned my money in the United States, but legally I can claim that it was, in fact, earned in a tax haven.\nAre you disgusted yet?\nYou should be.\nBut even though they avoid taxes like the plague, many of these elitists have the gall to call for higher taxes on all the rest of us.\nFor example, let’s review what the managing director of the IMF, Christine Lagarde, said in a recent interview….\n“Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.”\nEven more than she thinks about all those now struggling to survive without jobs or public services? “I think of them equally. And I think they should also help themselves collectively.” How? “By all paying their tax. Yeah.”\nIt sounds as if she’s essentially saying to the Greeks and others in Europe, you’ve had a nice time and now it’s payback time.\n“That’s right.” She nods calmly. “Yeah.”\nAnd what about their children, who can’t conceivably be held responsible? “Well, hey, parents are responsible, right? So parents have topay their tax.”\nWell, it turns out that she doesn’t pay any income taxes at all on her own income….\nThe IMF chief Christine Lagarde was accused of hypocrisy yesterday after it emerged that she pays no income tax “ just days after blaming the Greeks for causing their financial peril by dodging their own bills.\nThe managing director of the International Monetary Fund is paid a salary of $467,940 (£298,675), automatically increased every year according to inflation. On top of that she receives an allowance of $83,760 “ payable without “justification” “ and additional expenses for entertainment, making her total package worth more than the amount received by US President Barack Obama according to reports last night.\nHer “diplomatic status” allows her to escape all income taxes.\nSo perhaps she should pay her “fair share” before pointing the finger at anyone else.\nBut she is not the only one being hypocritical.\nThe super rich claim that they should pay lower taxes on investment income for the good of our “capitalist system”, but when their banks are about to go under they are more than happy to have those losses be socialized.\nAs I wrote about yesterday, the stage is already set for another massive round of bailouts when the next great financial crisis strikes. Once again our taxes will pay for the mistakes of the ultra-wealthy.\nThe truth is that our system is fundamentally broken.\nWe need to abolish the income tax and shut down the IRS.\nThose two steps alone would do wonders for our economic system.\nWe also need to shut down the Federal Reserve and break up the too big to fail banks.\nUnfortunately, the vast majority of our politicians are not even willing to consider any of those solutions.\nSo our fundamentally broken system will continue to chug along.\nIt really is sad.