Tuesday, December 11, 2007

Why taxing the rich never works

Before the Sixteenth Amendment legalized the income tax it had been made law several times and the Supreme Court ruled them Unconstitutional. The wealthy, especially the super-wealthy, had anticipated these laws and had created a clever tool to protect their riches. It was called a "charitable foundation".

The idea was to co-sign the ownership of wealth, including stocks and securities, to a foundation and then get Congress and the state legislatures to declare all such charitable institutions exempt from taxes. By setting up boards which were under the control of these wealthy benefactors they could escape the tax and still maintain control over the disposition of these fabulous fortunes.

Long before the federal income tax was in place, multimillionaires such as John D. Rockefeller (who once said "I want to own nothing and control everything"), J.P. Morgan, and Andrew Carnegie had their foundations set up and operating. The next step was to make certain that the new tax bill passed by Congress contained a provision specifically exempting their treasure houses from taxation.

The tax bill which the Sixteenth Amendment authorized was introduced as House Resolution 3321 on October 3, 1913. It turned out to be somewhat of a legislative potpourri for tax attorneys, accountants and the federal courts. In the ensuing years, untold millions of dollars have been spent trying to figure out exactly what this tax law, and those which followed it, were intended to provide. However, tucked away in its inward parts was that precious key which safely locked up the riches of the super wealthy.

Here are the magic words under Section 2, paragraph G:

"Provided, however, that nothing in this section shall apply...to any corporation or association organized and operated exclusively for religious, charitable, scientific or educational purposes."

All of the foundations of the super-rich were designed to qualify under one or more of these categories. And they do today. The Bill and Melinda Gates Foundation did nothing but remove them from the wealthiest taxpayers in the United States into the group of tax-exempt filthy rich.

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