the federal tax code, when written out from 
beginning to end, is about 2,600 pages long, depending on who you ask. It can be as long as 
70,000 pages if you include all the relevant legal rulings on the contents of the code itself. 
This snowballing complexity would be a big enough headache by itself, but the biggest problem of 
all is that the federal government only collects about a dozen different taxes. The guidelines on 
what these taxes are, how they are calculated, and how they are collected takes up a total of about 
250 pages. Everything else in the code is allowances, credits, deductions, offsets, incentives, 
and deferments. And that's just federal taxes. Things become exponentially more complicated when 
local and state taxes are included as well. Now it doesn't matter if you believe that all taxes 
are theft or if you think that the rich should be taxed out of existence. The current system 
is broken in just the right way by exploding a

complex tax system filled with loopholes. The rich 
is 1% pay a lot less than the average tax just   under $7 million in federal taxes. That is 17.4% of 
his taxable income, which Buffett has said is way   too low. You know, and not only should we pay more 
taxes, but there also should be a differentiation. There should not be a differentiation between um 
capital gains and regular income, okay? So it's no   secret that tax loopholes benefit the rich, and 
that's for two reasons. However, most people choose   to just focus on one. The first reason is because 
wealthy people can afford to pay the billable   hours of accountants and tax lawyers to set up 
the personal finances and business structures   to take advantage of these loopholes. According 
to the National Association of Tax Professionals,   the average cost to prepare an individual return 
in America in 2023 was $248. That's already more   expensive than it should be, but Tax Services 
go way up from there, tailored tax services that

submit the paperwork required to take advantage of some of these loopholes can cost tens of thousands of dollars every year to put together. That means that it's only worth it for people that can save hundreds of thousands of dollars in tax by diligently structuring their Affairs. The second reason that tax loopholes only benefit the rich is because they're the ones that pay tax. According to data from the IRS and compiled by the tax Foundation, roughly 153 million Americans paid federal income taxes in 2021. That's about half the population. Of those, the top 1% of earners paid almost half of all income taxes. That just mathematically means that anything to offset taxes is going to benefit higher income earners more than people earning less. The tax Foundation is a think tank that lobbies for lower flatter taxes, so it does have an agenda with this data, but it's still pulled directly from the IRS, so the numbers don't lie. But the fact that thousands of pages of

tax avoidance is good for high-income earners, isn't it? Actually, the problem - hot take alert - but let me explain. On this income chart, where would you place Jeff Bezos? Probably the top 1%, right? He is, after all, one of the richest men in the world. But depending on the year, he has actually spent just as much time down here. According to tax document leaks published by ProPublica in 2011, Jeff Bezos legally reported an income so low that he actually qualified for and claimed a $4,000 tax credit for his children. The people who actually make up most of the 1% of highest income earners are more often highly skilled professionals like doctors, lawyers, and tech workers who still get a regular W2 paycheck or draw a salary from their small business but can't defer their income to when it's convenient for them and their team of accountants. But while criticizing a system that counts a man like this as low income and in need of family assistance is fun and easy, it distracts

from three other more serious problems with the overcomplication of the tax code. The first major problem is that it lifts up some businesses while pushing down others. One of the reasons why homes have become so unaffordable is because they are treated like a financial asset as much as they are like a place for people to live their lives. Homes have several advantages over other financial assets that make them particularly attractive to investors of all sizes, from small-time landlords with a single rental property all the way to the largest investment firms on the planet. If you want to invest in real estate, you can get cheap leverage through a mortgage that won't be margin called like a loan to buy other financial assets. Real estate also cash flows well, so in the right markets, your rental income could cover your mortgage repayments. But as if real estate needed a sweetener, there is also an extensive list of tax benefits available to real estate investors. For example, a 1031 exchange lets a real estate investor sell their property for a profit and

not pay any capital gains taxes as long as they use the money to buy one or more other properties of equal or greater value within 180 days. This means real estate is one of the few investment vehicles where you can trade up a portfolio while deferring taxes indefinitely. Or put another way, incentives for hoarding real estate are literally written into the tax code. Just this incentive is so common that it's become its own verb amongst savvy property investors. They will 1031 a property, which means they will trade it up for a bigger property or more properties while saving on the tax. Real estate has so many tax incentives that the federal office of the comptroller set up a directory to help people navigate what they are eligible for. The reason these incentives exist is because at one point in time the government thought it would be a good idea to encourage property investment. The 1031 exchange dates back over 100 years to 1921 when it was first

introduced back then real estate investing was 
very different from today. The good news is that   America isn't the worst example of this. Canada, 
China, New Zealand, and especially Australia have   even more generous tax incentives for Real Estate, 
so perhaps it's unsurprising that their housing   is even less affordable. But in America, it's not 
just real estate. The property Market may be one of   the most distorted markets for tax incentives, but 
there are 9,834 sections in the tax code that have   all accumulated over decades. It is very easy to 
pass new tax incentives; it's almost impossible to   take them away without getting voted out. Anytime 
the government wants to incentivize some new type   of business investing or labor activity, they can 
create a tax incentive to achieve it. And that's   created a landscape where it's just more tax 
efficient to run your own business, your savings,   and your investments in a certain way, even if 
it comes at the expense of The Wider economy.

but distorting already highly problematic markets 
is just the first problem with the loophole arms   race so it's time to learn how money Works 
to find out why our taxes are so hard to fix. This week's lesson was sponsored by ODU, 
the all-in-one solution for businesses that   brings together a full Suite of integrated 
apps to streamline every aspect of your   company's operations. Every aspect from sales CRM, 
accounting, and much more. ODU simplifies complex   business processes by integrating them into one 
user-friendly platform. Odoo gives you the power   to manage your sales Pipeline with a few clicks, 
automate lead scoring, and even predict the next   best action to take with your leads and customers. 
With ODU, they make streamlining everything in your   company a priority. The platform's MRP capabilities 
allow for seamless production planning, scheduling,   and real-time inventory tracking, ensuring 
your business runs smoothly. ODU was built for   customization and needs of use, whether you're in 
need of a CRM, Sales, Inventory, project management.

or even creating your own app with ODU Studio. The platform molds to your business requirements, select only the apps you need making it as lean or comprehensive as you wish, and the best part, you can experience the simplicity and power of ODU firsthand without any commitment. Getting started is risk-free with a 14-day free trial, no credit card required, and you could use any single app for free forever. Click the link in the description or request a demo today to see how ODU can transform the way you do business. According to a report by ProPublica, someone earning $220,000 a year is now more likely to be audited by the IRS than someone earning over $400,000 a year. This is because the IRS is so underfunded and so understaffed that it can't argue its own tax code as well as the private sector tax lawyers representing wealthy individuals. To maintain its audit numbers, the IRS has resorted to a strategy I like to call sledgehammering blueberries where

they will come down hard on the softest, easiest targets. The Earned Income Tax Credit is another overly complicated tax incentive, but this one is given to low-income households to encourage them to earn their own income instead of relying solely on welfare. This is a great idea, but the problem is the instructions for claiming this credit are 41 pages of very dense financial and legal jargon. Michelle Lyon Drumbl, a tax professor at Washington and Lee School of Law, reported in an interview with ProPublica that even her third-year law students couldn't understand these IRS guidelines. So what hope does an untrained worker making a minimum wage have? The incentive to audit low-income workers trying to get a basic credit sounds bad, but it's just one symptom of the second problem with an overly complex tax system. Filing taxes is expensive, stressful, and time-consuming. You need to play a game with the IRS where you both think of a number, and if

they don't match. You get hit with an even more 
stressful and time-consuming audit. This means that 
almost everybody filing a tax return needs to pay 
for the service of a professional tax accountant, 
even if they have really simple finances. I was 
a financial professional for about half a decade, 
and even I wouldn't dare do my taxes without an 
accountant. Every year, Americans spend hundreds 
of thousands of dollars to work out how much they 
have to give Uncle Sam, but it doesn't have to be 
like this. Most other advanced countries don't 
have the system. Most other tax agencies tell 
their citizens how much they owe from their tax 
withholdings from their paycheck. From this number, 
you can still claim deductions as they are allowed, 
but the system is simple and user-friendly enough 
that most people can prepare and lodge accurate 
returns for themselves in under an hour. America 
has been trying to make simple tax returns a 
thing from as far back as Reagan, who promised a

return-free system like these other countries, but today according to a report by the IRS, elves Americans spend a collective 2 billion hours preparing personal tax returns. If those man hours were spent on working something productive at the average National rate, it would be over $220 billion in additional economic output. Or put it another way, approximately the GDP of Hungary is wasted on doing taxes every year. There are two reasons that we still have this system despite politicians from both sides of the aisle pushing the easy alternative. The first reason is intense political lobbying from tax preparation companies that profit off this inefficiency. According to open Secrets and Regulatory filings, turbo tax's parent company into it spent a record $3.8 million on federal lobbying in 2023 alone. That's just one tax preparation company in one year, so it's safe to say that the political will to fix the system has been eroded. The second reason you have to play The Guessing Game with the IRS every year is that our tax code is simply too complicated to

make a return-free system work for most people, like it does in most other advanced economies, and that's the third major problem with the tax loophole arms race. It makes people hate taxes. You probably hate taxes, but how much of that is because you hate actually giving your money to Uncle Sam, and how much of that is because you hate the stress and time that goes into them? Making taxes suck is a very good way to make people vote for a system that sounds more simple, even if it's not in their financial best interest. Here's a question for you: Why are long-term capital gains taxed at a lower rate than the income tax for high earners? The top federal tax rate for people working for an income is 37% before state income taxes and FICA, but the long-term capital gains tax rate is a maximum of 20%, with the vast majority of people paying just 15%. So why do

people who work for their money pay more in taxes 
than people who sit on appreciating assets. There are two technical answers and one real answer. 
The first technical reason that is often used to explain this disparity is that inflation makes 
things more expensive over time, even if their real value hasn't improved. If you buy a house 
for $100,000 and then 20 years later sell it for $200,000, you would have $100,000 in capital gains, 
but if inflation has halved the purchasing power of the dollar in that time, then even though you have 
made no real gain, you would still owe $115,000 in capital gains taxes. The argument is that a 
lower capital gains tax is only fair to offset this kind of thing. The second argument was first 
put forth by Tony Atkinson and Joseph Stiglitz in a paper titled The Design of Tax Structure, 
where they said that taxes on investment profits were unnecessary because the money to buy 
assets comes from labor income anyway, so taxing

those assets is unnecessary double taxation. Even Stiglitz himself later admitted that this thinking was flawed because there are other ways to obtain assets other than working for them, but people were still very happy to promote these ideas because it justified the real reason that taxes have remained so favorable, and that's because capital gains income is really what most of the world's richest people actually live on. Tax reform is very hard when the only people that have the time and expertise to understand it are the ones benefiting from the current broken system, and everybody else just wants to ignore their taxes until they have to deal with them next year. I am going to be writing an article on a land value tax on my free email newsletter compounded daily. Supporters of this tax claim it could help solve all of the current system's problems and make housing cheaper, so if you're interested in that, sign up at the link below, and if you want to see how the financial system has been built around tax loopholes, go and watch my

video on how a communist created the world's first hedge fund. To keep on learning how money works.

The Tax System is Broken... in Just The Right Way

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The Tax System is Broken... in Just The Right Way

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