Sign up now!
Click here to receive free updates on headline news from John T. Reed

View Cart

Bookmark and Share

Featured Products

Succeeding
1 year Subscription to Real Estate Investor's Monthly
Distressed Real Estate Times
How to Get Started in Real Estate
How to Buy Real Estate for at Least 20% Below Market Value

Checkout

How to Order

Copyright 2012 John T. Reed

The Democrats in power in DC and California and other places say they are going to raise tax rates on the people who make $250,000 or more.

Okay. So let’s make $249,999.

Would that be cutting off your nose to spite Obama and his slacker coalition?

Yes.

Wouldn’t we still be better off if we just took it and paid higher taxes?

Financially, maybe. But there is more to life than money.

Good mental health practices for prisoners

I have been a prisoner—sort of—a couple of times in my life.

Stating at age 17, I was a West Point cadet. We cadets used to joke that West Point was like a minimum-security prison.

It was no joke. When I was there, we were literally not allowed to set foot outside the gate. Our rooms were inspected on some weekdays and Saturdays. They took roll about a dozen times a day just like in prisons. About 80% of our non-sleeping time was mandatory formations for meals, mandatory class all day 5 1/2 days a week, physical education, mandatory intramural athletics, parades, and the other 20% was evenings when we did not have to be anywhere but we sure as hell had to study for our 40.5 credit hours of academic work per semester. Yes, 40.5 credit hours. When guys quit West Point and went to civilian colleges, they often wrote and told us they got to skip a year of college. For example, after freshman year at West Point, you quit and go to a civilian college and you are a junior.

Actually, I think inmates at minimum-security prisons have more time to themselves than we did.

I also felt like a prisoner in Army ranger school which was 24/7 of sleep and food deprivation for two months.

I also felt like a prisoner when I was an Army officer in line units. Being in a line unit means you are a platoon leader, company commander or staff officer. My other service as an officer was as a classroom student which was not like being a prisoner. And I felt like a prisoner in Vietnam (line units plus barbed wire and guard towers with armed guards and several hundred thousand enemy who were trying to kill us). The reason I felt like a prisoner after West Point was that I was not allowed to resign. I had to stay in for five years. It was literally indentured servitude.

Now, increasingly, especially after election day 2012, I feel like a prisoner just from being an affluent American resident. We are being attacked via regulations, taxes, legislation, and litigation. The politicians and the public speak of us as if we were farm animals to be worked or eaten. One Occupy Wall Street guy was holding a sign saying “eat the rich.” Or as if we were plants to be picked or harvested. There is an underlying implication in all this that we cannot leave—like prisoners.

I feel like a prisoner and I know what it feels like to be a prisoner. It is not my imagination.

I have also read about other prisoners in jails, the Hanoi Hilton, the U.S. Navy personnel of the U.S. Pueblo who were taken prisoner at sea by the North Koreans.

One of the things prisoners says is you must resist the jailers in whatever ways you can to preserve your sanity. I agree. For example, in Vietnam, at one unit, they had outhouses for the enlisted men, an outhouse for officers, and a VIP outhouse. I used the VIP outhouse. No one else ever did. Superior officers glared at me when they saw me do it.

‘Stickin’ it to the man’

If I may quote a TV commercial of a few years ago, “It was my way of stickin’ it to the man.”

At worst, such sentiments are signs of mental illness. At best, they are signs of immaturity. But when you are a prisoner, they are a requirement for sanity. If you are a prisoner, you have to stick it to the man to preserve your sanity and self-respect.

I have seen many studies that say animals including humans require a certain amount of autonomy to be happy. The more you take away autonomy—including with animals like lab rats, the more they curl up into a ball—literally.

So this article is about retaining your autonomy and sanity in a nation the majority of which has decided to turn socialist. I even see some signs that the nation is turning National Socialist—the official name of the Nazis. Initially, Nazis focused on anti-big business, anti-bourgeois, and anti-capitalist rhetoric. Instead of Jews, our current ruling party’s scapegoats are “the rich.” And yes, many of “the rich” are Jews so maybe it’s not so different.

It is about how to retain your sanity as a maker in a nation where the majority have decided to become takers and they mean to take from YOU.

Use your passport more

For one thing, I must say that you should definitely establish one or more offshore presences in the form of foreign bank accounts at least, and preferably the holding of foreign residence permits and even foreign citizenship in addition to your U.S. citizenship. If you are a U.S. citizen, but do not currently have an unexpired U.S. passport, for God’s sake get one immediately. What’re you? Nuts? Suicidal? You can’t leave the country without a passport of some kind and this country is increasingly looking like a place we may have to leave, if only temporarily. See my web article on fleeing the U.S.

For more on foreign bank accounts use my internal search box at the top of all my web pages to search for words like Australia, Canada, New Zealand, and Switzerland. I have written many web articles on getting your rainy-day savings and maybe yourself out of Dodge.

I recently talked to a friend who went from Romney bundler (big-time fund raiser) to a man who refuses to have any more to do with U.S. politics—specifically vowing never to give another dime to a U.S. politician—and who is right now in the process of obtaining citizenship in another country and thereby a foreign passport. Not to leave, but to be able to leave. Citing Germany, Russia and other countries, he said repeatedly, that most people wait too long to get out. They wait until it’s too late. I agree with him. That is a little harder for me because I have a U.S. business and my wife has a job, but I am investigating my options along those lines.

But back to Plan A which is dealing with the now de facto Union of American Socialist States.

Even in the Soviet Union, there were oases of freedom and autonomy. Because of widespread starvation in the early Soviet Union—farms were collectivized and the farmers saw no point in growing more food than they needed to feed themselves—Lenin had to adopt the New Economic Policy which let farmers and some small businesses own a plot or store they could operate as capitalists.

If you make $250,000 or more, you can often change your behavior to make less, say $249,999. Liberals say we makers won’t really change our behavior. We just threaten to. That we are bluffing. Watch us!

Sabbatical

Take a sabbatical. If you work for an employer, you have certain vacation time. But you can probably also take some unpaid leave. If that takes you below $250,000, consider it.

What I am talking about in this article is working hard in the coming months and years to make your life better. But I want you to stop thinking inside the dollar-income box. If the only way you know to make your life better is to make money, you are going to have to share it with your jailer, Barack Obama.

Here is a list of things that make your life better but which do not make your various levels of government richer:

exercise more—It was nice to become a wealth millionaire, before it became a “crime,” so spend your time now becoming a health millionaire instead. Obama can’t tax it.

• make investments where the pay back is not denominated in dollars like installing solar panels, digging a well to provide your water, installing a septic system to replace city sewer, getting a Home Equity Conversion Mortgage which lets you stay in your home rent free until you die or move out for a year regardless of how high the rental value goes (you still have to pay your property taxes and insurance an upkeep), buy a home in a milder climate thereby saving climate control costs, buy a home with a wood stove that can be used for heating and/or cooking/and-or domestic hot water and a property with enough forest that you have your own firewood supply, livestock that you raise and eat, land for a garden where you raise food that you or your livestock eat, long-shelf-life food that you buy and store and eat after the price of such food has gone up due to hyperinflation (the food will not send a 1099 to Obama when you eat it), capital expenditures that cost-effectively save future living expenses, land where you have access to hunting and/or fishing and you can eat what you kill, a home close to shopping or work or school thereby saving you commute costs. If you invest in stocks or bonds, you get dividends, interest, or capital gains—all of which Obama says he’s entitled to a cut of. But if you invest in, say, solar energy panels, he gets no cut of your energy savings. They are tax-free. I must add that getting paid in the form of property or services for personal service, or barter that does not come under IRC §1031, may not be dollar-denominated but they are taxable. In those, you are required to estimate the dollar value of what you receive and pay tax on it within 90 days. (Note, I have written two books on IRC §1031 tax-free exchanges: How to Do a Delayed Exchange and Aggressive Tax Avoidance for Real Estate Investors. Also, the “Advance purchase…” and “Storing necessities and living off the land” chapters of my book How to Protect Your Life Savings from Hyperinflation & Depression covers this sort of thing in great detail)

sell stuff you no longer need on eBay Craigs list, etc.—If you did not depreciate it down to zero for tax purposes, you probably have no taxable gain when you sell it.

• If you have been postponing some doctor-recommended therapy, Obama time is an excellent time to get it done.

• devote more time to eating well and right

travel

• take some courses or even enroll in a degree-granting program—My parents’ generation was always saying to, “Get an education because they can’t take that away from you.” Attend the interesting lectures that are given in most metro areas. I just heard Tom Ricks speak about his book The Generals at the Marine Memorial Club in San Francisco. It was enlightening, but not a taxable event.

educate yourself through reading, research, field study, shadowing people in a field you are interested in—the Eagle Scout merit badge requirements are a reasonable model to follow—a lot of people think they should read “The Great Books,” e.g., the Iliad, War and Peace. Nah, you shouldn’t, but you can and should read modern good books you meant to but have not read yet.

• become an expert bargain finder—you will be financially better off by the amount of money you save, the amount you save is your compensation for the extra effort, and it is tax-free. Make a sport of it. Obama may complain: “You didn’t find that. If you found a bargain, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a bargain —you didn't build that. Somebody else made that happen.” Of course, the teacher is a union one with a far more generous pension than she would get in the free market, not to mention the disability she suddenly discovered in the last year before she retired. The roads and bridges were no bargain, being required by federal law to hire only workers who got the “prevailing wage” (code for union only). Don’t listen to obama. He’s a BS artist. Listen to Ben Franklin who said, “A penny saved is a penny earned.”

• spend more time with your family and friends and less time working for Obama

• if indicated and you can afford it, “have some work done” (plastic surgery)

• volunteer for some charity work—I did a lot of sport coaching mainly because I enjoyed it, not because I was Mother Theresa. I just read Salman Khan’s book about how he created Khan Academy, a non-profit that seeks to educate the world for free.

• adopt a new hobby or expand the time you spend on an existing hobby

do-it-yourself work on your home, second home, vehicle, boat

• meditate or do some vege-out retreat or vacation—After a three-year litigation, I went by myself to Lake Tahoe and just veged-out reflecting on how I wanted to refocus my life now that I had more time back. I really think we affluent makers all need to do something like that right now having seen who won the 2012 election and how they won it.

• Stop and smell the roses. You don’t need to go anywhere other than where you live. People who survive a life-threatening scare often acquire a new appreciation for all the little things we take for granted. Stop doing that. Whadya need to do instead, run off and make some more money so you can pay more taxes to Obama? Screw Obama. Watch the humming bird outside your kitchen window, instead.

Note that you can actually make yourself better off financially with some of this stuff, but you pay no tax to Obama for having done so. For example, if you work on your yard, cleaning out overgrown shrubs and trees, putting in new sod and ground cover, rebuilding a fence, etc. you are better off financially. You will enjoy the new conditions.

Ditto cleaning all the junk and clutter out of your house, attic, and garage.

Your house would probably be worth more, but no money changed hands except for materials. You’re better off, financially and spiritually, but Obama is not. You cut him out of your economic activity by doing it yourself instead of earning the money to do it, paying tax on those earnings, and paying a workman who also had to give part of what you paid him to Obama—thereby forcing that workman to charge you more than he would have if the various levels of government were not taking a cut.

You can possibly imitate the old settlers from the early American settlements. You get a plot of land, clear some of the forest and stumps, plow the fields, plant crops, harvest the crops, build a house on the land, dig a well and an outhouse (septic system today). In all of that, almost every day you become more prosperous and wealthy and happier, but nothing in that list is a taxable event. Obama doesn’t get a damned dime of it.

Same applies to restoring a classic car, building cabinets for your house, working or your vacation home, doing do-it-yourself work at your business. Work hard. Make your life better. Make yourself wealthier. Just do it in the many ways that do not give Obama a cut.

Unrecognized capital gains

I wrote the book Aggressive Tax Avoidance for Real Estate Investors. It’s now in its 19th edition. I have sold over 100,000 copies of it. It talks about ordinary income. That is one of the types of income Obama wants to raise the rates on. It is what you get from a salary or operating a business the way most are operated. The maximum tax rate on ordinary income is in the high 30%s. Obama wants to raise it up close to 40%.

He also wants to raise the long-term capital gains tax rate from 15% to 28% or some such and enact the Buffett Rule which would place a higher minimum capital gains tax on “the rich.”

Screw him!

First, you can make your money from capital gain type activity instead of ordinary income. That would reduce your tax rate under current and proposed law. The only reason Warren Buffett pays a lower tax rate that his secretary is he takes no ordinary income from his extremely wealthy corporation Berkshire Hathaway. He lives off of capital gains like from selling stock. His secretary probably has some Berkshire Hathaway stock too. If she sells, she pays the same rate an Warren. Ditto if she sells her house. There is no lower tax rate for “the rich.” Buffett is just not as dumb as his secretary. She chooses to make her income via salary. He gets his from capital gains. She could do the same, perhaps not as easily as he, but if she did it that way, she would pay the same rate as Warren or lower. Buffett’s crying crocodile tears for his secretary’s higher tax rate is dishonest. If he were the good guy he wants us to believe he is, he would have structured her compensation so it was more capital gains and less ordinary income. Jerk!

Furthermore, capital gains are not taxed; only recognized capital gains. If your houses doubles in value, you owe no tax on that. You only have to pay tax on the gain when you sell. So don’t sell. If you keep it until you die, your heirs get it and their basis is stepped up to the fair market value at the time of your death which means if they sell it for that fair market value soon after your death, their gain is zero and your unrecognized capital gain disappears. How’s that capital gain tax increase working out for you then, Barack?

Estate tax

True, he wants to to dramatically increase the estate tax. To an extent, that would recapture part of the capital gain tax that disappears. But there are ways to deal with estate taxes, too. For example, it only applies to estates above $1,000,000 or some such. So, paraphrasing the title of this article, leave an estate of $999,999. Prove you were of sound mind by spending the rest of it before you died. How’s that estate tax increase working out for you, Barack?

Estate taxes and ways to decrease them are outside my area of expertise. But you can find an estate tax lawyer to help you rearrange your life—and death—so as to cut Barack out of it financially.

So where are you going to get the money to live on? Savings, cash-out refinancing, net rent that is sheltered by depreciation and amortization deductions which do not require actual cash expenditures to deduct.

A guy who built two houses a year by himself

I once did an article on a guy who built two houses a year by himself. He had to hire a guy with a backhoe and cement truck to build the basement (New England), but he could do the rest himself. Because he was just one man, he could only get two a year done. But two was enough.

After they were built, he rented them out. That entitled him to deduct depreciation and amortization of any financing costs. So the income was mostly sheltered from taxes at least in the early years.

Avoiding Social Security tax

Plus, did you know you do not have to pay Social Security taxes on rental or royalty income. For about half the population nowadays, Social Security income tax is about the only kind they pay, and they haven’t even paid that in the last two years. You also generally don’t have to pay Social Security tax when you are working abroad. There are a lot of exceptions in FICA law so you have to check the specifics of bilateral tax treaties and such. So consider working abroad. There are actually many ways to avoid paying Social Security tax. Use them if you can.

What’s that, you wonder if you should pay it to get it?

Hell, no! I just started getting it—$2,427 a month. I did a spread sheet on my whole life of contributing to it. If I die on schedule based on actuarial tables, I will get about three times what I put in, which was around $228,000. But my spread sheet found that if I have instead used that money to pay down my highest interest loan each year, I would now be $838,000 richer and could earn money on that $838,000 from now until my death date. Plus you probably already earned enough to get Social Security of some amount. Don’t worry about it? Invest in paying down your highest interest rate debt instead.

This article has only been about taxes. I will do another later on avoiding the other three of “The Four ’Ations:” legislation, regulation, taxation, and litigation.

I am John Galt

I hasten to point out the John Galt-like behavior I am advocating here.

Here is a paragraph from the Wikipedia write-up on Galt, the hero of Ayn Rand’s novel Atlas Shrugged:

As the plot unfolds, Galt is acknowledged to be a creator, philosopher, and inventor who symbolizes the power and glory of the human mind. He serves as a principled counterpoint to the collectivist social and economic structure depicted in the novel. The depiction portrays a society based on oppressive bureaucratic functionaries and a culture that embraces stifling mediocrity and egalitarianism, which the novel associates with socialistic idealism.

And here is the thing that Galt does that resembles what I am doing here:

During the main story line of the book, Galt has secretly organized a strike by the world's creative leaders, including inventors, artists and businessmen, in an effort to "stop the motor of the world" and bring about the collapse of the collectivist society.

Of course, I am not doing anything secretly. Nor am I suggesting we all hide out in “Galt’s Gulch,” the Colorado location the makers in Atlas Shrugged went to.

Wikipedia says Galt’s Gulch was modeled after a Colorado town called Ouray. That is interesting because I am currently writing a Rand-like novel about an unelected president who keeps demanding that Congress give him a state where he can show the power of deregulation and unfettered free enterprise to produce prosperity fast. Initially, I was going to have him end up with the Uintah and Ouray Indian Reservation in Utah. I picked that reservation because it is quite large but not on desolate land like the larger Hopi reservation.

Although I am following the basic Galt example here, I am adhering more to the various boycotts that minorities have used over recent decades to show their importance. When Montgomery, AL blacks had to sit in the back of the bus, they decided to boycott the busses until they were allowed to sit anywhere they wanted. Rosa Parks planted the seed when she got fined for refusing to sit in the back of a bus there previously. The boycott worked and made one of its leaders, Martin Luther King Jr,. famous.

Harvey Milk, the gay “mayor” in San Francisco once organized the Castro Street Fair to show merchants how numerous and important they were. The non-gay people of the neighborhood were astonished by the turnout—5,000.

Rick Santelli

On February 19, 2009, CNBC Business editor Rick Santelli went a bit nuts complaining about Obama “keep people in their homes” program—which was letting delinquent mortgage borrowers get away with not paying their mortgages or rent—on live TV. He suggested that the traders in Chicago hold a Tea Party and dump the mortgage derivatives that would be affected into the Chicago River. That much-seen video rant inspired the start of the nationwide Tea Party which ended Nancy Pelosi’s reign as speaker of the House.

I do not aspire to be the new Rick Santelli. He and I were both speakers at the 2010 Freedom Fest in Las Vegas in July of that year. I did not meet him there and made no effort to. But I would not mind seeing this strike by makers against Obama’s raising taxes on “the Rich” take off. If enough of the affected “rich” did take sabbaticals and other actions to remove themselves from Obama’s redistribution grab, it could cause the government to not only not receive the additional $80 billion in tax revenue they predict, but it would make net tax revenue go down resulting in their collecting even less than before they pass that expected law.

Such a John Galt like strike against the taxers/takers would send a message that we makers are not farm animals or crops. We can and do and will change our behavior if you treat us unfairly. The takers may outnumber us at the polls, but the problem with the takers, if I may paraphrase Maggie Thatcher, is that sooner or later they piss off the makers so much that the makers exercise their inalienable right to cease making, at which point, the takers might have to live on what they make—God forbid.

The takers may now run the country through the Oval Office and Senate. But we makers make the country run.

If we makers go on strike, it stops running. Then the takers are the drivers of a truck with an empty gas tank.

If the takers go on strike—which by definition they sort of already always are—no one will miss them and the nation will be better for it.

Ironically, the takers, who love unions, are now so profoundly unproductive that they have essentially obliterated their own ability to strike. And we makers, who do not like unions, are now in a position to engage in a John Galt-like strike that would render the ballot box victory of Obama and his slacker coalition irrelevant.

I have long been saying the bond and forex markets are soon going to render the ballot box irrelevant in this country when it comes to deciding how much money the federal government will spend. That will be decided by the bond and forex markets. We makers also have the power to do that.

Talk about poetic justice.

In 1976, the Osmonds sang a song called “A Little Bit Country, a Little Bit Rock and Roll.”

The idea in this article is a little bit Ayn Rand and John Galt, it’s a little bit Rosa Parks and Martin Luther King, Jr.; it’s a little bit Harvey Milk, a little bit Rick Santelli, and a little bit me. (Now there’s a group for you.)

Pass it on.

A reader sends this link to a London Telegraph article titled “Two-thirds of millionaires left Britain to avoid 50p tax rate.”

John T. Reed