Now that the taxman has finished, for the time being, nibbling on our "fortunes," it is time to look at a taxing system that needs major overhauls and detect which "reforms" are out-and-out scams.

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Paying taxes of any sort is one of the least-pleasant activities any American can experience, including those level-headed taxpayers who know that taxation is an important and necessary function of a civilized nation.

Our Founding Fathers knew that well. When listing the powers of Congress in Article I, Section 8, of the United States Constitution, the power of taxation was the first one they named proving wrong the claim by anti-tax propagandists that the US was founded on anti-tax sentiments.

Since the beginning of the nation, there has always been a movement to escape taxation by some that would result in transferring taxes to someone else, all of which are fraudulently labeled "tax reform."

The most damaging and harmful tax movements of late have been the cutting of taxes for the nation's aristocracy and transferring the tax load to the working middle class. That began in earnest in the Ronald Reagan presidential administration and has been carried to its ruinous extreme by the current George W. Bush administration.

When not cutting taxes for themselves, anti-tax proponents dream up new and more-novel plans to make the tax codes more unfair for others and more beneficial for themselves.

One tax scheme was proposed by magazine publisher Malcolm Forbes, who ran for president in 2000 with his only platform proposal being a flat tax on income. Forbes, a multimillionaire, earned his great fortune by two strokes of genius: 1) being born; and 2) waiting for daddy to die.

Forbes failed to mention that under his flat tax, in which dividend and interest income were untaxed, he could have had his $500 million fortune stashed away earning only 5% for a $25 million annual tax-free income. It apparently slipped his mind that he should have mentioned that fact or the fact that the "death tax" on inheritances never prevented him from becoming extremely wealthy for doing nothing.

No person should ever take advice on wealth building from someone who inherited great wealth and no nation should base its tax laws on the proposals of one who would greatly benefit from those laws.

Others periodically offer the nation a sales tax of 23% up to 34% to replace the income tax, payroll taxes, capital-gains tax, inheritance tax and all other taxes. Proponents call the proposal "The Fair Tax," but like all sales taxes, the burden would fall more heavily on the middle class and less so on the wealthy. What proponents also forget to mention is that, while the working American is busy all year long at the job and paying the steep sales tax, the proponents, who could be reaping a small fortune from their investments, could well be off on a yacht stopping in all the Caribbean locations, which, surprisingly, wouldn't have the US sales tax in force. Or they could just settle down in the Italian villas their vast fortunes purchased and, surprisingly again, could avoid paying the US sales tax.

Others propose a "value-added tax" which would have the same effect. Under this plan, a sales tax based on the added value of a commodity is added to the cost of that item at each stop in its development or movement through the economic system. An example would apply to the lumbering industry that framed the author's formative years. A tree has no economic value standing in the forest. When it is harvested and sold to a lumber mill, a tax is added. After the log is sawed into lumber, another tax is added when that lumber is sold to a distributor for a price that also recoups the initial tax. Another tax is added when the distributor sells the lumber to a lumber yard, which adds another tax when sold to a customer, either a contractor of an individual. If sold to a contractor, another tax is added when the lumber, used in construction, is sold as part of a building. This total tax is paid by the end user, which is the individual, not the business or corporation. And the elite sailing the Caribbean on his yacht or taking life easy at an Italian villa pays no US tax.

As an example of the scam of national sales or value-added taxes is an American actor, educated and trained with American tax dollars who may receive $20 million American dollars to film an American movie for an American producer in Vancouver (no US taxes there) to be played in American theaters with American moviegoers paying $10 American (oops, that might be the cost before several layers of "value-added taxes" were heaped on). Then the actor and the producer could take their American loot to their Riviera villas and never pay a cent in American taxes while the American earning $20,000 annually as a sewer worker (ala Ed Norton) pays all the taxes. That is advertised as a "fair tax" by those backing the scam.

Others who benefit from the US economy simply make no bones about their desire to escape US taxation. Halliburton, the giant oil-services corporation once headed by Vice President Dick Cheney, has abandoned its Texas birth place to run off to Dubai to escape US taxes all the while feasting on American defense contracts, many associated with the war on Iraq.

The Boston Globe reported in March about another scam perpetrated by an American corporation under the headline:

Shell companies in Cayman Islands allow KBR to avoid Medicare, Social Security deductions. 

The Globe reported:

Cayman Islands - Kellogg Brown & Root, the nation's top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven. 

More than 21,000 people working for KBR in Iraq - including about 10,500 Americans - are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands. 

The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies, and officials said the move allowed KBR to perform the work more cheaply, saving Defense dollars. 

But the use of the loophole results in a significantly greater loss of revenue to the government as a whole, particularly to the Social Security and Medicare trust funds. And the creation of shell companies in places such as the Cayman Islands to avoid taxes has long been attacked by members of Congress." 

After WWII, individuals in the US paid about 53% of all taxes in the nation while businesses of all sorts and sizes paid the remaining 47%. Tax laws have been altered ever since with businesses getting more and more tax breaks while the individual taxpayer picks up more and more of the tax load each year until now the burden has shifted so that the 53-47 split is fast approaching 90-10. Of course, with individual taxpayers picking up more and more of the burden they have less to spend in the economy, which means less income for business and that prompts politicians to offer a new tax break for businesses.

And tax scams that have been made possible by the nation's tax codes open the doors for other scams; the most notable being the Enron collapse.

The giant Texas energy trading company had many important connections to lawmakers, being the closest with George W. Bush before and during his reign as governor of Texas and as president. Enron, like many other influential corporations, managed to use those connections to free itself of tax obligations at all levels of government.

This free ride allowed the company to report money received as income and profit even though that income would be liabilities if taxes were applied as they were before the conservative revolution. Enron would sell bonds or stock and list the money from each transaction as income inflating the balance sheet's "profits" which jacked up the stock price. It would borrow money and do the same, and the stock came to be rated by brokerage firms as potentially a "hundred-dollar stock." Had Enron been heavily taxed on its phantom "profit" there would have been no scandal and no collapse.

Many apologists for Enron CEO Kenneth Lay ~ known as "Kenny Boy" to Bush ~ excused Lay's crimes on which he was later convicted by claiming him to be an ignorant dupe who knew nothing of the company's illegalities. The fact that he drew more than $300 million from the company in wages and bonuses because of his exalted status as the "smartest man in the room" and competent leader who couldn't be lost to the company because of his value was of no consequences to the "dupe" argument. The apologists cited Lay's purchase of Enron stock late in the company's life as proof to support their claim of his innocence.

They are fools. Lay was in on the scam and played it well. Here is how it works:

Lay would name his cronies to the board of directors. As payback for their lavish unearned income, the board members would give Lay stock options that he could activate if the stock price increased or ignore if the stock declined. Listing money from stock and bond sales and money borrowed from financial institutions as income and profit caused the stock price to soar.

Lay would then exercise his option and buy a million shares at $10 a share ~ the price when the option was extended ~ when the phony stock price hit $50 a share. (figures are used to demonstrate the scam, not to represent reality.) He would immediately borrow $50 million in cash from the company and put up as collateral his million Enron shares, which could be used for stock options in the future. There was never an intention of repaying the loan leaving Lay with a $40 million profit and the company with a million shares of stock that would eventually become worthless when the company died; killed in part by the very scams that enriched company leaders. It was advantageous for executives to exercise all options on the falling stock before it become less "valuable" and to borrow on the stock at virtually the same moment as purchasing it.

 The nation's brokerage houses continued to tout Enron as a $100 stock going through a "correction" following the 9/11 terrorist attacks, the same story executives told their employees who had their retirement hopes tied up in Enron stock that they were forbidden to sell. It took several months for the Enron stocks to become worthless, providing executives plenty of time to clean out all options at huge profit. 

Had Lay sold those shares on the New York Stock Exchange, he would have paid several million dollars in a short-term capital-gains tax, but since this cash went to Lay as a loan, he paid no taxes whatsoever.

Thousands of others lost their jobs, careers and retirements. Shareholders lost their investments. Former Republican Texas Senator Phil Gramm went public to claim he and his wife, who served on the Enron board of directors and helped facilitate the collapse by ignoring the ongoing scams, lost hundreds of thousands of dollars because of the collapse. But what he downplayed was the Gramm loss involved the compensation his wife would have received to continue serving on the board had the company not collapsed. How much, if any, personal Gramm money was invested was unmentioned.

That is one of the ways the nation is being scammed by tax manipulation and few people are capable of seeing this grand theft being perpetrated so they continuously vote into office the politicians who make these scams possible and inevitable. And the zeal to reform the corporate community to combat corruption following the Enron collapse has dissipated.

But we see that in the present presidential campaign no one is offering a solution to this national injustice that could, and possible does, easily occur in any corporation. Neither Democratic candidate mentions it and the Republican candidate offers to make permanent the tax laws that make it possible and proposes more tax cuts to make the scam easier and more abundant.

We are being taxed to death, but not with tax collections; with scams labeled as "tax reform."

Authors Bio:
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Thomas Bonsell is a former newspaper editor (in Oregon, New York and Colorado) United States Air Force cryptanalyst and National Security Agency intelligence agent. He became one of American journalism's leading constitutional experts through years of study at Georgetown University Graduate School of Government in Washington, D.C., and tries (without much success) to be patient with people who argue endlessly on subjects they have never studied. He is the author of "The Un-Americans: Trashing of the United States Constitution in the American Press", a critique of the mainstream media for ignorance of, or disdain for, our constitutional principles of self-government. He left newspaper work years ago, disgusted at the direction the Fourth Estate ~ under the mismanagement of ineffectual, out-of-touch, can't-do executives ~ was taking away from honest responsible journalism and the observation that there was no place in the mainstream media for a progressive, or liberal, constitutional "expert". Bonsell is an honors graduate of Woodbury College (Los Angeles, California) with a bachelor of business administration degree. He is profiled in Marquis Who's Who in America. (Self-portrait, above, was handled to make author/artist appear prettier than he actually is.)

Personal motto: Have brain; will use.