If I build a house on the land, the property tax (originally meant as a land tax) goes up.  

I have heard liberals call for an "asset" tax. The fact is, we already do since property taxes have morphed into that very tax.

How it works:

So I earn $1M. The federal government takes $.35M of it. The state takes another $.05M. 

With my remaining $.60M I decide to build a house. The state then taxes me another $.05M on building it (sales tax).

Then, every year, having taken $.45M from me to build my $.6M house the township is going to tax me about $.02M every year for it because I chose to build a house there. Before, the land was worthless but now they are not just taxing the land, they are taxing the asset (the house) I put on the land. 

So even if I get sick and I've paid off my house, I still have to pay the $.02M a year in taxes and if I don't, they'll kick me out.  

We never truly own anything anymore, it's all really owned by the government.

How exactly is that a loophole?

So I earn $1M and I pay/give someone else more than they should. I'm still out of the money. 

To use your example: I make $1M. I give my uncle $100k to mow my lawn.  I save $35k in taxes but have given out $100k. I'm $65k worse off.

Now maybe the uncle gives me the money back. That's illegal unless I claim it as income which brings us back where I started from.

No, that doesn't work either because in the example you give, the company can't claim the dividends as an expense. The most you can do is reduce your payroll tax.

When I pay myself, the company can claim that as an expense.  But if the company pays me as a dividend, I can claim that at the capital gains tax rate (15%) but the company can't deduct that money so now I've paid 15% in taxes PLUS my company has to pay the 35% in taxes still on it. So now, that's not a loophole. The only benefit is that I avoid payroll except again, payroll is 12% (both sides) whereas capital gains is 15% so I end up losing 3%.

Other than reducing payroll taxes you're still out of luck.

For instance, you can set yourself up as an LLC and then have your company pay you as an LLC (like a contract).  As the owner of the LLC, you give yourself a disbursement which avoids payroll taxes and the company can still deduct the cost still.

But the government knows this "loophole" and doing this greatly increases the odds of an audit and all you've saved is some payroll taxes (and SS tops out at $100k anyway so you're only saving Medicare).

Now if Obama eliminates the cap on SS taxes, then you'll see a lot more of that.

The John Edwards Method.  Champion of the common man that he was, he took nearly all his money as capital gains (if reports are to be believed).  Funny how some people talk some talk while walking some other walk altogether (actually not).

the purpose of taxing the improvements on the land are indeed to tax the so called rich. simply a straight forward "wealth tax". At least in theory, in practice it leads to land speculation, undervaluing of property and a disincentive to invest and improve your property. Oh, and lots of urban sprawl, pollution, wasted energy, destruction of land, etc etc etc.

If you only taxed land it would have incentivised people to use as little land as possible, resulting in more efficient larger structures. A transition from single houses to town houses, to apartment complexes, to sky scrapers, to arcologies. Increasing population density, decreasing car use, increasing mass transit use and walking, decreasing land waste, increasing air conditioning efficiency (its more efficient to cool down an apartment complex then a single home), and so on.

http://en.wikipedia.org/wiki/Arcology

With a land tax having a single home would not make much sense due to land taxes, it would be better to build up on the same little plot. The rich would still have massive mansions and end up paying lots of money... much MORE so then they do now, because what happens is that the rich just buy a HUGE massive plot of land, leave most of it as a forest, lakes, etc (their "yard") and build a relatively small mansion on top of it. If you taxed the land only then the waste of land around the house will be taxed higher, it will either balance itself out, cost them even MORE money then before, or cost them less, depending on how extravagant they are.

http://www.youtube.com/watch?v=T6ZPq1LJroM

http://en.wikipedia.org/wiki/Bill_Gates's_house

In the end, this "progressive tax" hurts the middle class (especially upper middle), it hurts EVERYONE a little (undeveloped land due to speculation), and it hurts the environment a whole lot.

here is a question, if you do have a land tax instead of a property tax. How would you go about valuing the land / tax? that is, would the tax be based on the value of the land? would you dare opening the can of worms of valuing it based on its intended use? could you instead tax based on a specific "zone" of the city it is located (square feet x taxrate per square foot)

There are several methods you can use.

They are already in place now. The results are used and are part of the valuation of the entire property (including improvements).

yes, but which of those is the BEST way and why? I gave a whole list of reasons why taxing land is better than taxing land improvements.

I don't know which is best.

But I assume that any of them will be better than the current system. (They have to be since whatever error they create is already part of the current system.)

Look at the net effect. Lets say you want your uncle to gain $100k. If you employ your uncle then you're saving taxes at 35% while he's suffering them at a lower rate. That means that it is cheaper to give him $100k net of taxes than it is to suffer the tax yourself and then give it to him. You're also not $65k worse off, because you were going to give him that money anyway. Obviously if you don't want to give him any money in the first place then the loophole wouldn't be of any use. It's basically a way of converting something that normally wouldn't be classed as an expense for tax purposes into an expense.

Well the aim is to get away with paying less taxes overall, so if payroll taxes are reduced (and other taxes aren't increased by an equal or greater amount) then that aim is achieved.

not everyone gives their money to their relatives... in fact I would say very few people do. Not to mention that employing and overpaying your uncle stinks of nepotism and lowers morale in the company, as well as reducing your overall profit as a company (since there is most likely someone more qualified to do his job).

and unless you are the sole propriator, then it is theft of money from the other stockholders. Which makes it illegal, not a "loophole".

http://www.cracked.com/article_17240_7-retarded-tax-evasion-schemes-people-are-actually-trying.html

So far most of the "loop-hole" "suggestions" would have netted brad a prison sentence for tax evasion had he used them. Which is probably why he is rich and you guys are busy bitching about the rich not paying taxes via their magic "loop-holes".

Legally avoiding paying tax is not tax evasion, is not illegal, and will not net you a prison sentence. Of course if you're an idiot and you try and take a loophole that works in very specific circumstances and use it in completely different circumstances then it likely will.

Oh and I've little interest in providing the full details of various tax loopholes that are tailored to brad's situation - for starters that sort of advice is worth a lot of money (as his tax accountant's fees will probably demonstrate) and would involve a fair amount of time, hence why I kept my examples nice and general so that they'd apply to various people in different countries without being so specific as to both be giving away highly valuable information for free and to be giving information incorrect in many tax jurisdictions.

And none of the so called "loop-holes" listed by people here was legal or real.

And that is a flimsy excuse aeortar, there has not been a SINGLE real loophole mensioned here, yet claims that the "rich don't pay taxes" because of loopholes abound.

The closest to a loophole I saw was the concept of ruining your company with nepotism, and assuming you do it in a legal way that doesn't net you in prison for tax evasion, you still only gave "free money" to a relative instead of actually cutting your tax burden (news flash, your uncle is not yourself, it is not YOUR tax burden that goes down if you pay him).

What??

If I have earned $1.00 and if I do nothing I will be forced to give $0.35 to the government I'm NOT better off if I get that $1.00 to my uncle.  

In the first scenario, I still have $0.65. In your scenario, I have nothing.

He's saying if you're going to give him a buck, do it pre-tax as wages, on the assumption that the total tax paid between the two of you would be less than if you simply earned then gave him the buck.  Only two problems with this scenario:

First, you have to earn the buck.

Second, you'll have to match the FICA deduction in addition to the buck as well as bear the cost of payroll accounting, employee benefits & a few other odds & ends.  Cutting payroll checks isn't free.

Might end up with a lower net cost by hiring the uncle, might not.  'Course, that assumes you've got some other motivation to give the uncle some of your money in the first place.

This is the discussion I have with my wife every tax season when she asks 'How come we can't get bigger charity deductions like everybody else?'  You have to have earned the money in the first place and giving away $10k to avoid $3k in taxes does not leave you better off - you've still parted with a net $7k.  It's like talking about all the money she 'saved' by buying a whole bunch of stuff we didn't need on sale.

Ha, yea, I am always amused by the concept of "sale = save"... in the end of the day i am still out of money that i would have otherwise kept, and instead have a product i don't need or don't really want. (well, theoretically, in reality i don't do that).

by following logic, they might as well claim that the evil rich don't pay taxes because they give most of their money to charity, which is tax deductible... damn rich person loopholes! [/sarcasm]