Quote of note:

What few of us realize is that the United States has two income tax systems, separate and unequal.

One system is for wage earners. Congress requires that your employer report your pay so Internal Revenue Service computers can check up on your tax return. Banks report interest. Brokerages report dividends. You must provide a Social Security number for each child you claim as a dependent. Congress does not trust you.

The other system is for business owners, landlords and investors. Congress does not require such independent reporting, saying that would be a burden.

How rich get richer: all the rest pay more
IRS scrutinizes wage earners but takes investors at their word under separate, unequal system
- David Cay Johnston
Sunday, April 10, 2005

Get a raise last year, or a bigger job, or make some extra money working overtime? You'll pay the tax man.

Too bad you did not get a job as a hedge fund manager. If you had, you would not owe any taxes come April 15 on your share of the hedge fund's profits.

Hedge funds are unregulated investment pools open only to rich individuals and big institutions. They operate offshore. And for their managers, some of whom earned a half-billion dollars last year, taxes are deferred as long as they keep the hedge fund open and the profits offshore, while you get taxes deducted from your paycheck. And, thanks to our government, their tax avoidance is perfectly legal.

The favored treatment afforded hedge fund managers, several of whom are in their 30s and have untaxed, multibillion-dollar fortunes, is just the tip of a very costly iceberg. Vast amounts of untaxed income, collecting unseen beneath the surface of the news, helps explain why the administration proposes less spending on education, health care, basic scientific research and veterans. Even as our government borrows more than $50 billion each month, it lets many of the richest Americans defer and sometimes completely avoid taxes.