Armchair Operator
Marksman
- Oct 22, 2012
- 284
- 28
Alright, here's a more clear example for those who don't understand the difference.
A manufacturer hires an IT consultant to keep the computers running smoothly. They transfer money to the consultant in exchange for his services. His services result in greater productivity for the manufacturer and therefore more of their product being produced. Net wealth is increased.
A manufacturer hires a tax accountant to handle their taxes. They transfer money to the accountant in exchange for his services. His services do not result in greater productivity and net wealth is not increased because nothing tangible is created as a result of the effort that he expends.
This is not an argument against accountants. They serve a purpose that is of value to the people who hire them. It's a very legitimate type of employment. This is an argument of economics. The fact that a person's services are valuable to someone does not mean that it creates wealth overall. It transfers wealth from one person to the next.
Since I currently work in IT for a mid-sized accounting firm that mostly focuses on business taxes and financial planning I was surprised at how much difference a good accountant/tax professional makes. When they would get a new client, almost every time they were able to reduce their tax liabilities to the point where they would safe them a boat load of money. This is especially true when it comes to a family owned business where owners have lots of kids and grand kids and start "gifting" to them each year. If done properly those large gifts cannot be taxed fully by the IRS but again, you'll need a good tax/accountant professional to do that.
Again, I don't think that this practice is fair but that's how things are. Rich just get richer I suppose.....