I don't understand why i am penalized for defending myself...
As PH45 said, if you got punished, you were more than likely counterflaming instead of defending yourself. Defending yourself would be using the mute feature, not flaming them back.
...and the guy flaming me terribly will likely go unpunished because I didn't press the report button?
I'll be blunt; if you didn't bother to report their misbehavior, then you've no real right to complain about whether or not they got punished. The IFS won't look at a person's behavior until they're reported - it's not some all-seeing eye that punishes anyone and everyone for the slightest offense, so if you really want a player to be punished for their misbehavior, you have to report them.
I spend SOOOOOOOO much money on this game to receive a 14 day ban when someone else starts in on me?
Also like PH45 said - how much money you spend is irrelevant to whether or not you get punished. Your behavior is the only thing that's relevant to your punishment. It doesn't matter if you've spent ten dollars, ten-thousand dollars, or have spent your entire League career playing true Free-to-Play, if you break the rules, you get punished all the same.
...but the toxic player base has way to much power in this game.
They only have power if you give them power. Mute them, report them, and don't give them the time of day, and guess what? They're powerless.
I am sure the ppl at riot ddint even read the chat...
Unless your case was one of a scant few that Riot has the time to audit for accuracy's sake, then, no Riot employees read your chat logs. However, the IFS (Instant Feedback System) did. And it's pretty well-trained to discern flame and negativity, and other misbehavior that's below the bar.
arguments are NEVER one-sided so why am i punished.
Because flaming isn't welcome in League. It doesn't matter if you both were going at each other mutually or if you agreed to flame each other or whatever else - if you flame, you're breaking the rules. Counterflame is still flame, hence, you being punished.
I would rather be perma muted than miss the game I enjoy.
Permanent chat mutes aren't going to be a thing, as Riot has previously tried what amounted to it, and it resulted in players under those such mutes resorting to trolling and intentionally feeding to harass their teammates.
WHen i come back do I just report everyone? is that what we do now?
No? I mean, you can report everyone, but unless someone actually misbehaves, your report will generally be thrown out.
If you really enjoy League, you wouldn't be entertaining petty thoughts like that. Try to understand your own punishment before getting vindictive towards the community.
I obviously have no control over being reported for defending myself.
You have no control over whether or not you're reported, but you do have control over whether or not that report is valid. Don't flame back, use the mute feature.