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Most of our politicians do not seem to be about solving problems. They seem to have become more about creating them with increasing frequency and severity, and using them as clubs with which to bludgeon opponents. Now it looks as if they are going to kill off all America’s spirit and incentive to work and create by punitive taxation and wealth redistribution. Read that as take from the haves and give to the have nots. Or, as Karl Marx put it, “From each according to his abilities, to each according to his needs.” (taken by threat of prison and enforced by men with guns and handcuffs.)It looks like the government (who can’t manage anything and would seriously “screw up a one car parade”) will take over those failing “business that are too big to fail.” Between feuding and self-serving politicians and anal retentive government bureaucrats our economy will surely collapse in line with a quote often attributed to a Scottish Historian, Alexander Tytler or Tyler. The true origin of the quote is obscure and might have originated in the early 20th century from an unknown politician or writer. Nevertheless, this does not detract from its accuracy.
One version of the quote on why democracies always fail is:
"A Democracy cannot exist as a permanent form of government. It can only last until the citizens discover they can vote themselves largesse out of the public treasury. After that, the majority always votes for the candidate promising the most benefits from the public treasury with the result that the Democracy always collapses over a loose fiscal policy, to be followed by a dictatorship, and then a monarchy."
A version of the second part of the misquote, attributed in 1983 to Arnold Toynbee is:
"The release of initiative and enterprise made possible by self-government ultimately generates disintegrating forces from within. Again and again, after freedom brings opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent; the incompetent and unfortunate grow envious and covetous; and all three groups turn aside from the hard road of freedom to worship the golden calf of economic security. The historical cycle seems to be: from bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more."
But the person who appears to be the actual author is Henning Webb Prentis, Jr., President of the Armstrong Cork Company. In a speech entitled "Industrial Management in a Republic," delivered in the grand ballroom of the Waldorf Astoria at New York during the 250th meeting of the National Conference Board on March 18, 1943, and recorded on p. 22 of Industrial Management in a Republic, Prentis had this to say:
“Paradoxically enough, the release of initiative and enterprise made possible by popular self-government ultimately generates disintegrating forces from within. Again and again after freedom has brought opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent, the incompetent and the unfortunate grow envious and covetous, and all three groups turn aside from the hard road of freedom to worship the Golden Calf of economic security. The historical cycle seems to be: From bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more.
“At the stage between apathy and dependency, men always turn in fear to economic and political panaceas. New conditions, it is claimed, require new remedies. Under such circumstances, the competent citizen is certainly not a fool if he insists upon using the compass of history when forced to sail uncharted seas. Usually so-called new remedies are not new at all. Compulsory planned economy, for example, was tried by the Chinese some three milleniums ago, and by the Romans in the early centuries of the Christian era. It was applied in Germany, Italy and Russia long before the present war broke out. Yet it is being seriously advocated today as a solution of our economic problems in the United States. Its proponents confidently assert that government can successfully plan and control all major business activity in the nation, and still not interfere with our political freedom and our hard-won civil and religious liberties. The lessons of history all point in exactly the reverse direction.”
For more information about these quotes and their sources go to http://www.lorencollins.net/tytler.html
The recent election was all about money from the public treasury—money for this group or that group—lowering taxes for those who currently pay the least and raising taxes on those who now pay the most. We are among the highest taxed nations in the world and the incoming congress and administration promise more and bigger taxes. Within a year the US will have the highest overall rate of taxation of any nation. This is an indicator of economic doom. Here are the facts.
After the Fannie Mae and Freddie Mac debacles came the gifts of $700 billion in our tax dollars to financial institutions who, because of their own greed amplified by government interference, seriously damaged our economy costing billions of dollars in losses for a great many people. And just how many hundreds of millions did those individuals responsible for the mortgage debacle stick into their own pockets and walk away with? They should be stripped of their property and dumped in jail, but what’s really going to happen to them? Well, glory be! They are now in charge of fixing the very fiasco they orchestrated. Something is very wrong here.
Since then we have seen several other leaches with their hands out come to Washington to ask for billions to save their own sorry butts, some even flew there in their private jets. I see no reason why the big three can’t do what the airlines did by using chapter 11 to reorganize and become competitive again. I know most pilots had their pay cut in half and many lost most if not all of their pensions. With big three auto workers at about $74 per hour while foreign auto makers in America (who are not asking for a bail-out) pay their employees about $43 per hour. Gimme a break! This is more a bail out of the UAW than the auto companies. Unless they dump those ridiculous pay and benefit scales and become truly competitive, all that money will just disappear down the usual political payoff rat hole. How many more companies are waiting in the wings to dip their hands into the till? Why can’t we afford to let them fail? All that money is just sending good money after bad and will only postpone the inevitable. It’s bite the bullet now or bite a bigger bullet harder later.
At present, government creates problems because our elected officials ignore or deliberately refuse to see the realities going on all around them. Without exception in virtually all nations, the higher their taxes, the slower their economic growth. It has even been shown that virtually every time taxes are increased, total tax revenue decreases. The opposite is also true. When taxes are lowered, business thrives and grows, the economy becomes more vital, more new jobs are created, and tax revenue increases. Certainly there is a point of no return, but the result of Ireland’s drastic cut in business taxes to 12.5% including capital gains clearly demonstrates the efficacy of business taxes far lower than what we have currently. To increase business taxes is one certain way to lower tax revenue and damage an economy. It may make some people feel good to see politicians punish the “wealthy” by taking their hard earned money, but when it costs them their job things may look a bit different. It’s low tax rates and a business friendly atmosphere that makes for a successful, growing economy. There have been countless examples throughout history and all over the world. Government taxes and controls stifle creativity, productivity, satisfaction, incentive, and the creation of wealth. The less government controls and taxes the more incentive the people have to be creative and work diligently. This always results in greater creativity, productivity, satisfaction, and the creation of wealth. Even the Chinese have realized that and acted on it. I have asked numerous liberal leftists about this fact but they have no answer. They seem more interested in punishing the “wealthy” (a relative term) and bringing them down than in rewarding diligence, thrift, and inventiveness and so bringing up those on the lower income levels. At the same time they seem to want to reward those who for any reason are unable or unwilling to work to earn their keep.
A look at America’s tax systems.
US personal CGT (Capital Gains Tax) is now 15% (5% for lowest income brackets) (Obama has proposed to at least double this rate)
US corporation CGT is 35% (Obama proposed to immediately raise this to 39%)
US Corporate income tax rate is now 35% (Obama has hinted at rates as high as 55%.)
SS tax rates are 15.4% of gross income (that’s a flat tax on the first dollar earned up to $103,000,00 per year, no deductions) (Obama has proposed we tax all income at this rate.)
VAT(Value Added Tax) varies from 0% to 9% by state and municipality.
State income tax rates vary from 0% in seven states (2 states tax only dividend and interest income) to 8.14% in NY and 10.2% in CA. New York City adds a 4% city income tax.
Total state tax burden varies from a low of 6.4% in Alaska to a high of 11.9% in New Jersey. Most of the high rate states are in the north east with New York second at 11.7%. California is 4th at 10.8%
Hidden federal taxes on purchases (excise, transport, license fees, etc.) amount to between 15% and 24% of every dollar spent by every individual for everything purchased. This tax falls heaviest on those with the lowest incomes.
Federal excise taxes are 18.4¢ per gallon for gasoline and 24.4¢ per gallon for diesel. Since fuel is taxed by the gallon, when gasoline prices fall the percent taken by taxes rises and visa versa.
There are many other hidden and specific taxes and tax exemptions that transfer money from private citizens to the federal, state and municipal treasuries.
All of these taxes—all of them—are actually paid by the public, the consumer, the end user. Corporations don’t pay taxes. Professionals don’t pay taxes. Taxes levied on any private income generating entity are merely passed through to the end user in the price they pay for the goods and/or services they purchase. THEY ARE A COST OF DOING BUSINESS! Just like rent, utilities, advertising, and all other business expenses they end up on the “expense” side of any business ledger and must be balanced by income. All expenses are added into the price of goods and services supplied by the company or individual who is in any business or profession. I really don’t know why this is so difficult to understand. The result is that when taxes are raised, the total amount of that increase is passed on to the consumer.
Example: Take a hardware store that sells paint. Say that at present the paint sells for $20.00 per gallon and that the store makes a gross profit of $5.00 on each gallon of paint that yields a net profit after expenses and taxes of $2.00. That’s 10% of sales. Now comes the government and raises the tax on net profit to the tune of 50¢ on each can of paint. The store owner realizes this and in order to maintain his level of profitability and be able to support his family, he raises the price of the paint to $20.50 per gallon. He also raises the price of every other item in his store by the same percentage, 2.5%. His competitors, faced with the same tax increase, will raise their prices as well.
You can apply this rule to every business, profession, individual, and corporation in the world. All taxes are ultimately paid by the end user. You can rest assured the guy who is the head of the hardware conglomerate that supplies the paint had his taxes raised as well so his price to the hardware store has gone up another 25¢ which he passed on to the hardware store owner as a wholesale price increase. This 25¢ added to the cost of the paint means the store owner must add that in as well so the paint now sells for $20.75 per gallon. Now think about all the components that go into that one product: the pigment, the oils, even the can and label, all have added to the cost of the can of paint. Let’s say all these little increases from the raise in tax add up to another 20¢ in the wholesale cost of that paint. The store owner must now raise his selling price another 20¢ to $20.95 .
But wait just a moment. This leaves the store owner with the exact same income he had last year and because of the tax increase everything is now about 5% more expensive. He does some quick calculations and decides that in order to maintain his living standard he must raise the price of the paint (and everything else in his store)at least 5% just to stay even. Then his clerks come to him complaining their take-home-pay has dropped and in the face of rising prices for everything, they need at least a 10% raise. His landlord raises his rent and on and on until that can of paint is now selling for $21.29. So, who really pays for tax increases?
Now let’s look at one of those wealthy taxpayers who are going to get soaked by all those raises in corporate and capital gains taxes. Joe is a multi millionaire with a large stock portfolio, some real estate and a good chunk in the bank. His investment counselor called him early last year and suggested that the future didn’t look good for several reasons including specifically a drastic drop in the real estate market and a huge increase in income and capital gains taxes. It took Joe more than two months to liquidate most of his real estate and sell many of the American stocks he held. He flew to Ireland and looked into some real estate and business investments there. He lost nearly 25% of his holdings because of the declining markets, but is certain he will gain in the long run because of the vigor of the Irish economy and the Irish capital gains tax of 12.5% instead of the 39% CGT America is facing. He had started a small energy research company in California several years ago that had grown to thirty employees. In August he moved the entire operation and all but five employees to Dublin. He also moved most of his cash to the Bahamas. He will wait to see how the new administration and congress act before deciding what else he must do to maximize his asset growth. His home in Palo Alto has been put up for sale. When asked about his losses from liquidation he replied, “I will be receiving a larger after tax income from a smaller but growing investment so I should make up my losses rather quickly. Right now I am considering moving to Ireland permanently.”
The Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, two center-left think tanks, said that, "a lower corporate tax rate and a lower capital gains tax would encourage multinational corporations to invest more in the United States and, for a given amount of investment, to report a larger share of their worldwide taxable income to the United States instead of foreign treasuries." With investment capital deserting our economy in huge quantities because of punitive business taxes is it any wonder the American stock market is crumbling? It is interesting to note that as Obama’s poll numbers dropped the market gained ground and visa versa. Since the election the stock market has been in a virtual free fall. This drop is the direct result of the anticipated tax increases that are already a major factor in our failing economy.
Let’s look at some tax consequences at today’s rates:
First, take Ahmed, a resident of New York City at the lowest income level. Assuming no federal income tax look at what happens to $100.00 he earns. FICA tax takes 15.4%, State Income tax takes 8.14% and New York City takes 4%. That takes from Ahmed $27.54 reducing his after tax earnings to $72.46. Then when he spends that amount to purchase life necessities lets say these have the minimum hidden taxes of 18% or $13.04 giving him a total tax burden of $40.58 out of the original $100.00 he earned. That’s a rate of taxation of the poorest NYC wage earner of more than 40%. Who said the poor don’t pay taxes?
Second, the same earnings in December of Louise, a person in the highest tax bracket. Under the present law, state and city income taxes take the same amount, $12.14. (She pays no FICA tax because she has passed the maximum income) The highest Income tax bracket of 35% takes another $35.00 reducing her after tax earnings to $52.86. When she spends that amount, minimum hidden taxes of 18% take $9.51 for total tax burden of $56.65 out of the original $100.00 she earned. That’s a rate of taxation of the wealthiest NYC wage earner of 56.65%, just 41.65% higher than the poorest. This means that the wealthiest New Yorkers pay less than 50% higher taxes than the poorest New Yorkers. Sounds more like soak the poor than soak the rich. Like Joe in the earlier example, Louise has options Ahmed does not.
Let’s look at the third example. Louise is not a wage earner. Instead, she makes her living with investments, holding, buying and trading stocks. By holding them for more than a year and then reporting her income as capital gains she would only be liable for 15% tax on her capital gains and dividends. She would have 6.85% NY state CGT and 2.3% city CGT (capital gains tax). So, how does this shake out. Federal CGT would be $15.00, State CGT $6.85 and city would be $2.30 or a total of $24.15, a rate of taxation of 24.15%, lower than the tax rate of the poorest taxpayer. But look at it another way. Of that $100.00 earned, she would retain $75.85. If her ordinary expenses were $5.85 out of that, it would leave her with $75.00 to reinvest to grow business and create jobs for other people. The more investment capital she had, the more jobs she could create and the more the total economy would grow.
Small business owners employ the largest number of workers in the private sector. Recent interviews with many of these businessmen show their planning for the next few years has been scaled back considerably. Most have put off or cancelled expansion plans and new jobs. Some are planning facility closings and layoffs. Some that can are moving off shore while others are closing their doors and going out of business. This does not bode well for our economy and is all a direct result of promised tax increases. I know why rank and file workers are so blind to these realities, but why is it that politicians and the media refuse to recognize them?
Would any of you liberals out there tell me where my math is wrong or what should actually be done that will not destroy the American economy? Facts and logic please!
