The Tyranny of Taxes

Posted on January 29, 2013. Filed under: Politics | Tags: , , , , |

The president said that this country has a revenue problem. Not a spending problem, but a revenue problem.

In reality, it has a taxing problem, and a spending problem.

We are told that we have to raise the debt limit in order to pay for spending Congress has already agreed to.

That spending is better known as pork. Money that members of Congress set aside to pay for projects back in their home states to pay off campaign donors who gave monetary support to their campaigns. Often, these little nuggets appear in order to ensure a Congressperson will vote for a given bill. It’s how Washington works.

The president, through the power of the veto, could reject the bills and send them back to Congress. He could then say, “I like this bill, it is a necessary bill, but you need to trim the pork out before I will sign it.” To get that, however, we would need a president with backbone, and a willingness to stand up to Congress and say “enough is enough”.

I am not disparaging Obama here. In Bush’s last two years, he allowed Congress to run up the credit card as well. If the president truly wanted to change the culture of Washington, that’s the place to start.

In order to avoid the fiscal cliff, Congress rammed through a bill that raised taxes on those making $400,000 or more. You know, the “millionaires and billionaires”.

The president signs the bill, increasing the highest tax rate to 39.6%. I’ve talked to a few people who didn’t care whose taxes went up, as long as it wasn’t theirs.

Congress passed the completely misnamed American Taxpayer Relief Act of 2012 in early 2013. The reason it is misnamed is because of the following:

  • Top tax rates increase from 35% to 39.6%
  • The long term capital gains rate increased from 15% to 20%
  • The dividend tax rate increased from 15% to 20%, under the “relief” guise of not letting it go to 39.6%
  • Estate taxes jumped from 35% to 40%
  • The payroll tax holiday was ended, increasing most everyone’s taxes by 2%

The act is estimated to raise about $600 billion over 10 years, or $60 billion a year. It also extended a number of tax breaks to corporations, like rum producers in Puerto Rico, NASCAR and green energy companies.

Where’s the relief? If you aren’t a corporation, you get very little of it.

There was a post on the White House website that said “7 things you need to know about the tax deal” dated January 2, 2013.

1. As the President promised, income tax rates will stay low permanently. That’s good news for 98% of Americans and 97% of small businesses.

Not a word about the payroll tax hike, which hit 77% of all Americans. The wording is key, because payroll taxes are a tax that goes to the same place as your income taxes, but since it isn’t an “income tax”, you have no chance of getting any of it back. Let’s be honest. Payroll taxes are a tax on the younger, working people to subsidize the seniors. As the President promised, on a technicality.

2. As the President promised, for the first time in 20 years, a bipartisan agreement will increase tax rates on the wealthy. That rate increase will be immediately and permanent. Individuals making more than $250,000 will be asked to pay a little more to help reduce the deficit through a combination of increased tax rates and reduced tax benefits.

This is just a blatant lie. First, tax rates were increased on those making $400,000 or more ($450,000 for married couples). Second, notice the wording of reducing the deficit. Not the debt, but the deficit. The deficit is the amount that we spend, versus the amount we take in. In other words, the deficit is the shortfall amount that we need to borrow to cover. The reductions of tax benefits, and reduction of the deficit rather than the debt shows that this president has no intention of making spending cuts, and Republicans are fools if they think he will agree to meaningful cuts.

3. This agreement cuts the deficit. It builds on the $1 trillion in spending cuts the President signed into law in 2011 through the Budget Control Act.

Let’s be clear, to borrow a phrase from the president. This $1 trillion in cuts is over a 10 year period. This is a trick politicians in Washington use to make it look like they are actually doing something, and when the news reports it to us, they drop the “ten year” part.

7. This agreement doesn’t cut Social Security benefits, Medicare, or Medicaid. That’s because the President stood strong against reducing our deficit on the backs of seniors, students, the poor and working families.

Instead, he would rather use them as leverage in the latest debt ceiling crisis. The agreement also doesn’t address the ungodly amount of money spent on foreign aid packages.

The United States has some of the highest tax rates in the world (the US being one of six developed nations where the corporate tax rate is higher than personal tax rates), when you dig through all the layers.

  • Federal income taxes
  • Federal capital gains taxes
  • Federal corporate taxes
  • State income taxes
  • State capital gains taxes
  • State corporate income taxes
  • County taxes (in some cases)
  • Local taxes (in some cases)
  • Property taxes
  • Federal gas taxes
  • State gas taxes
  • Federal sin taxes
  • State sin taxes
  • Estate taxes
  • Transfer taxes
  • Hunting “fees”
  • Fishing “fees”
  • Sales taxes
  • Automobile licensing “fees”
  • Driver’s licensing “fees”
  • Convenience or “use fees” for event tickets
  • National Park “fees”
  • State park “fees”
  • Obamacare taxes
  • And so on. This list is far from complete, and not all-inclusive.

However, in the case of corporate taxes and sales taxes, most people don’t realize that when those are instituted, prices go up, because the seller is passing those taxes on to you.

The seller is required to pay the State a portion of their “sales”. In all cases, when there is a sales tax, the vendor tacks that tax onto your bill. They don’t pay it, you do, even though the tax is supposed to be paid by them.

For corporate taxes, let’s take a head of lettuce as an example. Let’s say that it costs a farmer $0.50 to harvest a head of lettuce (all my prices are made up for ease of calculation). Let’s say that same farmer charges $1.50 per head, so he has an income of $1. The highest corporate tax rate is 39% (Federal only). He will tack on an additional $.39 in order to cover most of his taxes. So that $1.50 head of lettuce is now $1.89, a 26% increase.

Billions upon billions of dollars from corporations are still sitting overseas because the government wants too much in taxes. GE, Nike, Apple, and Intel all have billions floating offshore. Not just because labor is cheaper in China, but because China’s tax rate is 25% for corporations. Compare that to a top Federal rate of 39%, a state top rate of 12%, plus a variety of county and local taxes. Taking just the Federal and State top rates, these corporations are being told they must pay 51% of their income to the government.

Let’s say you are a corporation with $10 billion in income for a given year. You can earn that income in China, paying $2.5 billion to China and keeping $7.5 billion for your corporation; or you can earn it in the United States, paying $5.1 billion to various taxing authorities and keeping $4.9 billion for the yourself. That is a difference of $2.6 billion. Which would you prefer to do?

Is it greedy to want to keep the money for yourself, or to want to take it away (I believe that is called coveting)?

I said that most corporations would pass the tax on to the consumer, and they do. The $10 billion example was used for ease of calculation, but the amount that corporations take in to cover most of their taxes still counts as income.

If the governments here were to drop their corporate tax rates by half (for the sake of argument, drop the total to 26%), a lot of money may start flooding back into this country, and a lot of revenue raised.

This is the tyranny of taxation. When the government can claim over half of an income stream for its own, something is wrong. I reject the “but they can afford it” argument. People go into business for one reason, and one reason only. To keep the fruits of their labor for themselves. It isn’t to provide jobs or healthcare for people. For those who complain that these companies are making money off their employee’s labor, go start your own business. That’s the whole point of going into business. However, if the government is going to charge oppressive taxes, corporations are voting with their wallets and moving operations where the tax rates and labor is cheaper, where people actually want to work.

I haven’t even started on the upcoming Obamacare taxes. Health insurance premiums are rising. People are losing their jobs or having their hours cut back. Braces for children are more expensive now, thanks to the “medical device tax”, as are CPAP machines (sleep apnea) and other machines used in hospitals and doctor’s offices. Your bills will start going up. I don’t know how these charitable children’s hospitals are going to cope with their taxes. Then there is the Federal government limiting how much they will pay the healthcare industry for Medicare. More will start to drop Medicare as a form of payment. This is an attempt to control prices. Nixon’s wage and price controls didn’t work in the 1970’s, it isn’t going to work here.

While raising tax rates may sound like it will raise more money, it doesn’t. There is no readily apparent example of this than how corporations are acting and keeping money overseas. French millionaires are fleeing France because their tax rates went to 75%. I think Arthur Laffer, creator of the Laffer curve has it absolutely spot on. At no tax rates, and 100% tax rates, the government gets very little. At some point, there is an equilibrium between the maximum revenues and tax rates. Of course, no one knows where that magical rate is, but lower taxes encourages people to invest and go into business for themselves, and if successful, employment is a by product.

That’s what this country needs. Encouragement to invest and open businesses, not higher tax rates.

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