Saturday, July 25, 2015

Tax fairness in the eye of the beholder

I have been thinking about this and the amount of taxes we are subjected to is amazing. I began thinking about taxes that normal people would owe and came up with the following list. I am sure that I am missing some taxes but think about how much money is at stake and also think about the complexity and time wasted filling out forms:

Federal Income Tax
State Income Tax
Local Income Tax ( some places)
Social Security Tax
Medicare Tax
State Sales Tax
Local Sales Tax
Real Estate Property Tax
Federal Estate Taxes
State Estate Taxes
State Inheritance Taxes ( some states)
Real Estate Transfer Taxes
Federal Gasoline Tax
State Gasoline Tax
Federal Cigarette Tax
State Cigarette Tax
Local Cigarette Tax
Federal Communications Tax

Feel free to add taxes to the list that I overlooked. But I think this give everyone a general idea about the level of over taxation and complexity we need to reduce. Imagine if all this effort was put to a more productive use.

Fairness is in the eye of the beholder. For a business owner who takes risks, creates jobs, makes sacrifices, pays taxes, and creates jobs, 50% is unfair. That rate may seem fair to an academic or government pontificator or a "community activity" concerned about "income inequality," but for job creators fairness is an issue of being allowed to enjoy the rewards of their efforts and of the community good--yes, job creators do community good in many ways--that they do.

In a market economy, everything has its price--including the Schumpterian reallocation of unproductive assets to more productive uses. That's what the entire private equity industry is about.

It is a net benefit to society to free resources trapped in unproductive enterprises. The people who are tasked with doing this have a hard job--made harder by people like you who while claiming to support free enterprise and markets attack them because their talents are on the managing the downside.

People are paid for the value the bring, irrespective of whether you morally approve of what they do or not. It's not about morality at all, but efficiency.

Society benefits from the downsizing of companies that need to be downsized, even if some individuals don't.

Think about it this way: isn't the federal government in desperate need of a substantial downsizing? How much would you pay somebody to do that?

When they are applied on the basis of political partisan interest, and almost half the nation ends up paying nothing in order to secure a voting base.

It is not just the tax rate, but also the overall volume of taxes. You have to remember that including state and local taxes, government already takes well over 40 percent of the national wealth.

The more the government takes, the less remains available for those that actually produce the goods and services. Every extra dollar that doesn't go into essential services to support the productive sector reduces the overall wealth of the country.

As much as we need a maximum tax, we need a true minimum tax. Everyone earning an income should pay at least some percentage as a non-refundable tax to help fund the government, even if it's only 1%. Surely even those working for minimum wage can afford one penny out of each dollar given all that they receive from the government?

Taxes are already harming the economy. How much harm depends on how it impacts businesses and what the revenues are used for. If the government continues to use it for crony capitalism, to overpay government employees, and for redistribution of wealth it will eventually lead to a lower standard of living for everyone and destroy our economic engine namely private sector businesses.

Government revenues are so wasted on misguided objectives its hard to imagine a more obvious problem that needs to be resolved.

We keep hearing the words "pay your fair share" but there is nothing fair about our current tax code. We've got too many loop holes for special interests and too many people not paying at all. We've got to get rid of the zombies in Washington who keep coming back for more and more revenue and replace them with fiscally responsible representatives who understand what a constitutionally limited government is.

Not that many eons ago, it was proposed that we dispense completely with the income tax, replacing it with a consumption tax. Because pure consumption taxes, that are really sales taxes, are so regressive, we would not tax staples, such as food and clothing below a certain dollar-hit. We also could issue those who were unemployed or impoverished cards that would entitle them to reduced or even forgiven taxes, for specific periods of time after which they'd need to have them re-authorized on proof that their conditions hadn't changed.

But just about everything and just about everyone would be hit with the tax, depending on how much they consumed, and of what products and services.

Now, of course, the tax zombies (love that label) are suggesting that we enact a broad-based consumption tax in addition to the income tax. That, of course, will never fly. But perhaps it's time to start discussing the original proposition, because the income tax has become the most complex construct since the human genome, and it's become unacceptably intrusive and destructive.

The problem with this eminently sensible idea, of course, is that it effectively removes from Congress the power to seek to guide the development of our society by establishing income tax incentives and disincentives; and these guys went to Washington at least in part to exercise that precise power over all our lives. So, certainly the left side of the aisles are not easily going to give up the power to first demonize those who earn more, then punish them for it.

There are several states, both large and small, that operate without an income tax and use consumption and other taxes to function. Quite successfully, too. And most, if not all, states without income tax also provide tax "relief" for things like food and medicine etc to mitigate the regressive nature of a consumption tax on "necessaries".

The U.S. federal tax code is truly an abomination. Because the tax code has been mostly used to drive behavior instead of collect "necessary" revenue, it has become incomprehensible; overly complex; and corrupt. It cannot be fixed, and it needs to be replaced. Even if replacement is still an income based form of taxation, something simple that doesn't seek to pick winners and losers would be so very beneficial for the country and the economy.

This, however, would pull from the hands of Congress and the President a treasured lever of influence that they will never let go of. Handing out favors or punishment via the tax code is the preferred way of business. It is why, by the way, they love higher rates --- because the higher the rate, the more valuable is the "break" to be handed out to lower or remove the tax burden.

Keep in mind that the progressives see every job as a perk, as if it were a gift of a fixed total pie and if you don't earn more money then someone else will. They don't understand, or refuse to believe that there is any difference between people - we are all just plug and play to them.

It's why they don't get what real innovation is and simply cannot understand how one can have profit and yet create more and better products than a nonprofit organization. Basic economics befuddles them - even the ones who are economists because they seem to think printing more money means they have created wealth.

If people really understood what would happen if the rich took out their money and spent it all at once they would be fearful of programs designed to force that end - food prices would skyrocket, everything would cost more and the price would change by the minute. If you weren't rich you would be unable to afford to live.

Meanwhile, the big bad so-called unevenness of wealth has allowed even the poorest homes to have riches that kings would have drooled over. These advances and economical production didn't come from politicians, but from entrepreneurs.

There is a more elemental question than what constitutes a fair tax burden percentage. The real question is are we still a nation of self-reliant individuals, or have we pivoted to a "cradle to grave" society where the government is omnipresent in our lives? Do we want to earn our own way or be a beneficiary of government largess?

For the roughly 50% of the country that pays no federal taxes, the source of any government handout is an abstract concept. The taxes they do pay: sales, property, SS and Medicare are usually painlessly deducted from their checks or mortgage payments.

Would they have a different perspective if they had to sit down once a month and write a check to the government instead of having it deducted? Would cell phone users object if they realized their monthly cell service is taxed to give Obama phones to the underprivileged?

I'm thinking they would.

Obama's reelection told me all I needed to know about the entitlement mentality that now pervades American society. We are only now beginning to comprehend the scope of the Obamacare takeover of American life. As this unfolds over the next few, the extend of government intervention in our daily lives will become clearer. But a tipping point is fast approaching.

America, as we have known it could become a social democracy on the European model. How's that working out for them?

No comments:

Post a Comment