FT112: “You can have liberty or equality but you can’t have both.” -Old Pithy

Posted by PITHOCRATES - April 6th, 2012

Fundamental Truth

Higher Taxes were Okay when it was Someone Else’s Money but they’re Just Plain Unfair when it’s your Money

People throw around the word ‘equality’ a lot.  Especially politicians.  To make life fair.  More egalitarian.  Where they make the rich pay their fair share.  For they won’t just voluntarily pay their fair share, will they?  Sounds fair, yes?  And just.  For no one should be ‘too rich’ when others have ‘so little’.  Of course the only people who agree with this are the ones who have ‘so little’.  Those who are ‘too rich’ are not all that supportive of using their wealth to help others be more equal.  Especially when the scale that measures what is ‘too rich’ is a sliding scale.  For someone believes a person is ‘too rich’ when they have more than he or she does.  And that holds true even if they win the lotto.

It’s open season on rich people.  Everyone attacks them.  For they are easy prey.  There are few of them.  So angering them won’t have a huge impact at the polls.  Which is why politicians whip up a fury of hate against them.  Which the people who have ‘so little’ are eager to join them in that hate.  Because they hate rich people.  They hate them a lot.  And there just isn’t anything good they can say about them.  They hate them so much that they buy lotto tickets in hopes of becoming rich people themselves.  Because that’s the only thing that can assuage their hate of rich people.  Becoming rich people.

People who have ‘so little’ will define anyone as having ‘too much’ if they have more than they do.  But if they win the lotto it’s a different story.  For rich people like them don’t have ‘too much’ then.  In fact they become downright greedy.  And become everything they once hated.  They don’t want to share their winnings.  (Even some in lotto groups who bought a winning ticket will try to keep that ticket for themselves, saying they bought THAT ticket with his or her own money and not the group’s money and therefore they don’t have to share THOSE winnings.)  And they sure don’t want to pay half of their winnings in taxes.  Higher taxes were okay when it was someone else’s money.  But they’re just plain unfair when it’s your money.  It’s just a fact of life.  People are greedy.  Even those with ‘so little’.

If there is No Incentive to Choose the Hard Jobs then Someone will have to Coerce People to ‘Choose’ Them

Consider this.  How hard would you work if you had to deposit your entire paycheck into a general fund?  Let’s call the fund the Equality Fund.  All workers everywhere on payday take their checks to the bank and deposit them into the Equality Fund.  And then they get their ‘equal share’ from that fund to live on.  So doctors and janitors earn different incomes.  But their distributions from the Equality Fund are the same.  NFL franchise players and workers in fast food earn different incomes.  But their distributions from the Equality Fund are the same.  Ditto for movie stars, rock stars, pop stars and lotto winners.  They all deposit their income into the General Fund.  And live on the same money as do hair stylists, Wal-Mart greeters, busboys and gardeners.  Even the people who don’t work.  Who love the Equality Fund.  Because with equality they don’t have to work.  Pretty sweet.  Don’t work.  And get paid the same as those who do work.  So they have no incentive ever to go to work.  And some of those who do work start asking themselves, “Why am I still working?” 

If there was an Equality Fund how hard would you work at your job?  Would you even work?  Would you choose a difficult career field that took a lot of costly education?  Would you work that hard to earn more money only to deposit those high earnings into the Equality Fund?  Instead of using those high earnings to buy a nice house?  In a nice neighborhood?  With nice schools for your kids?  Probably not.  Let’s say everyone is paid $50,000 from the Equality Fund.  Regardless of what you paid into it.  Either nothing.  Or millions of dollars.  Everyone lives on $50,000 per year.  Not too shabby.  Especially for low-income people or the unemployed.  They’re going to love the Equality Fund.  But those paying in millions will not be living in million dollar mansions.  Buying expensive cars.  Big boats.  Fly in their private jets.  Or even fly first-class.  No one will wear a Rolex watch.  Or other expensive jewelry.  Or high fashion.  No one will have these things.  Not when you’re raising a family on $50,000 per year.  Even if your work skills bring in the kind of high earnings that could afford them.  Because all of your pay will go into the Equality Fund.  Is that fair?  It’s equality.  But is it fair?

Let’s take this a little further.  Say everyone wises up and quits working.  Because they get the same amount to live on whether they work or not.  So why work?  Those who would like to tell the boss off and quit working are no doubt saying, “Sounds good to me.”  But this would cause a problem.  For what would you buy with your $50,000 annual allotment if no one worked?  For you need people to work if you want to buy a house.  A car.  A boat.  Fly.  Wear a watch.  Jewelry.  Clothing.  Sure, some will say we can just buy old homes.  And buy imported cars, boats, planes, watches, jewelry and clothing.   Sure, you could.  But you can’t import everything.  You can’t import road maintenance.  You can’t import port facilities and railroad infrastructure.  Or the people to operate them.  You can’t import restaurants complete with chefs, servers and busboys.  You can’t import emergency trauma care.  Maternity care.  Cardiac care.  A college education.  You just can’t import everything.  Someone has to work these jobs.  Even though they won’t get paid any more for working than they would for sitting at home collecting their allotment from the Equality Fund.  And when no one chooses to work at the jobs we can’t replace with imports someone will have to ‘help’ them change their mind.  To make them choose to work.  Even if it’s against their will. 

This is the problem with equality.  If we pay everyone equally no one will choose the hard jobs.  They’ll choose the easy jobs.  Worse, if we pay them equally whether they work or not they’ll simply choose not to work.  And if there is no incentive to choose the hard jobs then someone will have to coerce people to ‘choose’ them.

You can have Liberty or Equality but You can’t have Both

To choose your career you need liberty.  To choose to go to school to learn a high-paying skill you need liberty.  To work in a high-paying job you need liberty.  To keep your high-pay earnings you need liberty.  To work hard and to advance yourself to reach your personal goals you need liberty.  To play in the NFL you need liberty.  To be a movie star or rock star or pop star you need liberty.  To play the lotto and keep your winnings you need liberty.  To do all of these things you need liberty.  And one other thing that makes all of these things possible.  Inequality.

People working in fast food can’t earn the same as neurosurgeons.  Because if they paid their workers that much the cost of fast food would be prohibitive.  And no one would be neurosurgeons because it’s a lot less stressful working in fast food.  It doesn’t take years of training.  Or expensive malpractice insurance.  You don’t have to live with accidents that permanently disable or kill people.  Or deal with their aggrieved family members.  So that’s why we pay neurosurgeons so much.  It’s a very difficult profession that few choose.  Because so few choose this profession those that do are very valuable resources.  Demanding high pay.  And because they demand such high salaries it attracts the few who are willing to deal with all the things that come with being a neurosurgeon.  The high pay helps people choose this valued career despite the high personal costs.  So inequality is a good thing.  It provides incentive to choose the hard jobs.  Which is a good thing.  For who wants a low-paid person forced to be a neurosurgeon operating on his or her brain?

Everyone who has ever bought a lotto ticket agrees that inequality is a good thing.  They wouldn’t buy a ticket otherwise.  Because they buy those tickets to become rich.  To have more than other people.  That is, to be unequal.  Because everyone is greedy.  Just like football players, movie stars, rock stars, pop stars and, of course, lotto winners.  And not a one of them is going to work hard to develop their unique earning potential just to put the fruits of their labor into the Equality Fund.  They may talk the talk.  Support Democrats.  But they do that just so the people who have ‘so little’ leave them alone.  For they all still live in their million dollar mansions.  Because they like being unequal.  The more unequal the better.  They adore their pampered lives.  And when it comes to choosing liberty or equality they choose liberty.  As their comfortable lives clearly show.  For you can have liberty.  Or you can have equality.  But you can’t have both.  And that’s okay with them.

www.PITHOCRATES.com

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LESSONS LEARNED #34: “Sure, until you win the lotto you’re all for sticking it to the rich.” -Old Pithy

Posted by PITHOCRATES - October 7th, 2010

Buddy Can You Spare a Dime

In the old days, we used to jail people who didn’t pay their debts.  Even in the United States.  A couple of signers of the Declaration of Independence even served time in a debtors’ prison.  We took it seriously.  Honoring your debts.  For those who didn’t, they found themselves inside a jail until they did.  Or until they died.

We jailed some people over small sums.  The severity of the punishment (broken families, disease, starvation, privation, physical abuse, etc.) was often extreme in comparison to the size of the debt owed.  In time we would move away from such barbaric justice.  No, in the modern, caring world, we don’t torment those who are down on their luck and find themselves penniless.  You see, the modern world is a caring world.  We abhor the sufferings of our fellow man.  So we show them kindness.  Charity.  We forgive them their debts and help them rebuild their lives.  Well, most of us do.

If you find yourself owing the IRS, you better pay up.  For they will send you to prison.  And take whatever you have.  They will destroy your life.  And your family.  Because they want to make something perfectly clear.  You don’t f*ck with the IRS.  They play to keep.  All the time.

The War on Alcohol

The 18th Amendment prohibited “the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes.”  The government may have shut down supply, but the market remained.  Enter criminal gangs.  Who furnished the supply to meet the demand.

None did it better than Al Capone.  His gang ruled Chicago.  People admired him.  After all, he wasn’t hurting anyone.  He was just giving the people what they wanted.  A way to relax and blow off steam.  Like we do today when we enjoy an alcoholic beverage with our friends.  But the gang violence grew.  The pictures following the Saint Valentine’s Day Massacre were just too gruesome.  Soon thereafter the FBI branded Scarface as public enemy #1.

Bootlegging, prostitution, murder, extortion…Capone broke a lot of laws.  But he crossed the line.  He committed a crime that was so heinous that it would land him ultimately in Alcatraz, America’s most secured federal prison.  That crime?  Income tax evasion.

On the Road Again

Willie Nelson is a big time Democrat.  He’s into saving the environment.  Animal rights.  Legalizing marijuana.  Helping the farmers.  And he’s a regular peacenik.  So you’d think he’d be a big fan of Big Government.  Well, yes and no. 

He became very wealthy by the 1980s.  And like a good Democrat, he tried to shield some of that wealth from the IRS.  He parked some of it in some talk shelters.  Then came along Ronald Reagan.  He understood what Andrew Mellon understood (Secretary of the Treasury for Warren G. Harding).  High tax rates made rich people hide their money.  Lower tax rates encouraged rich people to invest their money.  When Mellon cut the tax rates wealthy people paid more taxes and less wealthy people paid fewer taxes.  The progressive tax system worked even better at lower tax rates.  Tax revenue increased as the wealthy invested their money instead of finding creative ways to hide it.  It worked for Reagan, too.  He even closed tax shelters as a further incentive for the wealthy to invest their money to grow the economy and create jobs.  That worked, too.  Savvy wealthy people everywhere were putting Americans back to work.  Only one small problem.  The not so savvy wealthy were caught unawares.

Willie Nelson didn’t move his money from his tax shelters.  When Reagan disallowed those shelters, his money sat there accruing federal taxes.  And interest and penalties.  He blamed and sued his accountants.  The accountants countered that they only did the accounting and taxes.  They were not investment advisors.  Anyway, the IRS seized his assets.  He went on the road again and often to pay off his tax bill.  His total bill came to about 16 million in back taxes, interest and penalties.  Which he paid.  As he no doubt would have from the get-go if he had sought appropriate counsel to help him negotiate the 1,000+ page U.S. tax code.

Easy Money – For the IRS

There are many stories like Willie Nelson’s.  Even Treasury Secretary Timothy Geithner, the smartest man in America, couldn’t figure out his own taxes.  (But we were to excuse him for this because no one else was as qualified as he was to write and administer the U.S. tax code).  But it’s not only the not-so-savvy celebrity rich and the intellectually challenged intellectuals who have trouble with the U.S. tax code.  The poorest of the poor who never had money can sometimes run afoul of the IRS.

Playing the lotto.  Millions do.  Most lose.  And they’re lucky that they do.  Many lotto winners have their lives take a turn for the worse.  Friends and relatives you don’t know are reacquainting themselves with you.  Well, not you so much as your new found wealth.  Con men target you.  Charities.  Neighbors.  Some spend the money fast.  Or recklessly.  Develop drug addictions.  Get robbed.  Even murdered.  There are a lot of stories out there.  Just search the Internet.

When you win the lotto, you can take a lump-sum payment.  Or you can take a series of payments.  Either way the IRS taxes this as income.  And the amount of these payouts will most probably push you in the highest income tax bracket during the period of these payouts.  So the IRS likes lotto winners.  Your odds of winning are slim to none but someone always wins.  And that’s a tax bonanza for the IRS.  Not-so-savvy people who become rich overnight.  The full force and power of the U.S. government falling on some poor schmuck who probably never had a tax liability in his or her life.  Money just doesn’t get any easier. 

Capital Gain or Income?

Some may sell the rights to their future payments.  It’s sort of like selling a rental property.  For example, take a house that rents for $1,000 per month and sells for $150,000.   The buyer gets those future rent payments.  The seller gets the money back that they paid for the house and, hopefully, a capital gain (i.e., they sell the house for more than they paid for it).  The seller pays a capital gains tax on their capital gain.  They do not pay any further income tax on the rental income that the buyer now collects.

Some lotto winners see selling their rights to future payments in the same light.  And that they should only pay a one-time capitals gain tax (at a lower capital gains tax rate) in lieu of the higher income tax rate.  The IRS begs to differ.  And they usually get their way.

Sadly, some buyers advised those selling their rights that they could pay the lower capital gains tax rate.  Which they did.  And faced heavy tax bills for back taxes, interest and penalties as a consequence.  Once again, easy money for the IRS.  You can search the Internet for stories like these, too.

Pay or Else

Whether a gangster, a celebrity, a Democrat brainiac or a low-income lotto winner, we all share something in common.  Whatever our politics, when it comes to our money, we all try to avoid paying our ‘fair share’ of taxes.  We may demand that other rich people pay their taxes, but we will do everything we can to avoid paying our taxes.  But we play a dangerous game when we do.  For those who do and lose, they learn a painful lesson.

You don’t f*ck with the IRS.

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