FT218: “The withholding tax is the greatest sin government ever perpetrated against the people.” —Old Pithy

Posted by PITHOCRATES - April 18th, 2014

Fundamental Truth

The tariff was the funding source for most of government for about a century.

Once upon a time there was no federal income tax.  No estate tax.  No gift tax.  No payroll tax.  No capital gains tax.  And no corporate tax.  Taxes we take for granted today didn’t exist a century or so ago.  The country was a lot leaner back then.  People kept most of their money.  And took care of their families.

The federal government used to fund everything thing they did with tariffs.  A tax on imports.  Paid in ports.  As ships unloaded their goods.  Far away from most people.  And few people complained.  Our first excise tax was a different story.  A 7 cent per gallon of whiskey incited the Whiskey Rebellion.  After fighting the Revolutionary War to escape the oppressive taxation policies of Great Britain the people were in no mood for a new tax.  The whiskey tax lasted for about a decade.  Then they repealed it.

This left tariffs as the funding source for most of government for about a century.  But even that grew controversial.  And began the divisions between North and South.  The North protected its industry with protective tariffs on iron products, textiles (wool and cotton) and agricultural goods.  Shipped from the more industrialized Britain.  Which Britain responded to with tariffs of their own.  On cotton and other agricultural products grown in the South.  So the more the North protected their industries the more difficult it made for the South to export their raw goods.

In 1913 the progressives reintroduced the income tax and taxed the rich at 1%.

This wasn’t the only difference of opinion the North and South had.  And their differences resulted in war.  The North was able to win the American Civil War with its expansive industry.  But the war devastated the country.  Especially the South.  Which lost about 8.6% of her population.  To get an idea of what an 8.6% population decline is consider this.  That percentage of the current U.S. population is approximately 27 million.  So the losses the South suffered were similar to what the Soviets lost on the Eastern Front during World War II.

The South may have lost more of its population.  But the North suffered nearly the same number of war dead.  She just had a larger population to begin with.  To run all of that industry that won the war.  America’s first modern war was a costly one.  And one that President Lincoln had to turn to a new source of revenue.  The federal income tax.  Which taxed the rich.  At 3%.  Then it taxed the super rich at 5%.  But after they paid down the war debt they repealed America’s first income tax.

Then came the progressives.  And their taxes.  In 1913 they reintroduced an income tax.  Taxing the rich at 1%.  And the super rich at 6%.  To fund an expanding federal government.  Then came World War I.  To fund the war they increased the tax rate on the rich to 15%.  And the super rich at 77%.  The top marginal rate fell during the Twenties.   But FDR raised it back up during the Great Depression.  Until it reached 94%.  Where for every dollar they earned in and above the top income bracket they got to keep only 6 cents.

Few would be able to write a check on tax day to pay their full tax bill.

Then came all the other taxes.  And they just kept coming. Our tax bill grew to staggering amounts.  Which posed a problem for the taxing authorities.  As people just didn’t keep that kind of money around.  They worked.  They raised their families.  And what little they had left they put into the bank for their retirement.  Making it very difficult for them to pay their tax bill when it came.  Especially when it was 30% or more of their entire income.  So what to do?

The Founding Fathers created a nation out of a tax rebellion.  And then when that nation levied its first excise tax they got a little rebellion of their own.  Being opposed to taxes is part of the American DNA.  So the taxing authorities had to somehow hide the large amount of taxes we were paying.  That is, they had to reduce the transparency of these taxes.  For if you don’t know what you’re paying in taxes you really can’t get mad at paying high taxes.

Enter the withholding tax.  The greatest sin government ever perpetrated against the people.  For it takes our money before we ever get it.  Conditioning us to accept ‘net’ pay as the norm.  And making ‘gross’ pay some meaningless payroll jargon.  Because you can’t spend ‘gross’ pay.  You can only spend ‘net’ pay.  Which is the only pay people care about.  Making it not only easier to hide the soaring amount of taxes people were paying.  But because it’s so easy to hide what we’re paying they could raise those taxes to confiscatory heights.  Because we never have that money in our hands.  We never see it.  It goes from our employer to the taxing authorities.  Which is the only way they could collect these soaring amounts.  For few would be able to write a check on tax day to pay their full tax bill.  As people just don’t keep that kind of money around.

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Why the Stock Market is so Good when the Economy is so Bad

Posted by PITHOCRATES - March 31st, 2014

Economics 101

No One is going to get Rich by Buying and Selling only one Share of Stock

It takes money to make money.  I’m sure we all heard that before.  If you want to ‘flip’ a house you need money for a down payment to get a mortgage first.  If you want to start a business you need to save up some money first.  Or borrow it from a family member.  And if you want to get rich by playing the stock market you need money.  A lot of money.  Because you only make money by selling stocks.  And before you can sell them you have to buy them.

Stock prices may go up and down a lot.  But over a period of time the average stock price may only increase a little bit.  So if you bought one share of stock at, say, $35 and sold it later at, say, $37.50 that’s a gain of 7.14%.  Which is pretty impressive.  Just try to earn that with a savings account at a bank.  Of course, you only made a whopping $2.50.  So no one is going to get rich by buying and selling only one share of stock.

However, if you bought 10,000 shares of a stock at $35/share and then sold it later at $37.50 that’s a whole other story.  Your initial stock purchase will cost you $350,000.  And that stock will sell for $375,000 at $37.50/share.  Giving you a gain of $25,000.  Let’s say you make 6 buys and sells in a year like this with the same money.  You buy some stock, hold it a month or so and then sell it.  Then you use that money to buy some more stock, hold it for a month or so and then sell it.  Assuming you replicate the same 7.14% stock gain through all of these transactions the total gain will come to $150,000.  And if you used no more than your original investment of $350,000 during that year that $350,000 will have given you a return on investment of 42.9%.  This is why the rich get richer.  Because they have the money to make money.  Of course, if stock prices move the other way investors can have losses as big as these gains.

Rich Investors benefit most from the Fed’s Quantitative Easing that gives us Near-Zero Interest Rates

Rich investors can make an even higher return on investment by borrowing from a brokerage house.  He or she can open a margin account.  Deposit something of value in it (money, stocks, option, etc.) and use that value as collateral.  This isn’t exactly how it works but it will serve as an illustration.  In our example an investor could open a margin account with a value of $175,000.  So instead of spending $350,000 the investor can borrow $175,000 from the broker and add it to his or her $175,000.  Bringing the total stock investment to $350,000.  Earning that $25,000 by risking half of the previous amount.  Bringing the return on investment to 116.7%.  But these big returns come with even bigger risks.  For if your stock loses value it can make your losses as big as those gains.

Some investors borrow money entirely to make money.  Such as carry trades.  Where an investor will borrow a currency from a low-interest rate country to invest in the currency of a higher-interest rate country.  For example, they could borrow a foreign currency at a near zero interest rate (like the Japanese yen).  Convert that money into U.S. dollars.  And then use that money to buy an American treasury bond paying, say, 2%.  So they basically borrow money for free to invest.  Making a return on investment without using any of his or her money.  However, these carry trades can be very risky.  For if the yen gains value against the U.S. dollar the investor will have to pay back more yen than they borrowed.  Wiping out any gain they made.  Perhaps even turning that gain into a loss.  And a small swing in the exchange rate can create a huge loss.

So there is big money to make in the stock market.  Making money with money.  And investors can make even more money when they borrow money.  Making money with other people’s money.  Something rich investors like doing.  Something rich investors can do because they are rich.  For having money means you don’t have to use your money to make money.  Because having money gives you collateral.  The ability to use other people’s money.  At very attractive interest rates.  In fact, it’s these rich investors that benefit most from the Fed’s quantitative easing that is giving us near-zero interest rates.

People on Wall Street are having the Time of their Lives during the Obama Administration

We are in the worst economic recovery since that following the Great Depression.  Yet the stock market is doing very well.  Investors are making a lot of money.  At a time when businesses are not hiring.  The labor force participation rate has fallen to levels not seen since the Seventies.  People can’t find full-time jobs.  Some are working a part-time job because that’s all they can find.  Some are working 2 part-time jobs.  Or more.  Others have just given up trying to find a full-time job.  People the Bureau of Labor Statistics (BLS) no longer counts when calculating the unemployment rate.

This is the only reason why the unemployment rate has fallen.  If you add the number of people who have left the labor force since President Obama took office to the number the BLS reports as unemployed it would bring the unemployment rate up to 13.7% ((10,459,000 + 10,854,000)/155,724,000) at the end of February.  So the economy is still horrible.  No secret to those struggling in it.  And the median family who has seen their income fall.  So why is the stock market doing so well when businesses are not?  When profitable businesses operations typically drive the stock market?  For when businesses do well they grow and hire more people.  But businesses aren’t growing and hiring more people.  So if it’s not profitable businesses operations raising stock prices what is?  Just how are the rich getting richer when the economy as a whole is stuck in the worst economic recovery since that following the Great Depression?

Because of near zero interest rates.  The Fed has lowered interest rates to near zero to purportedly stimulate the economy.  Which it hasn’t.  When they could lower interest rates no more they started their quantitative easing.  Printing money to buy bonds on the open market.  Flooding the economy with cheap money.  But people aren’t borrowing it.  Because the employment picture is so poor that they just aren’t spending money.  Either because they don’t have a job.  Only have a part time job.  Or are terrified they may lose their job.  And if they do lose their job the last thing they want when unemployed is a lot of debt they can’t service.  And then there’s Obamacare.  Forcing people to buy costly insurance.  Leaving them less to spend on other things.  And increasing the cost of doing business.  Another reason not to hire people.

So the economy is going nowhere.  And because of the bad economy businesses have no intentions of spending or expanding.  So they don’t need any of that cheap money.  So where is it going?  Wall Street.  The only people who are borrowing and spending money.  They’re taking that super cheap money and they’re using it to buy and sell stocks.  They’re buying and selling like never before.  Making huge profits.  Thanks to other people’s money.  This is what is raising stock prices.  Not profitable businesses operations.  But investors bidding up stock prices with borrowed money.  The people on Wall Street are having the time of their lives during the Obama administration.  Because the Obama administration’s policies favor the rich on Wall Street.  Whose only worry these days is if the Fed stops printing money.  Which will raise interest rates.  And end the drunken orgy on Wall Street.  Which is why whenever it appears the Fed will taper (i.e., print less money each month) their quantitative easing because the economy is ‘showing signs of improvement’ investors panic and start selling.  In a rush to lock in their earnings before the stock prices they inflated come crashing down to reality.  For without that ‘free’ money from the Fed the orgy of buying will come to an end.  And no one wants to be the one holding on to those inflated stocks when the bubble bursts.  When there will be no more buyers.  At least, when there will be no more buyers willing to buy at those inflated stock prices.  Which is why investors today hate good economic news.  For there is nothing worse for an investor in the Obama economy than a good economy.

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New York’s High Tax Rates makes it Difficult for People to Willingly Work in New York

Posted by PITHOCRATES - March 29th, 2014

Week in Review

If you ever wondered why the communists built the Berlin Wall this is why (see Man Takes Selfies for Proof to the IRS by Brian Koerber posted 3/18/2014 on 3/18/2014 on Mashable).

Anne Jarvis’ father, Andrew, is an architect that splits his time between his firm’s branches in New York City and Philadelphia. The commute became so overwhelming that he began to rent an apartment in NYC to improve his quality of life.

Upon further inspection of tax laws, Andrew learned that in order to avoid being taxed by New York, he would only be allowed to live in the city 182 days or less out of the year. In preparation for disputes against his living situation, he began taking selfies, as a way to prove to the taxman that he spends more time in Philadelphia, than he does in New York.

When a taxing authority taxes too much the natural inclination of free people is to move.  And that’s what was happening in East Berlin.  The best and brightest that drove the economy were walking across the street into the West.  Leaving behind only the less-educated and the less-skilled.  So to stop this brain-drain the communists built the Berlin Wall.  To keep the best and brightest from going to where life was better.

Those on the left will read this story and call this architect greedy.  For he enjoys the privilege of working and living in New York City part of the year.  And should pay for that privilege.  In particular so they can have more free stuff paid for by the best and brightest.  But if New York starts taxing his income that doesn’t mean Pennsylvania will stop taxing his income.  No.  They both will tax his income.  As if he’s two different people.  That is, he will pay the taxes of two people.  Is that fair?  Would even those on the left call that fair?  Of course if you suggest they should pay two cellular bills (theirs and somebody else’s) they would say, “Wait a minute.  That is NOT fair.”  But the architect?  They’d probably say something like, “He’s rich.  He can afford to pay the income taxes of two people.  And should.”

Being rich is a relative term.  It basically means anyone making more than you these days.  So even people who win the lotto don’t consider themselves rich when it comes to paying income taxes.  They’ll say that having to give almost half of their winnings to the taxman is unfair.  But having two states tax this architect is fair.  Because he can afford it.  For he earns that every year.  While they only won one lotto.

The way New York City is going they will have to build a wall around Manhattan if they expect to keep the best and brightest from fleeing their oppressive tax rates.  Or they’ll have to get the federal government to tax all states oppressively high so people have no better place to go.  Which explains why big-government liberals are all for expanding the power of the federal government.  For their oppressive liberal policies won’t work if the people can move to another state to escape them.

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FT213: “Rich liberals support a large welfare state to assuage their wealth guilt.” —Old Pithy

Posted by PITHOCRATES - March 14th, 2014

Fundamental Truth

Rich People become Liberals so People don’t Shame them for their Obscene Wealth

Rich people love being rich.  They love their mansions.  Their expensive cars.  Eating at the finest restaurants.  Drinking the finest wine.  Going on lavish vacations.  Going to the best parties.  Hanging with the beautiful people.  And rich men especially like the sex with beautiful young women their wealth can make happen.  To quote the Eagles song Life in the Fast Lane rich people love having everything all of the time.

Some of the richest people in the United States are liberals.  Yes, those same people who argue for income and wealth equality.  Hollywood stars.  Televisions stars.  Authors.  And music stars.  Who are everything they stand against.  They’re part of that evil 1%.   And they live very ostentatious lives.  Their wealth is over the top.  Bling.  Cars.  Cars with bling.  Nothing but the best.  And then some.  This wealth is okay, though.  But those in the 1% other than them?  Government should raise their taxes to take as much of it away as possible.  And we should all shame them for daring to have such obscene wealth.

Of course, rich liberals like their obscene wealth.  They want to keep it.  And they want to continue their lavish lives.  But they don’t want people shaming them.  They want people to love them and adore them.  So they buy whatever they’re selling.  Movies, televisions shows, books or music.  They don’t want anyone shaming them for their obscene wealth.  So they do something very simple to avoid that shame.  They become public liberals.

Only those Businesses that Continually Please their Customers Succeed

Liberals can have the most obscene amounts of wealth without anyone shaming them for that obscene wealth.  Why?  Because they belong to the ‘right’ political party.  The one that argues against income and wealth inequality.  So they get a pass.  Which is why so many rich people are liberals.  They want to be left alone.  And their call for higher taxes on rich people?  Well, they’re so rich that they can hire the best accountants and tax attorneys to help them shield their wealth from the taxman.  There’s a reason why the tax code is so convoluted and not a simple flat tax like conservatives want.  To help rich liberals keep their money.

Then there are rich liberals who have too much of a conscious.  And they feel guilty for having obscene wealth.  But not guilty enough to give their wealth away.  These liberals are vehemently pro big government.  They want a massive welfare state.  To assuage their wealth guilt.  So they can continue to enjoy their obscene wealth.  Their 1% wealth.  Without having to feel guilty about it.  Such as, presumably, The Daily Show’s Jon Stewart.

Jon Stewart is a very well-read and intelligent man.  He knows a lot of stuff.  Unfortunately, though, he draws many wrong conclusions with that knowledge.  He favors big government.  And a vast welfare state to help those in need.  He trusts government while distrusting corporations and businesses.  Because, as he has said, we have no vote with corporations and businesses like we do with government.  Via elections.  But he’s wrong.  We do have a vote with all corporations and businesses.  The moment they stop treating their customers right those customers go to other corporations and businesses.  Most new businesses fail within 5 years.  And some big companies that have been around for years fail and go out of business.  Why?  Because their customers DO have a large vote in whether they succeed or not.  And only those businesses that continually please their customers succeed.  Something you just can’t say about government.  For no matter how much they anger the people little ever changes.

Not only is there Income and Wealth Inequality there’s also Income Tax Inequality

Fox News has been talking about people scamming the welfare state.  Highlighting a surfer dude in California as a typical welfare cheat.  Stewart lambasted Fox News for that.  Saying one person (or two or three, etc.) does not mean all people on welfare are gaming the system.  Although he uses that very logic to point at corporations caught in wrong-doing.  Saying they represent all corporations and businesses.  And he joins the choir about how rich corporations and rich people are not paying their fair share of taxes.  And how some of these rich corporations and rich people are hiding their income and wealth from the taxman.  Despite their paying the lion’s share of all taxes.

According to the National Taxpayer’s Union, when it comes to income taxes it’s rich people paying the most.  So not only is there income and wealth inequality.  There’s also income tax inequality.  Through recent years the top 1% of income earners has paid approximately a third of all income taxes.  The top 5% has paid more than half of all income taxes.  And the top 10% of income earners has paid about 70% of all income taxes.  While the bottom 50% of income earners, the people rich liberals want to help, pay about 3% (or less) of all income taxes.

You don’t have to raise tax rates on the wealthy.  They’re already paying a disproportionate share of all income taxes.  In fact, if you cut tax rates and cut business regulations to help rich business and rich people get even richer more tax revenue would flow into the treasury.  This would be a good thing.  Rich people getting richer.  And more people becoming rich.  This should be what everyone wants.  Based on the amount of taxes rich people pay.  So we should stop trying to help the less fortunate by raising taxes on the rich.  And creating more onerous regulations for businesses that benefit the less fortunate.  Like Obamacare.  For it hurts the profit incentive.  Which prevents rich people from getting richer and paying more income taxes.  As well as dissuades people from becoming business owners or expanding their businesses.  Which means fewer jobs.  Fewer hours in those jobs.  And the replacement of costly people with machines.  It’s because of these things that median family income has fallen under the Obama administration.  Which is the last thing any good liberal should want.  This is why rich liberals have got to stop supporting a large welfare state to assuage their wealth guilt.  It’s killing the middle class.  And destroying the jobs that could pull the less fortunate into the middle class.  And beyond.

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Billionaires increasing Income Inequality is bad but Women Billionaires are Not

Posted by PITHOCRATES - January 26th, 2014

Week in Review

According to the left rich people in corporations are bad.  They’re evil incarnate.  That’s why they hated 2012 presidential candidate Mitt Romney so much.  He was a rich guy in the corporate world.  Who screw the people to enrich themselves.  Making rich people richer.  And poor people poorer.  Which is the new theme President Obama is using these days.  Income inequality.  Which just isn’t right.  Rich people having so much more than poor people.  Especially those billionaires in corporations.  They’re the worst.  Money-grubbing parasites.  These billionaires threaten human progress (see 85 people have as much money as half the world by Li Anne Wong, CNBC, posted 1/20/2014 on MSN Money).

The combined wealth of the world’s richest 85 people is now equivalent to that owned by half of the world’s population — or 3.5 billion of the poorest people — according to a new report from Oxfam.

In a report titled “Working for the Few” released Monday, the global aid and development organization detailed the extent of global economic inequality created by the rapidly increasing wealth of the richest, warning of the major risks it poses to “human progress.”

According to the report, 210 people have become billionaires in the past year, joining a select group of 1,426 individuals with a combined net worth of $5.4 trillion.

It added that the wealth of the richest one percent of people in the world now amounts to $110 trillion, or 65 times the total wealth of the bottom half of the world’s population.

Imagine that.  There are 1,426 of these money-grubbing parasites.  Who can only make the world a worse place.  According to the left.  For any one person having that much money is just wrong.  Unless, that is, she’s a woman (see Facebook’s Sandberg is now a billionaire by Chris Isidore posted 1/22/2014 on CNN Money).

A record high close for Facebook shares has made Sheryl Sandberg one of the youngest female billionaires ever, according to a ranking from Bloomberg.

Sandberg, who is the company’s chief operating officer, owns 12.3 million shares. That makes her stake worth about $720 million.

In addition, she owns 4.7 million options, which would net her $220.6 million at her exercise price.

She has also received stock awards which have not yet vested, the estimated value of which takes her over the $1 billion mark.

Female billionaires are still relatively rare. Bloomberg’s list of the 200 richest people worldwide shows only 17 who are women.

Forbes reported last year that there were 138 female billionaires worldwide, but that’s out of a total 1,426 billionaires worldwide.

And only 24 of the women billionaires on the Forbes list earned their wealth themselves; most inherited a significant portion of their fortune.

Not a bad word in this article about this billionaire.  For when a woman becomes a billionaire it is reason to celebrate.  For shattering yet another glass ceiling.  Not to lament that there is another good for nothing money-grubbing billionaire in the world today.  Who will only make that income inequality worse.  Funny how that works.

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Progressive and Regressive Taxes and Marginal Tax rates

Posted by PITHOCRATES - January 6th, 2014

Economics 101

(Originally published July 9th, 2012)

The Beatles fled Britain to Escape a Confiscatory Top Marginal Tax Rate of 95%

George Harrison wrote Taxman.  The song appeared on the 1966 Beatles album Revolver.  It was an angry protest song.  For George Harrison was furious when he learned what exactly the progressive tax system was in Britain.  In the song the British taxman is laying down the tax law.

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman, yeah I’m the taxman

That’s one for you, Mr. Harrison.  And nineteen for us.  The government.  Meaning that for every £20 the Beatles earned they got to keep only £1.  This is a 95% top marginal tax rate.  A supertax on the super rich imposed by Harold Wilson’s Labour government.  So if the Beatles earned £1 million because of their incredible talent and hard work touring in concert, working on new albums in the studio and making movies, of that £1 million they got to keep only about £50,000.  While the government got £950,000.  If they earned £10 million they got to keep about £500,000.  While the government got £9,500,000.  As you can see 5% is a very small percentage.  Which is why George Harrison got so angry.  The harder they worked the less of their earnings they were able to keep.

Is this fair?  George didn’t think so.  Nor did his fellow Beatles.  For they fled Britain.  Moved to another country.  Becoming tax exiles.  For they were little more than court minstrels.  Who the government forced to entertain them.  Earning a lot of money so they could take it away.  To help pay for an explosion in social spending Harold Wilson unleashed on Britain.  Socializing the UK like never before.  And all those social benefits required a lot of taxes.  Hence the progressive tax system.  And marginal tax rates.  Where the super rich, like the Beatles, paid confiscatory tax rates of 95%.

The Top Marginal Tax Rate was around 70% under President Carter and around 28% under President Reagan

As social spending took off in the Sixties and Seventies governments thought they could just increase tax rates to generate greater amounts of tax revenue.  For governments looked at the economy as being static.  That whatever they did would result in their desired outcome without influencing the behavior of those paying these higher tax rates.  But the economy is not static.  It’s dynamic.  And changes in the tax rates do influence taxpayer behavior.  Just ask the Beatles.  And every other tax exile escaping the confiscatory tax rates of their government.  Because of this dynamic behavior of the taxpayers excessively high tax rates rarely brings in the tax revenue governments expect them to.

Even when it comes to sin taxes government still believes that the economy is static.  Even though they publicly state that taxes on alcohol and tobacco are to dissuade people from consuming alcohol and tobacco.  (The U.S. funded children’s health care with cigarette taxes clearly showing the government did not believe these taxes would stop people from smoking).  Perhaps some in government look at sin taxes as a way to discourage harmful habits.  But the taxman sees something altogether different when they look at sin taxes.  Addiction.  Knowing that few people will give up these items no matter how much they tax them.  And that means tax revenue.  But unlike the progressive income tax this tax is a regressive tax.  Those who can least afford to pay higher taxes pay a higher percentage of their income to pay these taxes.  For sin taxes increase prices.  And higher prices make smaller paychecks buy less.  Leaving less money for groceries and other essentials.

Most income taxes, on the other hand, are progressive.  Your income is broken up into brackets.  The lowest bracket has the lowest income tax rate.  Often times the lowest income bracket pays no income taxes.  The next bracket up has a small income tax rate.  The next bracket up has a larger income tax rate.  And so on.  Until you get to the high income threshold.  Where all income at and above this rate has the highest income tax rate.  This top marginal tax rate was around 70% under President Carter.  Around 28% under President Reagan.  And 95% under Harold Wilson’s Labour government in Britain.  An exceptionally high rate that led to great efforts to avoid paying income taxes.  Or simply encouraged people to renounce their citizenship and move to a more tax-friendly country.

When the Critical Mass of People turn from Taxpayers to Benefit Recipients it will Herald the End of the Republic

Progressive taxes are supposed to be fair.  By transferring the tax burden onto those who can most afford to pay these taxes.  But the more progressive the tax rates are the less tax revenue they generate.  What typically happens is you have a growing amount of low-income earners paying no income taxes but consuming the lion’s share of government benefits.  The super rich shelter their higher incomes and pay far less in taxes than those high marginal tax rates call for.  They still pay a lot, paying the majority of income taxes.  But it’s still not enough.  So the middle class gets soaked, too.  They pay less than the rich but the tax bite out of their paychecks hurts a lot more than it does for the rich.  Because the middle class has to make sacrifices in their lives whenever their tax rates go up.

As social spending increases governments will use class warfare to increase taxes on the rich.  And they will redefine the rich to include parts of the middle class.  To make ‘the rich’ pay their ‘fair’ share.  And they will increase their tax rates.  But it won’t generate much tax revenue.  For no matter how much they tax the rich governments with high levels of spending on social programs all run deficits.  Because there just aren’t enough rich people to tax.  Which is why the government taxes everything under the sun to help pay for their excessive spending.

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Don’t ask me what I want it for
If you don’t want to pay some more
‘Cause I’m the taxman, yeah, I’m the taxman

Now my advice for those who die
Declare the pennies on your eyes
‘Cause I’m the taxman, yeah, I’m the taxman
And you’re working for no one but me.

This is where excessive government spending leads to.  Excessive taxation.  And confiscatory tax rates.  Taking as much from the wealth creators as possible to fund the welfare state.  And as progressive tax systems fail to generate the desired tax revenue they will turn to every other tax they can.  Until there is no more wealth to tax.  Or to confiscate.  When the wealth creators finally say enough is enough.  And refuse to create any more wealth for the government to tax or to confiscate.  Leaving the government unable to meet their spending obligations.  As the critical mass of people turn from taxpayers to benefit recipients.  Heralding the end of the republic.

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The Redistribution of Wealth in Obamacare

Posted by PITHOCRATES - December 30th, 2013

Economics 101

“Wait a tic.  Blimey, this redistribution of wealth is trickier than I thought.”

Monty Python is a British comedy troupe.  Starting off with a television show in 1969.  And ending their run together with a movie in 1983.  With some other stuff along the way.  They became about the biggest stars ever in comedy.  They redefined comedy.  And have influenced some of the biggest names that followed them.  Part of the reason why Monty Python is so funny is that they are so serious when being silly.  And they are very well educated.   With some members having degrees from Oxford and Cambridge.   Which helps make their humor different.  Such as their take on Robin Hood with a character they called Dennis Moore.

Dennis Moore, Dennis Moore
Galloping through the sward
Dennis Moore, Dennis Moore
And his horse Concorde
He steals from the rich
And gives to the poor
Mr. Moore, Mr. Moore, Mr. Moore

This is the opening verse of a song in the sketch Dennis Moore.  The character steals from the rich who have more than they need.  And gives it to the poor who don’t have enough.  A classic example of redistribution of wealth.  Something the American left is all about.  Being Dennis Moore.  Or Robin Hood.  But in the sketch Dennis Moore takes it to the extreme.  Stealing so much from those who were originally rich that they have nothing left but their underclothes.  While those who were originally poor have everything the rich had.  And the formerly poor (now rich) get ever more demanding of Mr. Moore for better stuff.  As he rides off to please these formerly poor (now rich) we hear the following verse.

Dennis Moore, Dennis Moore
Riding through the land
Dennis Moore, Dennis Moore
Without a merry band
He steals from the poor
And gives to the rich
Stupid bitch

Dennis Moore halts his horse.  And asks the chorus to repeat themselves.  To make sure he heard what he thought he heard.  They do.  Mr. Moore then says, “Wait a tic.  Blimey, this redistribution of wealth is trickier than I thought.”  As he discovers some of the inherent flaws in the redistribution of wealth concept.  Excessive redistribution can take large sums of money away from some.  Which doesn’t help them.  It only punishes them.  And if you’re okay with punishing the rich to help the poor note what happens to the poor when they get the rich’s money.  They become exactly like them.

Buying Votes to Win Elections works as long as you Tax the Few to Spend on the Many

This sketch is funny.  Because it’s true.  You’ve heard the expression “beggars can’t be choosey?”  Well, when it comes to the redistribution of wealth, they can.  And are.  Choosey.  They can become very demanding.  And the more they get the more they want.  And the more like the people they hate and envy—the wealthy—they get.  Mr. Moore learned that.  Where the poor he was trying to help with a hand-up didn’t use it for a hand-up.  They just used the rich’s wealth to enjoy the good life without working and earning it over time.

People may look down on those born into money but that’s only because they weren’t.  This is why poor people buy lottery tickets.  To get rich quick.  Because they don’t want to wait to have money.  They’d like to have it when they’re young.  And not wait until they’re old.  After working 20 years or so.  Which is why selling the idea of wealth redistribution is so easy.  And helps politicians win elections.  Because there are more poor people than rich people.

President Obama said those who could afford it should pay a little more.  Taxes.  To balance the playing field.  To offer a ‘hand-up’ to the poor.  This is the message of the Democrats.  Tax and spend.  Tax the rich.  And give it to the poor.  And the young.  Such as free birth control, tuition assistance, Obamacare subsidies, etc.  Things they tax the rich for.  To get the poor to vote Democrat.  It’s a working formula.  Buying votes.  As long as you tax the few to spend on the many.  Because you need the many to win elections.

Obamacare won’t Work because the Welfare flows in the Wrong Direction

The welfare state taxes the few/rich/old to spend on the many/poor/young.  Which is why it worked.  You angered a smaller group of people than you pleased.  And if you can keep doing that you can keep winning elections.  As long as you keep playing Dennis Moore.  Without being a stupid bitch.  Which the Democrats did well.  Until Obamacare.  The Affordable Care Act.

Obamacare will fail because unlike other welfare programs Obamacare is unique.  For it does not tax the few/rich/old.  It actually taxes the many/poor/young.  To pay for the health care of those who have more money than they do.  The old and sick.  Leaving the young and healthy with less money to start their families.  As they help the old and sick who already had their families.  And something just isn’t right with this picture.  The old and sick are fine with it.  While the young and healthy are calling someone ‘stupid bitch’.  Figuratively, of course.

Young people don’t have a problem with tax and spend.  As long as they are the recipients of those welfare transfers.  So they vote Democrat.  And they also vote Democrat because they are the opposite of their parents.  Who never tell them they can’t do this or that.  But, instead, tell them they should do whatever they feel like doing.  Which they like.  A lot.  But the Affordable Care Act is a whole different animal.  Where Democrats are being like parents.  Telling the young Democrat voters that they can’t do everything they want to do.  Because they’re forcing them to buy something they don’t want.  Which isn’t their parents’ welfare program.  From the few/rich/old to the many/poor/young.  But more of a welfare program for their parents.  Making it more difficult for the young Democrat voters to embrace Obamacare.  Which is why they aren’t.  And why the math won’t work for Obamacare.  Because the welfare flows in the wrong direction.

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Hugo Chávez’ Socialism made Venezuela a more Violent and Dangerous Place

Posted by PITHOCRATES - December 28th, 2013

Week in Review

The Democrats have a mission.  To reduce the income disparity between rich and poor.  To reduce the rate of violent crime.  For the only reason people ever hurt one another is because they are wanting for the basic necessities in life.  And they sometimes take them forcibly from those who have them.  But if there is no income disparity there is no rich and poor.  So no one would ever hurt anyone.

Which is why Democrats work so hard to reduce the income disparity between rich and poor.  Their tool?  Income redistribution.  From those according to ability.  To those according to need.  Like Karl Marx wanted to do.  But socialism never really caught on in the United States.  As most Americans see the abject failure it has been.  But this hasn’t stopped other nations from experimenting with it.  In 1999 Hugo Chávez became president of Venezuela.  And he proceeded to make Venezuela socialist.  Here are some highlights of his work pulled from Wikipedia:

Following Chavismo, his own political ideology of Bolivarianism and Socialism of the 21st Century, he focused on implementing socialist reforms in the country as a part of a social project known as the Bolivarian Revolution. He implemented the 1999 Venezuelan Constitution, participatory democratic councils, the nationalization of several key industries, and increased government funding of health care and education and made significant reductions in poverty with oil revenues.[1][2] The Bolivarian Missions have entailed the construction of thousands of free medical clinics for the poor,[3] the institution of educational campaigns that have reportedly made more than one million adult Venezuelans literate,[4] and the enactment of food[5] and housing subsidies…[6]

Closely aligning himself with the communist governments of Fidel and then Raúl Castro in Cuba and the socialist governments of Evo Morales in Bolivia, Rafael Correa in Ecuador, and Daniel Ortega in Nicaragua, his presidency was seen as a part of the socialist “pink tide” sweeping Latin America. Along with these governments, Chávez described his policies as anti-imperialist, being a prominent adversary of the United States’s foreign policy as well as a vocal critic of US-supported neoliberalism and laissez-faire capitalism.[8] He supported Latin American and Caribbean cooperation and was instrumental in setting up the pan-regional Union of South American Nations, the Bolivarian Alliance for the Americas, the Bank of the South, and the regional television network TeleSur. Chávez was a highly controversial and divisive figure both at home and abroad. On occasion he used undiplomatic language towards other world leaders, having compared US president George W. Bush to a donkey[9] and the devil.[10]

Hugo Chávez created a socialist paradise in Venezuela.  One that would have pleased the father of socialism.  Karl Marx.  Chávez destroyed the income disparity between rich and poor.  Making the people happy.  Where they linked their arms together and sang Kumbaya.  Like the hippies in America did as they lived in their socialist/communist communes.  So you think the people would be living together in a brotherhood of man.  Like John Lennon sang about in his song Imagine.  No possessions.  No greed or hunger.  Just everyone living as one.  So how is that socialist paradise?  Well, the people aren’t living as one in a brotherhood of man (see Venezuela’s Homicide Rate Rises, NGO’s Report Says by the AP posted on ABC News).

A non-governmental group that tracks violent crime in Venezuela says the country’s homicide rate has risen again in 2013 and has quadrupled over the past 15 years.

The Venezuelan Violence Observatory estimates that 24,763 killings occurred this year, pushing up the homicide rate to 79 per 100,000 inhabitants. It was 73 per 100,000 people in 2012. In 1998, the rate was 19.

The more Chávez made Venezuela socialist the more violent crime there was.  That’s not what’s supposed to happen according to the Democrats.  It’s supposed to create a brotherhood of man.  Like John Lennon sang about.  Not make more people kill each other.  Apparently not only was Karl Marx wrong.  But the Democrats are wrong, too.  Imagine that.

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President Obama is Good for Wall Street but Bad for Main Street.

Posted by PITHOCRATES - December 8th, 2013

Week in Review

The unemployment rate fell from 7.3 to 7.0 in November (see Table A-1. Employment status of the civilian population by sex and age).  With the government reporting 203,000 jobs created.  The economy must be turning around.  Things are getting better.  Especially for rich people (see Not fully inflated posted 12/7/2013 on The Economist).

TALK of bubbles is in the air again. The Dow Jones Industrial Average has hit an all-time high. A loss-making technology firm (Twitter) has floated its shares on a flood of investor demand. Private-equity groups are buying companies using amounts of debt not seen since 2008. A record price (more than $50m) has just been set for a penthouse in Manhattan. A triptych by Francis Bacon became the most expensive piece of art sold at an auction when Christie’s flogged it for $142.4m last month. Robert Shiller of Yale University, who correctly identified bubbles in tech stocks in the late 1990s and in property in the 2000s, has expressed unease about giddy American share valuations.

All this suggests that wealthy investors have become increasingly confident.

The rich sure are getting richer under President Obama.  But that’s Wall Street.  Where if you have friends in Washington you do well.  And Wall Street has a lot of friends in the Obama administration.  But what about Main Street?  How are the rest of us doing?  Who don’t have friends in Washington looking out for us?  Well, when President Obama took office there were 80,507,000 that were NOT in the labor force.  Under the economic policies of President Obama this number rose to 91,273,000.  Meaning that President Obama has destroyed 10,766,000 jobs since he became president.  It will take another 53 months at this pace to replace the jobs President Obama’s policies destroyed.  Or 4.42 years.

This is how Main Street is doing.  Not good.   Unlike the rich.  Who are doing very well buying and selling assets by borrowing cheap money.  Courtesy of the Federal Reserve’s quantitative easing.  Basically printing money.  Making more of it available to borrow.  And because there is so much available to borrow interest rates are near zero.  Allowing the rich to borrow all the money they need to buy and sell assets with.  And as the Fed devalues the dollar it takes more of them to buy those assets.  Allowing the rich to reap huge profits when they sell.  Following the simple strategy of ‘buy low’ and ‘sell high’.  But that inflation also raises the prices of our groceries.  Which consume a larger portion of our paychecks.  Which makes us, those on Main Street, poorer.

President Obama.  Good for Wall Street.  Bad for Main Street.

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If you’re Rich you’re doing well during the Obama Presidency

Posted by PITHOCRATES - June 9th, 2013

Week in Review

The rich continue to get richer in the worst economic recovery since that following the Great Depression.  And it’s a Democrat in the White House.  Who said he was the champion of the middle class.  But the facts sure don’t bear that out (see Tim Carney: Conservative reformers should fix the rigged game by Timothy P. Carney posted 6/4/2013 on The Examiner).

The game is rigged against the regular guy in America today. And it’s rigged in favor of big business, the politically connected, and the wealthy…

Corporate profits soared to a record $1.73 trillion annualized rate in the first quarter of 2013, more than triple what they were in 2001, according to data from the Bureau of Economic Analysis.

Banks made a record $40.1 billion in profits in the first quarter, 16 percent higher than a year before, according to FDIC data…

And how’s the regular guy doing?

New business formation continues to fall to record lows. In 1980, nearly half of all firms were less than five years old. The latest data from the Kaufmann Foundation puts that number at about one-third.

And the working man isn’t faring better. Unemployment, while improving, is still high. Maybe worse is the collapse of median household income — down more than 7 percent since 2008, and it is not noticeably climbing.

Wait a minute, did I miss something?  I thought President Obama won the 2012 election.  Not that rich guy with Wall Street friends.  Mitt Romney.  For this is exactly what President Obama warned us would happen if we elected Mitt Romney.  The rich would get richer.  And the poor would get poorer.  And here that is happening under the Obama presidency.  Guess Mitt Romney isn’t the only rich guy with friends on Wall Street.

Meanwhile, federal spending hit a record 26.9 percent of GDP in 2010. While it dropped a bit to 24.8 percent in 2012, that is still higher than any year between World War II and 2009 and 18 percent higher than the average year from the previous five decades.

So it’s no surprise that seven of the 10 richest counties in the United States are in the Washington, D.C., area. Revolving-door lobbyists and government contractors are living the high life in McLean, Georgetown, and Great Falls.

The game is rigged, and conservatives can point out that the chief game rigger is government. The tax code is convoluted, regulations are terrifying, big businesses that fail get bailed out while small entrepreneurs get crushed by bureaucracy…

Republicans ought to abolish corporate welfare, including subsidies for exports and green-energy projects. Break up the big banks. Get rid of corporate tax credits.

Politically, these policies checkmate Democrats because corporatism is at the heart of President Obama’s economic agenda. Subsidies for Boeing, Chrysler and General Electric are the building blocks of Obama’s “New Economic Patriotism.” Obamacare was built in collusion with drugmakers and the hospital lobby.

So big government policies help, surprise, surprise, big government.  Where we are but pawns in their game of ruthless power acquisition (as in the IRS harassing those Tea Party members).  And accumulation of wealth.  For it’s all about them.  Those in government.  And those connected to those in government.  Sure, they’ll throw a few alms out to the poor.  Some free birth control to young voters.  Not enough of anything to improve their lives.  But enough to keep them happy.  And voting Democrat.  While they laugh.  All the way to the bank.  And then back to their plush estates in McLean, Georgetown, and Great Falls.

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