France discourages Job Creation with a Short Workweek, Confiscatory Tax Rates and Banning Emails after 6 PM

Posted by PITHOCRATES - April 12th, 2014

Week in Review

For socialism to work you need businesses to provide jobs.  Because without people working the government can’t have confiscatory tax rates to fund a massive socialist state.  You’ve got to have jobs.  Which confiscatory tax rates tend to discourage.  For business and rich investors don’t want to pay confiscatory tax rates.  François Hollande ran on a socialist platform in France.  Promising to raise taxes to bring down the deficit.  Which he did.  Raise taxes.  But it didn’t lower an unemployment rate stubbornly staying above 10%.

High taxes and a poor economy caused the socialists to lose elections.  So Hollande is putting together a tax-cutting package.  To reverse their electoral losses.  You’d think the socialists would have learned their lessons that the people want jobs.  And to have jobs you need a business-friendly environment.  Which something like this is not going to help (see France bans work e-mail after 6 p.m. by John Johnson, Newser, posted 4/11/2014 on USA Today).

France already has a 35-hour work week, and a new rule is designed to make sure that it doesn’t start shading toward 40 hours because of work-related e-mail.

The Guardian reports that the rule forbids workers from checking their phones or computers for work stuff after 6 p.m., and it forbids employers from pressuring them to do so.

The move apparently doesn’t affect all workers in France, but it does cover about 1 million workers in the tech industry — including French employees of Google and Facebook…

At Fox Business, a U.S. labor expert finds it hard to believe the IT industry can manage such a draconian shut-off time.

“There’s always something going wrong off the clock — when a computer goes down, it doesn’t go down between 8 a.m. and 5 p.m.”

It’s yet another thing to discourage business.  Things happen after hours.  Can you imagine a business wanting to open themselves to that kind of liability?  Having someone in the company send out an email without checking the clock first?  Or someone working late into the evening to catch up on a project.  Sending out a bunch of emails so people could read them first thing in the morning.  If someone else is working late do they read this email?  Perhaps this person was waiting for this email and would like to address it that evening to reduce his or her workload the following day.  Would this worker have been pressured into reading the email knowing his or her boss would have appreciated the extra effort?

There’s a reason why General Motors (GM) went bankrupt.  Well, there are a few of them.  But one of them was costly workplace rules.  Such as only allowing an electrician to change a light bulb at a work station.  Even if the person at that workstation could have changed that bulb in a couple of minutes.  Instead of waiting an hour or so for skilled trades to come around to unscrew the burnt out lamp and screw in a new lamp.

These little workplace rules add up.  And though seemingly harmless when you look at them one at a time in the aggregate they increase the cost of business.  A lot.  Just ask GM.  Something businesses look at when they are considering the location of a new factory.  Whether to expand production at an existing factory.  Or whether to shut down a factory and move production out of the country to a more business-friendly environment.  Thus killing job creation.  Jobs the socialists need for people to have so they can pay confiscatory taxes on their earnings.

A business unfriendly environment will never lower the unemployment rate.  As the socialists in France have proven.  And left-leaning governments everywhere have proven.  Confiscatory tax rates do not attract businesses.  Or rich investors.  They discourage them.  And encourage them to take their money and invest it elsewhere.  And create jobs elsewhere.  In another country that is a little kinder to business.  And job creation.

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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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Guns, Butter and Abortion

Posted by PITHOCRATES - February 24th, 2014

Economics 101

Democrats will cut Defense but not Entitlements because fewer People in Defense vote Democrat

A cornerstone of the Obama presidency is social justice.  Primarily through redistribution of wealth.  Raising taxes to fund a growing welfare state.  To help those not lucky enough to have won life’s lottery.  Such as expanding the food stamp program (Supplemental Nutrition Assistance Program).  Which has grown over 70% under President Obama.

Of course, this costs money.  A lot of it.  Added on top of an already costly welfare state.  Driven by entitlement spending.  Social Security.  And Medicare.  The biggest portions of federal spending.  And it only keeps growing.  Making the welfare state unsustainable without entitlement reform.  But the politicians won’t touch entitlements.  The third rail of politics.  Because they’re afraid of losing votes in the next election.  So they’d rather the country implode instead of reforming entitlements.  And hope that implosion comes after they’re dead and buried.  For as long as they get to enjoy their lives they could give a rat’s behind about future generations.

But they will touch defense spending.  And often do when they are looking for more money for the welfare state.  Even now.  The Obama administration is proposing spending cuts in defense spending.  That will shrink the size of the military.  And cut pay and benefits for some of the lowest paid people in the country.  The people who go in harm’s way for their country.  They won’t touch entitlement spending because it may hurt people that typically vote Democrat.  But they have no problem doing just that to those who wear a uniform to serve their country.  Who don’t always vote Democrat.  Just so they can have a generous welfare state like the European social democracies they so admire have.  Who can have them because they don’t have large defense budgets.  For the United States has been protecting them since World War II.

People can’t pay Taxes to fund a Welfare State without a Job that Provides an Income to Tax

If you watch television you’ve probably heard New York State’s commercials to attract new businesses to New York.  Where the state is promising that businesses will be “100% tax-free for 10 years.  No income tax, business, corporate, state or local taxes, sales and property taxes, or franchise fees.”  Which is a clear admission from the state with the second highest tax burden in the country that high taxes hurt business.

The tax burden is so great in New York that some businesses have moved their operations out of state.  And people with vacation homes in New York who only visit them a couple of weeks out of the year are selling them.  As the state is taxing their incomes as if they are permanent New York residents.  But despite these high taxes New York has suffered great budget deficits.

New York City is a Democrat city.  Their high taxes pay for a large welfare state.  A large public sector.  And the enormous costs of their public sector benefits.  In particular, health care and pension costs.  But their high tax rates have shrunk the tax base.  Because people can pack up and move out of state.  Just as businesses can.  Which is why they are doing a 180-degree turn on taxes.  In a desperate attempt to get businesses to come to New York.  For even if these businesses aren’t paying taxes their employees will.  Income taxes.  Sales taxes.  Property taxes.  Liquor taxes.  Cigarette taxes.  Etc.  None of which they can pay if there are no jobs to give them an income the state can tax.

The Number of Abortions is having a Direct Impact on the Economy and Tax Revenue

New York City released its SUMMARY OF VITAL STATISTICS 2012 THE CITY OF NEW YORK PREGNANCY OUTCOMES this month.  In it you can find why New York City, New York State and the federal government are having such a difficult time paying for their welfare states.  It’s because of liberal Democrat policies.  Not on the spending side of the equation.  But on the revenue side of the equation.

In 2012 there were 73,815 abortions.  Which are future taxpayers that weren’t allowed to be born.  That’s right, before anyone pays the high tax rates of a welfare state they have to be born first.  And when they are not born that’s future tax revenue the government cannot collect.  If we look at a 20 year period (about a generation) and assume 73,815 abortions each of those 20 years that’s 1,476,300 people that never will pay taxes.  If they earned on average $30,000 each that’s $44,289,000,000 of economic activity they never created.  And at a New York State tax rate of 11.7% that’s $5,181,813,000 in lost tax revenue for the state.

But it gets worse.  If you divide this number by two you get the total number of couples (a man and a woman) that could have started a family.  If each couple had 3 children this lost generation could have brought in another 2,214,450 taxpayers into New York City.  Adding them to their parent’s generation and assuming a median family income of $53,046 (an older generation established in their career earning more and a younger generation just starting their career earning less) brings the total lost economic activity for these two generations of possible New Yorkers to $195,779,524,500.  And lost tax revenue for the state of $22,906,204,367.  So the number of abortions is having a direct impact on the economy.  And tax revenue.  Making it necessary to cut guns to pay for more butter.  Whereas if these taxpayers were born we could have both our guns and butter.  And live in a world made safe by the most powerful military in the world.  Peace through strength.  The Ronald Reagan way.  And not a world where our enemies are constantly testing our resolve.  The Jimmy Carter and President Obama way.

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The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - February 10th, 2014

Economics 101

(Originally published May 21st, 2013)

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

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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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Panic of 1907, Federal Reserve Act and Depression of 1920

Posted by PITHOCRATES - December 17th, 2013

History 101

In 1907 the Heinze Brothers thought Investors were Shorting the Stock of their United Copper Company

Buying and selling stocks is one way to get rich.  Typically by buying low and selling high.  But you can also get rich if the stock price falls.  How you ask?  By short-selling the stock.  You borrow shares of a stock that you think will fall in price.  You sell them at the current price.  Then when the stock price falls you buy the same number of shares you borrowed at the lower price.  And use these to return the shares you borrowed.  You subtract the price you pay to buy the cheaper shares from the proceeds of selling the costlier shares for your profit.  And if the price difference/number of shares is great enough you can get rich.

In 1907 the Heinze brothers thought investors were shorting the stock of their United Copper Company.  So they tried to turn the tables on them and get rich.  They already owned a lot of the stock.  They then went on a buying spree with the intention of raising the price of the stock.  If they successfully cornered the market on United Copper Company stock then the investors shorting the stock would have no choice but to buy from them to repay their borrowed shares.  Causing the short sellers to incur a great loss.  While reaping a huge profit for themselves.

Well, that was the plan.  But it didn’t quite go as planned.  For they did not control as much of the stock as they thought they did.  So when the short-sellers had to buy new shares to replace their borrowed shares they could buy them elsewhere.  And did.  When other investors saw they weren’t going to get rich on the cornering scheme the price of the stock plummeted.  For the stock was only worth that inflated price if the short-sellers had to buy it at the price the Heinze brothers dictated.  When the cornering scheme failed the stock they paid so much to corner was worth nowhere near what they paid for it.  And they took a huge financial loss.  But it got worse.

The Panic of 1907 led to the Federal Reserve Act of 1913

After getting rich in the copper business in Montana they moved east to New York City.  And entered the world of high finance.  And owned part of 6 national banks, 10 state banks, 5 trusts (kind of like a bank) and 4 insurance companies.  When the cornering scheme failed the Heinze brothers lost a lot of money.  Which spooked people with money in their banks and trusts.  As these helped finance their scheme.  So the people rushed to their banks and pulled their money out.  Causing a panic.  First their banks.  Then their trusts.  Including the Knickerbocker Trust Company.  Which collapsed.  As the contagion spread to other banks the banking system was in risk of collapsing.  Causing a stock market crash.  Resulting in the Panic of 1907.

Thankfully, a rich guy, J.P. Morgan, stepped in and saved the banking system.  By using his own money.  And getting other rich guys to use theirs.  To restore liquidity in the banking system.  To avoid another liquidity crisis like this Congress passed the Federal Reserve Act (1913).  Giving America a central bank.  And the progressives the tool to take over the American economy.  Monetary policy.  By tinkering with interest rates.  And breaking away from the classical economic policies of the past that made America the number one economic power in the world.  Built on a foundation of thrift, savings, investment, free trade, the gold standard, etc.  Where people saved for the future.  The greater their savings the more investment capital there was.  And the lower interest rates were.

The Federal Reserve (the Fed) changed all of that.  By printing money to keep interest rates artificially low.  Giving us boom and bust cycles as people over invest and over build because of cheap credit.  Leading to bubbles (the boom) in asset prices that painful recessions (the bust) correct.  Instead of the genuine growth that we got when our savings determined interest rates.  Where there is no over-investing or over-building.  Because the limited investment capital did not permit it.  Guaranteeing the efficient flows of capital to generate real economic activity.

Warren Harding’s Tax Cuts ignited Economic Activity and gave us the Modern World

Thanks to the Fed there was a great monetary expansion to fund World War I.  The Fed cut the reserve requirements in half for banks.  Meaning they could loan more of their deposits.  And they did.  Thanks to fractional reserve banking these banks then furthered the monetary expansion.  And the Fed kept the discount rate low to let banks borrow even more money to lend.  The credit expansion was vast.  Creating a huge bubble in asset prices.  Creating a lot of bad investments.  Or malinvestments.  Economist Ludwig von Mises had a nice analogy to explain this.  Imagine a builder constructing a house only he doesn’t realize he doesn’t have enough materials to finish the job.  The longer it takes for the builder to realize this the more time and resources he will waste.  For it will be less costly to abandon the project before he starts than waiting until he’s built as much as he can only to discover he will be unable to sell the house.  And without selling the house the builder will be unable to recover any of his expenses.  Giving him a loss on his investment.

The bigger those bubbles get the farther those artificially high prices have to fall.  And they will fall sooner or later.  And fall they did in 1920.  Giving us the Depression of 1920.  And it was bad.  Unemployment rose to 12%.  And GDP fell by 17%.  Interestingly, though, this depression was not a great depression.  Why?  Because the progressives were out of power.  Instead of the usual Keynesian solution to a recession Warren Harding (and then Calvin Coolidge after Harding died in office) did the opposite.  There was no stimulus deficit-spending.  There was no playing with interest rates.  Instead, Harding cut government spending.  Nearly in half.  And he cut tax rates.  These actions led to a reduction of the national debt (that’s DEBT—not deficit) by one third.  And ignited economic activity.  Ushering in the modern world (automobiles, electric power, radio, telephone, aviation, motion pictures, etc.).  Building the modern world generated real economic activity.  Not a credit-driven bubble.  Giving us one of the greatest economic expansions of all time.  The Roaring Twenties.  Ending the Depression of 1920 in only 18 months.  Without any Fed action or Keynesian stimulus spending.

By contrast FDR used almost every Keynesian tool available to him to end the Great Depression.  But his massive New Deal spending simply failed to end it.  After a decade or so of trying.  Proving that government spending cannot spend an economy out of recession.  But cuts in government spending and cuts in tax rates can.  Which is why the Great Recession lingers on still.  Some 6 years after the collapse of one of the greatest housing bubbles ever.  Created by one of the greatest credit expansions ever.  For President Obama is a Keynesian.  And Keynesian policies only lead to boom-bust cycles.  Not real economic growth.  The kind we got from classical economic policies.  Built on a foundation of thrift, savings, investment, free trade, the gold standard, etc.  The economic policies that made America the number economic power in the world.

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Birthrates and Welfare States

Posted by PITHOCRATES - October 22nd, 2013

History 101

Birth Control and Abortion hurt the Welfare State because Babies become Taxpayers

People typically have fewer children during bad economic times.  Because you have to feed and clothe kids.  Which is very hard to do during bad economic times.  Especially if you lost your job during a period of high unemployment.  Such as the Great Depression.  Or if you’re going through a period of high inflation.  Like during the Seventies.  We can see this if we look at the birthrate over the years.

Number of Children per Woman R1

(source: Population Reference Bureau)

Bad economic times (Great Depression) fewer births.  High inflation (the Seventies) fewer births.  Of course, there was something else happening during the Seventies.  Which followed the Sexual Revolution.  Women were having more sex outside of marriage.  But they were using birth control and recently legalized abortion to avoid having children.  Women were liberated.  The feminists were moving into careers once reserved for men.  And because they were having careers they were not being stay-at-home mothers raising a family.

Also during the Seventies there was the zero population growth movement.  Among many other movements.  As the hippies turned antiestablishment.  And anti-capitalist.  Preferring a communal life.  Where there was no greed or profits.  Where everyone was equal and had an equal share.  Like the communists enjoyed.  Or, rather, suffered.  The zero population growth movement protested against having babies.  And the threat they posed to the limited resources of the earth.  So they were quite happy to see the birthrate fall below the replacement birthrate (about 2.1 children per woman in the United States).  Because below this rate future generations will be smaller than previous generations.  Which will burden the limited resources of the earth less.  But it created a big problem for those who wanted a large socialist state to provide cradle to the grave welfare.  For babies become taxpayers.

Because of the War on Poverty it takes Two Incomes to raise a Family Today

We just emerged from a government shutdown that ended with an agreement to raise the debt ceiling.  Why?  Because they can’t raise tax rates high enough to pay for all of the government’s spending.  At least not without putting most everyone below the poverty line after taxes.  Which makes that declining birthrate a big problem.  For the fall in the birthrate coincided with the expansion of the welfare state in the Sixties.  As can be seen in the explosion in welfare spending following LBJ’s launching of his War on Poverty.

Total Welfare Spending 1950 - 2010 R2

(source: The Heritage Foundation)

So just as women were having fewer babies so following generations would be smaller LBJ’s Great Society gave us a new expanding welfare state.  That is, once our tax base began to grow smaller with each subsequent generation federal expenditures were growing larger with each subsequent generation.  Resulting in higher tax rates on the smaller tax base to pay for it.  And massive new borrowings to pay what our taxes won’t.  As the government took more of our earnings away median household income stagnated.

Federal Spending and Median Income

(source: The Heritage Foundation)

If you’ve ever wondered why we can’t raise a family on one income these days this is why.  It’s the growth of federal spending.  Paid for with a growth in tax revenue.  Leaving us less money to raise our families.  Requiring that second income.  This is what the Great Society gave us.  And it’s what birth control and abortion gave us.  But it gets worse.

This Year Adult Incontinence Pants outsold Baby Diapers in Japan for the First Time

The Sexual Revolution gave us a baby bust generation.  Following a baby boom generation.  Giving us an aging population.  Where more people are leaving the workforce than are entering it.  So more people are consuming taxes (Social Security, Medicare, Medicaid, etc.) than are paying taxes.  Causing a massive wealth transfer from the young to the old.  So an aging population makes it even harder to raise a family.  Especially for the young just starting their families.  Because of the higher tax rates on a shrinking workforce required to pay for that aging population.  Which can lead to worse things than a collapse of the welfare state (see Why have young people in Japan stopped having sex? by Abigail Haworth posted 10/19/2013 on The Guardian)

Japan’s under-40s appear to be losing interest in conventional relationships. Millions aren’t even dating, and increasing numbers can’t be bothered with sex. For their government, “celibacy syndrome” is part of a looming national catastrophe. Japan already has one of the world’s lowest birth rates. Its population of 126 million, which has been shrinking for the past decade, is projected to plunge a further one-third by 2060…

Fewer babies were born here in 2012 than any year on record. (This was also the year, as the number of elderly people shoots up, that adult incontinence pants outsold baby nappies in Japan for the first time.) Kunio Kitamura, head of the JFPA, claims the demographic crisis is so serious that Japan “might eventually perish into extinction”.

This is the zero population growth movement on steroids.  The Republicans in the United States shut down the government in an attempt to curtail federal spending.  As the public debt is approaching 100% of GDP.  Very dangerous territory to be in.  But if you think that’s bad it’s far worse in Japan.  As their public debt is approximately 214% of GDP.  To support a massive welfare state.  In a country where the taxpayer is fast becoming an endangered species.

This is the ultimate end of any democracy that learned it could vote itself the treasury.  As taxes rise people cut back on their spending.  And a big cost item is children.  So we have declining birthrates in developed countries with expansive welfare states.  And immigration problems.  Immigrants who come for those generous state benefits.  And governments that want to grant them citizenship.  To make them taxpayers.  To make up for that declining birthrate.  And prevent their own extinction.

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FT187: “It’s odd how we can never afford a tax cut but we can always afford new spending.” —Old Pithy

Posted by PITHOCRATES - September 13th, 2013

Fundamental Truth

The Democrats’ idea of Bipartisanship is Republican Capitulation

It’s that time of the year again.  Summer is winding down.  The weather is starting to cool.  The harvest is coming in.  The stores are already stocking their shelves with Halloween decorations.  Yes, it’s the end of the government’s fiscal year.  The time the government will run out of money unless Congress passes a new budget.  Or what passes for budgets these days.  Continuing resolutions.

This that magical time of year when Republicans and Democrats come together to negotiate the government’s budget for the upcoming fiscal year.  The give and take process where they sit down and work with each other.  Civilly.  Saying things like, “Yes, that is too costly.  We need to spend less there.”  And, “You’re right, that is important to the people and we should spend more there.”  And the occasional, “I agree.  That program is no longer needed and we can remove it from the budget entirely.”

I am, of course, lying.  These are things that are rarely, if ever, said to each other.  For when it comes to these budget battles it is always the same.  The Republicans try to be responsible and cut spending.  The Democrats then call them greedy corporate toady Nazis.  The Republicans will then suffer a general emasculation and give the Democrats their spending hikes.  And perhaps a tax hike or two.  While asking them to please like them and invite them to the cool parties.  And the Democrats will then commend the Republicans’ bipartisanship.  What others would call capitulation.  Happy that things are once again right in the world.  With the Republicans once again the Democrats’ bitch.

Entitlement Spending creates a Permanent Underclass that keeps the Privileged Class in Power

John Emerich Edward Dalberg-Acton, known more simply as Lord Acton, said, “Power tends to corrupt, and absolute power corrupts absolutely.  Great men are almost always bad men.”  And boy was he on to something there.  For something happens when some good conservatives go to Washington.  They enter a world like no other.  Nothing they could ever have dreamed of.  A world that once belonged only to the nobility and the aristocracy.  Those things Americans fought for their independence from.  And here they are.  After winning an election to rein in the kind of government spending that makes this living possible.  And they say, “What, end all of this?  Are you mad?”

So many cross over to the dark side.  Sell their souls.  Forsake their constituents.   Do great dishonor to our Founding Fathers.  All because they like the money and the power.  Especially the power.  Some resist.  Those from the Tea Party seem more immune than most when it comes to the corrupting influences of Washington.  But these people who stand on principle?  Those who serve their constituents honorably?  The left will fling every invective upon them.  A figuratively flinging of excrement.  To try to beat them down and break them.  To get them, too, to forsake their constituents.  And to join them as they drop trou and defecate on the Constitution.  Figuratively, too, of course.  At least I hope so.

So this is what makes the budget process so adversarial.  You have those who are trying to do the right thing for the people.  And those on the other side who want to corrupt these people.  To get them to quit fighting against them and to join them.  So they can maintain their privileged class.  This is what all that entitlement spending is all about.  It’s nothing but alms.  To keep the people content enough so they don’t rise up.  But not too content that they don’t fear that those greedy corporate toady Nazis may take away their meager alms.  And once they get someone to think like that they have a voter for life.

There comes a Point when Raises in Tax Rates actually Reduce Tax Revenue

The key, then, is keeping people poor.  For the whole privileged class thing those in Washington have doesn’t work unless they have poor people who need them.  Which is why they spend so much time reminding the poor how much they need them.  The Democrats in Congress.  Who are always there fighting for them.  Keeping their alms flowing.  But also keeping them poor.  Which a welfare state does well.  Because if you have enough to subsist lethargy will do the rest and destroy the spirit.  Getting the poor to accept their place as a permanent underclass.  That needs a permanent privileged class taking care of them.

There is only one problem.  This destroys lives.  People in this permanent underclass may have gone on and done great things.  They may have been doctors.  They may have been engineers.  They may have been entrepreneurs.  But they will never be those things because the left sacrificed them to maintain their privileged class.  Forever consigning them to the underclass.  So the privileged class has someone to take care of.  No matter how costly it gets to maintain this entitlement culture.  No matter how great the deficits get.  Or how great the national debt grows.

So there is another problem. As you convert taxpayers into tax-consumers you have to keep raising taxes on those remaining in the tax base.  But as you raise tax rates you put the brakes on economic expansion.  And with reduced economic activity there is reduced tax revenue.  There comes a point when raises in tax rates actually reduce tax revenue.  And we’ve passed that point.  Which is why we have record deficits.  A record national debt.  And the worst economic recovery since that following the Great Depression.  Because we are spending, taxing and regulating too much.  Which is why uncorrupted conservatives want to cut taxes, defund Obamacare, roll back other costly regulations and reduce spending.  Things the left bitterly opposes.  For doing so means we don’t need them as much as they need us to need them.

So as the budget battle commences you will hear the usual refrain from the left.  We can’t afford tax cuts.  As they equate tax cuts with government spending.  But we can always afford new government spending.  So the left will call for bipartisanship.  That is, capitulation.  And eventually make the Republicans their bitch.  Again.  And increase the national debt.  Again.  Putting the nation on the path to bankruptcy.  What the left considers a small price to pay to maintain their privileged class.  As long as that bankruptcy comes after they’re dead and buried.  After they enjoyed their time in the privileged class.  Which is why the left is also less likely to believe in God and life after death.  For it is easier to be bad when there is nothing to fear after a bad life.

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France tried the President Obama Balanced Approach to Deficit Reduction only to see it Fail

Posted by PITHOCRATES - September 1st, 2013

Week in Review

All we heard during the debt ceiling debate and the sequester debate from President Obama is that we must have a balanced approach.  Tax hikes now.  And spending cuts later.  Which, of course, means no spending cuts.  Ever.  For why would they cut spending after they got their tax hikes?  Too many Republicans got snookered by past Democrats on that false promise.

President Obama assures us that if we raise tax rates it will solve all of our problems.  But if we cut spending that’s just stupid.  Because government spending creates economic activity.  According to the Keynesian economics playbook, at least.  And President Obama is a Keynesian.  In fact, he’s so much a Keynesian that some would even call him a socialist.  But Keynesian economics hasn’t worked in America.  It didn’t work in the 1970s.  It gave us a dot-com bubble in the 1990s.  And the beginning of the real estate bubble that burst into the subprime mortgage crisis in the 2000s.  So we’ve tried Keynesian economics and it doesn’t work.  And, as it turns out, Keynesian economics that borders on outright socialism doesn’t work either (see France signals shift to tax cuts in boost to business by AFP posted 9/1/2013 on France 24).

France’s Socialist government is hinting it may appease discontent at tax rises by putting more stress on spending cuts in its fight to control the budget and boost growth…

France has so far relied on tax hikes for about two-thirds of its fiscal adjustment. Most famously it hiked the tax rate to 75 percent on income above 1 million euros.

The reliance on tax hikes has also prompted warnings from the IMF and European Commission that it should focus more on cutting spending in order to avoid snuffing out the recovery…

France’s social welfare system is funded primarily by charges on labour, burdening businesses…

A threat to nationalise a French plant owned by steel giant Arcelor Mittal to protect jobs raised concerns among foreign businesses…

The latest purchasing managers surveys by Markit found that while business activity is picking up in the eurozone overall, it contracted at a faster rate in France this month.

Francois Hollande has been president since May 15, 2012.  That’s about one year and three months.  And in that time his socialist government raised taxes.  But barely cut spending.  Just as President Obama wants to do to reduce the U.S. budget deficit.  Despite the fact that it doesn’t work.  As France has proven.

The U.S. doesn’t have to try the President Obama way.  The balanced approach.  AKA, the all tax and no spending-cut approach.  Because France has tried it in a grand way only to see it fail.  It failed so badly that they’re talking about outright socialism.  Nationalizing industry.  Because the economic climate is so anti-business in France that there is no job creation.  Because there is no business growth.  Worse, the French economy is contracting.  That’s right, while the rest of the Eurozone is seeing growth France’s economy is going deeper into recession.  Because they’re doing what President Obama wants to do in the U.S.

It’s time we purge Keynesian economics from our governments for good.  It is the source of all the great financial problems countries are having all around the world.  All it does is empower those in power.  Elevating them to elite positions.  Where they enjoy a life of plenty and extreme comfort.  While their people struggle to provide for their families.  It’s time that we return to classical economics.  Save our money and live frugally.  Creating private investment capital from our savings via a sound banking system.  Where bankers practice good lending practices without governments passing their risks onto the taxpayers.  Which is what gave us the subprime mortgage crisis.  And the worst recession since the Great Depression.

Finally, governments have to spend less.  So we can cut tax rates.  Providing the spark to ignite private investment.  Which drives business expansion.  And creates jobs.  Which is what people want.  So they can provide for their families.  Not more benefits that the government can’t pay for.  No matter how high the government taxes them.

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Preventing Future IRS Scandals is as Easy as Changing the Tax Code

Posted by PITHOCRATES - May 30th, 2013

Politics 101

The Tea Party was the Driving Force in returning the House of Representatives to the Republicans

The IRS is very powerful.  It can seize your property.  It can throw you in jail.  It can ruin your life.  There is no other arm of the government honest people fear more.  Because it is so powerful.  America did away with debtor’s prison.  Because it was inhuman to jail a person over a debt.  Unless you owe it to the federal government.  Then all of that compassion goes out of the window.

The recent scandal of the IRS targeting conservative groups is especially chilling.  For the Tea Party was the driving force in returning the House of Representatives to the Republicans.  Infuriating the Democrats.  As well as the Obama administration.  When President Obama ran for reelection in 2012 he had little to run on.  The economy was horrible.  No one was talking about Obamacare because the majority of Americans don’t want it.  It was so bad that the Democrat president had to highlight his single national security achievement—killing Osama bin Laden—while ignoring his domestic policy achievement.  Obamacare.

Then Benghazi threatened to ruin everything.  An attack on an American mission that killed four Americans.  Including a serving ambassador.  Making matters worse was that it was an al Qaeda affiliated terrorist group that was responsible for it.  This did not play well with the campaign message.  ‘Osama bin Laden is dead.  And General Motors is alive.’  President Obama had already won the War on Terror.  So he couldn’t have a terrorist attack during his reelection campaign.  So they hit the Sunday morning talk shows and said there was an anti-Muslim video on YouTube that created a spontaneous uprising.  Where average Libyans on the street then pulled out rocket propelled grenades and mortar launchers from their back pockets.  And launched a military assault on the American mission.

The IRS silenced the Tea Party during the 2012 Election by Harassing them and their Donors

You don’t hear much about the YouTube video anymore.  During the 2012 reelection campaign, though, both the president and the secretary of state pushed it hot and heavy.  Even apologized for it in a video to play in Pakistan.  And arresting the obscure filmmaker on some other charge.  And it worked.  Benghazi faded into the background.  Despite the Obama administration denying the American ambassador additional security.  And issuing a stand-down order for forces that could have gone to help the Americans under attack.  This order coming about 7 hours BEFORE the last two Americans died.  To this day we don’t know who gave that stand-down order.  And we don’t know where the president was when all of this was unfolding in Libya.

But it worked.  The misinformation spun from the White House won the president a second term.  And people started talking about what the Republicans had to do to start appealing to women and Hispanics.  For the early postmortem said that was why the Republicans lost.  They turned off women and Hispanics.  But something was wrong with that conclusion.  Because the conservative base didn’t turn out on Election Day.  That’s why the Republicans lost.  To explain that some said the problem was that Mitt Romney wasn’t a true conservative.  And he turned off true conservatives.  But that doesn’t make sense, either.  Because Romney may not have been the most conservative Republican to run for president but next to President Obama the man was practically Ronald Reagan.  There had to be some other reason why conservatives didn’t turn out like they did in the 2010 midterm elections that returned the House to the Republicans.

That was the million dollar question.  What happened to the Tea Party?  Who were so instrumental in turning out conservatives to vote in the 2010 midterm elections.  It’s as if they sat out the 2012 election.  For we didn’t hear their voice like we heard it in 2010.  And now we have a plausible explanation for that.  The IRS.  They delayed and made it so difficult to get their 501(c)(4) tax-exempt status that some just gave up trying.  Finding themselves and their donors getting IRS audits both for their businesses and their personal returns.  As well as other arms of the federal government auditing them from the Department of Labor to the EPA.

Everyone wins with a more Simplified Tax Code except those in Power who use it to Attack their Political Enemies

Did the White House coordinate this?  We don’t know.  Yet.  The IRS commissioner visited the White House 151 times.  While his predecessor visited the Bush White House about 1 time.  So that looks suspicious.  And silencing the Tea Party did help the president win reelection.  For silencing the Tea Party sure didn’t help Mitt Romney.  So it looks probable that the Obama administration used the nonpartisan IRS to attack their political enemies.  As they were determined not to suffer another Tea Party uprising like that which lost them the House of Representatives in 2010.  Right now the circumstantial evidence is pretty damning.

This is not what the Founding Fathers had in mind.  That was the point of limited government.  So it didn’t have this kind of power over people it perceived as political enemies.  And the source of this power is the complex and convoluted tax code.  That serves those in power better than the people they serve.  Allowing them to reward friends and punish their enemies.  One would almost have to believe the reason why the current administration ran the deficit up to record highs is to further empower the IRS.  By creating the need for ever more tax revenue.  And the need for more strenuous collection efforts.  Not to mention using the tax code to facilitate a permanent state of class warfare.  For the government needs this complex and convoluted tax code to make sure the rich pay their fair share.  As well as using it to reward their friends.  And punish their enemies.

So perhaps it’s time to revamp the tax code.  Some are talking about it.  As they always do.  But there is so much resistance because of the power the tax code gives those in power.  And those in power quickly shoot down any talk about a flat tax or a national sales tax as being unfair.  Regressive.  Hitting low-income earners harder than the rich.  But perhaps this is exactly what we need.  So everyone feels the pinch of the taxman.  So people won’t be so quick to give the taxman more powers.  Because a lot of low-income people don’t stay low-income.  And one of the quickest ways of raising low-income earners out of poverty is with a better and stronger economy.  And there is one thing that does that better than anything else in the world.  Low tax rates.  So let’s take a look at different tax plans for a married couple filing jointly.

Federal Taxes Current Brackets Flat Tax National Sales Tax

(For the national sales tax we assumed everything above a certain savings rate is spent somewhere in the economy.  Those who earn more can save more.  In our example the saving rates are 1%, 8%, 15%, 20%, 25% and 30 %.)

Those earning only $15,000 will pay more under a flat tax or a national sales tax.  But the IRS becomes far less intrusive and far less powerful.  Because it will be so much simpler.  Giving honest people less to fear about.  And giving those in power less power to attack their political enemies.  Making it harder for them to cheat during elections.

Also, lower tax rates will bring money sheltered outside of the country back home. Which those rich people will invest here.  To get even richer.  And probably end up paying more taxes than they were before.  Because they won’t have any need to shelter it.  While all the new jobs they create will increase tax revenue further.  Because there will be more people working and paying taxes.  So everyone will win with a more simplified tax code.  Except, of course, those in power who use the tax code to attack their political enemies.

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